The corrolory of this, of course, is that starting up a successful business has to become more science and less art.

This view was admirably expressed by Nic Brisbourne in his recent blog ‘its is getting easier to startup’.

He lists Steve Blank and Eric Ries as key contributors to this as well as quotes from Marc Andreesen’s interview in the WSJ where he said

“I think entrepreneurs are getting better and better,” he said, “better educated, better trained, better informed, better networked”

So, is the same happening to the Business Angel sector?

Yes!

In the Business Angel sector, angels who like to be involved in startups are engaging with accelerator programmes or setting up and running one themselves.

This has a few advantages

• the business angels get to know the teams over 10 or so weeks – to see if they can resolve problems and challenges and keep moving forward
• the idea gets formed by real market experience (hopefully) and therefore becomes established or de-risked. Of course, if this doesn’t happen, then the idea – no matter how good – doesn’t get backed
• the business angel build relationships with the management teams so that the entrepreneurs themselves understand what the angel brings

This method of engaging de-risks the investment for both parties – the entrepreneurs swapping equity for cash – and the business angel swapping cash for equity.

And, an investment process which is de-risked is easier to understand and therefore has a greater chance of going through.

Hence, the more intelligent business angel strategy is actually very simple – get to know your investment and the entrepreneur team, it is the best way to de-risk and deliver a paper ‘lite’ due diligence process.

So follow your exec team for a bit – before you hand over your money. A startup accelerator programme is a great way to do this….

Legislation is moving in the USA and the UK to make business angels of us all – and that is, to allow crowd funding.

We want to help the USA and UK governments decide about crowd funding – so please take our short survey below.

Your answers will remain confidential and we will only contact you if you have requested it.

Business Angels investing in startup UK companies are gearing up for tax breaks of between 50 and 78% for investments which are made after 6th April 2012.

The UK government has made it a priority to get funds into small fledgling businesses and will offer a 50% rebate – even if the individual making the investment isn’t paying 50% income tax.

What is more, if you make a capital gain in the tax year 2012 / 13 and invest that money in a startup, then you’ll also get the 28% capital gains relief – a massive 78% relief in total.

You can read the detail of the UK government scheme here (Seed Enterprise Investment Scheme or SEIS)…

There are a few restrictions – but they are relatively minor – ie

• smaller companies, those with 25 or fewer employees
• companies with assets of up to £200,000,
• carrying on or preparing to carry on a new business;
• directors who invest in their companies;
• annual amount of investment limited to £100,000 per investor, with unused annual
• amounts able to be carried back to the previous year
• investment limit of £150,000 for the company on a cumulative basis, not an annual limit

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Want access to Business Angel deals? If you are a high net worth or sophisticated investor, then you may attend our investor evening on the 22nd February.  Please contact us for details…

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A new year is a good time to take stock and look around to see where the best investment opportunities will come from in the year ahead.

There are now some well established trends – mobile, data and cloud solutions – are all creating new investment opportunities for angel investors.

However, the opportunity to enter the social media space is (or has) closing according to Nic Brisbourne in his equity kicker blog.

Instead, Brisbourne is highlighting the enterprise software sector as the area of greatest opportunity.

What Brisbourne is saying here is that the scale required to deliver rapid software developments has shrunk and therefore, small players can deliver just as quickly as larger players.

In addition, smaller teams – here I’m talking about less than 100 people, possibly many fewer – can probably make a bigger impact than huge teams – which was the preserve of the large software development companies.

We might wonder on the cause of this change, but it is only reflecting that most entrepreneurs have know for a long time – that is, open source and cloud based software beats the heck out of proprietorial sofware with its lock ins etc….

It also means that more income will be earned from intergrating and installing software, rather than originating it. So, more cash for consultancy, less for software sales – unless, the software is sold as a SaaS on a subscription basis.

Here Brisbourne points out that rapid development also allows systems to be delivered and earning revenue earlier – which again, opens the market up to smaller and more nimble players.

Essentially, the cloud is removing the benefit of scale – and that no matter how many users or how large your sales or distribution team, everyone is equal. As soon as the software updates are uploaded on the cloud, every customer has the latest!

Hence, the time for small software companies – using agile development techniques and cloud deliver – 2012 should provde to be a great year.

All net new jobs in the US, since 2006, are the result of startup companies less than five years old.

They created 44 million US jobs over the past 30 years.

