Nordic Angel Investing Highlights
A "typical Nordic angel" profile and angel investing stages
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Business angel investing is inspiring and fun, but very risky (50% fail). On the angel level there are only very few metrics to support the investment decision and therefore trust plays an important role when making the investment decisions. Trust is even more important when making cross-border investments as investors need to rely on the team located elsewhere. As the Nordic&Baltic region has several advantages, cultural, technical and quality, to co-invest within the whole area, the co-investment on the angel level are expected to grow. There are less technical challenges (investment platforms, etc.) and the biggest barrier is the lack of common networks.
To support the development of co-investing in the Nordic&Baltic area, NordicBAN focuses on linking angels and building deep relations. The main service is meant to support the "lead investor", which has the responsibility to close the deal on behalf of the startup (often without additional compensation). In addition to knowing your investor colleagues, an important part of the investment activity is to share angel investing best practices. The startup community should actively educate the local investors with the latest best practices (NordicBAN is happy to help!). Below some highlights about "typical Nordic angel profiles" and the main topics for angel investing stages: 1. Screening 2. Investing 3. Growth 4. Exit. We are thankful for any comments and feedback. |
A typical Nordic Angel
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Business angels are private individuals investing their own time, networks, and capital into early stage growth companies. The investment size, according to FiBAN, is approximately 20.000€ per angel/round. These investments are usually made in syndicate groups where a financing round is ca 200.000€. There are several types of angel profiles: full-time, half-time, and hobby investors. As there is no accreditation needed to call yourself a business angel in Europe, the entrepreneur should make sure not to confuse potential angel investor growth support with mentoring (altruistic) or consultation (fee). An angel receives ownership (equity) from a startup in exchange for his/her input, making their main salary through an exit.
The startup community easily forgets the role of angels when discussing startup investing. Compared to for example VCs, angels are not forced to invest and startup investing is considered for many “as an expensive hobby”. Startups often find themselves competing for the attention of an investor who spends time with other private activities. In addition, angels also know that half of startup investments usually fail, so from the entrepreneurs perspective a lot of effort is needed to close a round with angel investors. One of the main reasons for angels to invest in a startup is the emotional relation, the interest of being part of something significant and meaningful, with a potential for huge impact, which is often as important, if not more, as the financial possibilities. There is also a strong culture of “giving back” to young entrepreneurs as well as society. Find more about angels here or statistics here. |
Angel Investment Stages
Below some of the main stages for business angel investing and the key terms used. Please note that the site is under construction and developed continuously.
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1. Screening - Finding the Right StartupIt is easy to fall in love with the first company solving a problem close to you. It is import to build a wide perspective of startups and teams before the investing. There are several channels to find great companies and services to support your matching of great companies.
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Where find startups?
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There are several places where to find young potential growth companies, For those with less angel experience it is recommended to join a group that shares and discussed investment opportunities. Outside investor networks there are especial accelerators, which focus on boosting startup and are usually focused on a specific sector or region.
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How to evaluate?
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You will find a lot of check lists how to evaluate startups. Angels typically invest (very simplified) in two things: 1. The Team and 2. Scalability. In addition to these, you should consider 3. Markets, 4. Product-Service and 5. Terms.
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Due Diligence
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Both the entrepreneur and the investor should do their home work before the investment. This time used to study the company liabilities and the commercial potential, called Due Diligence, is usually the time most investors regret not doing a proper job. It is said that over 20 hours of due diligence in a investment target increases the likeliness of success by over 60%.
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What to follow?
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Some relevant tags to follow the viral Nordic&Baltic angel ecosystem:
#NordicMade #helyes (Helsinki) #cphftw (Copenhagen) #rvktech (Reykjavik) #siliconfjord (Oslo) #sthlmtech (Stockholm) #gbgtech (Gothenburg) #estonianmafia #startinlatvia #LTstartups (Lithuania) |
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New Nordic startup media
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The Nordic Web (Nordics), ArcticStartup (Nordics), Breakit (Sweden), Shifter (Norway), FiBAN's Angel News (Finland), EstBAN's angel news (Estonia), Startup100 (Finland), Slush News (Nordic), AngelChallenge's angel news (Norway), StartIn news (Latvia)
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2. Investing in a StartupAn average angel investment last over eight years so both the investors and the entrepreneur should prepare for a journey together. Investing is the "easy part" supporting the startup in it's growth goals. It is first after the investment when the real work starts and an angel should already have considered how and when is the exit most likely. Therefore you should make sure your have all the materials and steps done correctly so you don't repeat "common mistakes".
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Nordic Angel Investing - Handbook
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The Nordic Innovation has gathered the main themes to consider by angels when considering making startup investments in the Nordic environment. The handbook is gathered by KPMG.
Read more and download here. |
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Digital Tools and Services
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A summary of the angel tools and services used by business angels in the New Nordic area.
Find the whole list here. |
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Contracts
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Having the papers ready from day one helps with the later stage activity. There are several free-to-use contract templates to make sure you discuss and agree on how things are done.
Termsheet - "Pre-agreement before the final investment"
The term sheet is the document that outlines the terms by which an investor (angel or venture capital investor) will make a financial investment in your company. Term sheets tend to consist of three sections: funding, corporate governance and liquidation. SHA (Share Holders Agreement) - "The agreement between the team and the investors"
A shareholders' agreement is an arrangement among a company's shareholders describing how the company should be operated and the shareholders' rights and obligations. It also includes information on the regulation of the shareholders' relationship, the management of the company, ownership of shares and privileges and protection of shareholders. SPV (Special Purpose Vehicle) - "A separate entity to facilitate the investment"
SPV is a subsidiary company with the purpose of facilitating the parent company’s financial arrangements, including leverage and speculative investments, without compromising the entire group. That said. If the SPV goes bankrupt, the mother company is not affected. If the mother parent goes bankrupt, the SPV is protected. Usually, SPVs are used for securitization purposes and are allowed to finance, buy and sell assets. |
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Taxation
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Typically taxation is considered in the investment and exit phase. There are plenty of things to be considered so please so both the company and investor should study these in advance. Some tax elements to consider:
Tax deduction of angel investing
A country specific possibility to deduct angel investment from your personal tax. Examples are EIS model in the UK and in Norway. Tax deduction during after bankruptcy
If a startup goes bankrupt, some tax models allows the angel to make deductions. |
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Dilution
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Angels are typically considered over how they are able to maintain ownership level when larger pocket investors join later stage rounds, also known as dilution. This is part of the game but should be observed in one's personal investment strategy.
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Investment platforms
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There are several technical services supporting the administration of angels investments, especially when co-investing with partners further away. Handling documents, e-signatures, and coordinated discussions are all tools angels should actively use.
Invesdor - Investment platform
Invesdor’s Private Round service is a closed environment for business angels on the Invesdor.com online investment platform. Read more about the service here. |
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8 years
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An average angel investment lasts over eight years. Prepare and use all the necessary services to reach the growth goal aimed.
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Recruiting
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One of the main challenges for startup growth is to find new team members, especially those with coding skills. There are several initiatives to support this scouting for example "Slush jobs".
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Internationalization
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We will soon publish a list of services supporting internationalization of startups.
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4. Exit - After all the hard workIt is the job of the investor(s) to consider the upcoming exit. The entrepreneur should be so focus on building the company. Getting a startup acquired is usually hard work and many angels use external consultants supporting the starting of cooperation discussions with potential buyers.
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Full-time work
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Yep. Very seldom exits just fall down from the sky.
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M&A
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Mergers and Acquisitions: You should match with these people way before your planning to exit. To have your company sold to someone usually requires cooperations and trust among the key players. There are services available to outsource the scanning of potential acquires.
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Feedback
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We are thankful for any suggestions or feedback. You can also contact us for closer feedback.
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