Thanks to all the business angels, entrepreneurs, and venture capitalists that made this possible.

Launching the first phase of a startup business – or for a business angel, preparing to invest in one – requires an assessment of three things – product, market and team.

Equally, it is well understood that the first stage of product development is a prototype, a beta version, or more recently, a minimum viable product.

But, does the same apply to the market and the team too?

Well, yes, it does…

So what would a minimum viable market look like?

Steve Blank is the person who came up with the concept of ‘customer development’. This was because he used tech developer concepts of agile development to argue that the product needs to be developed rapid and quickly and that equally customers need to be developed too – quickly and rapidly.

In effect, Steve Blank argues that customers are developed through a series of contacts or product developments or iterations.

So, what would count as a minimum viable market (customer) or minimum viable team?

Let’s start with the minimum viable market. Steve Blank says that this is not a focus group. In other words, it is not about collecting desires or wants from potential customers. Instead, it is about selling a product.

The best description I’ve heard is; one product sold, one happy customer, one referral.

… and the happy customer can’t be your mum (or dad). Instead, it has to be a real / non-family / customer without vested interests who pays and is willing to provide a referral (ie a lead to another potential customer).

The referal bit is critical, as it confirms that the customer is still happy after they’ve bought the product. Hence, slick marketing and a poor product won’t deliver a happy customer after the event.

Minimum viable team

So, moving to our third test – minimum viable team – what might that look like?

Again, business angels and early stage venture capitalists understand that the team will not be complete in the early stages of a startup business.

So, what is the minimum viable team? Most business accelerators have settled on the view that the team must consist of at least two partners. So, solo entrepreneurs don’t count. This is based on empirical experience of seeing teams succeed far more often than solo entrepreneurs.

To this, we would add that the two partners must bring different startup abilities. For instance, a tech developer who brings in another tech developer partner does not count as a minimum viable team. Instead, there must be both the ability to invent and create along with the ability to sell and market fit.

Other abilities – such as the ability to work with investors, might be missing, but this would be the absolute minimum.

Minimum viable product

Lastly, a minimum viable product is described as an operating prototype. However, be warned, this can not be a low quality product. So, if a fashion item, it must be made with the material that you intend the final product to be created in, not a cheap imitation.

The consequence of the ‘minimum viable’ concept is that we have temporarily suspended profitability. This is not being tested at this stage. Instead, we want to know whether our product will sell and impress customers and that the team can deliver this basic element.

The question of profitability follows next – as it is tied up with scale and falling production costs, but this is typically the stage where a high potential business will require (or seek) funding. And it is a great stage at which an angel investor – with a small size investment – can have a significant impact.

Summary

So, to sum up, a viable business angel investment must consist of a minimum viable product, team and market.

The purpose at that stage of the investment is to prove the scalability of the product(s) and the potential profit margins.

For a more info, check out the 4 tips at Arena’s blog on Minimum viable product

Business angels and business angel networks are changing … and it is for the benefit of both the angel investors and the entrepreneurs!

Further evidence this week is that business angels that truely enjoy mentoring their companies are getting involved in business accelerators at NW England’s super business angel David Atherton has committed his time to Manchester’s new business accelerator – run by Idea Alive .

At the same time, this month saw Ian Merricks of White Horse Capital commit his time and business to launching and education, funding and development programme – the accelerator academy. Again, the list of mentors for this programme reads like a who’s who of London based business angels with Michael Blakey and Maria Dramalioti-Taylor leading the business angel roster.

Regardless of the business angel, Atherton in Manchester or Blakey and Dramalioti-Taylor in London, they all share a history of starting, leading and mentoring companies.

These business angels are not bankers or financiers by trade – they have built companies and want to help others (with their money) do the same again, and again, and again.

Hence, the mentoring business angels – that is, those that enjoy being involved in their startups, are focusing on the accelerators for two key reasons.

Firstly, they recognise that starting up businesses is a skill that can be developed through practical education (ie doing it – in a supportive and reflective environment) and second, the success rates rise exponentially when investors and angels take this more enlightened route.

Of course, success breds success, so expect more business angels to make more money by working with their local or regional programmes, whilst the traditional business angel networks shrink and focus on less knowledge and more asset based investments such as clean tech or, in the UK, wind farms.

Well, now we have it – the first and most effective business accelerator – Y Combinators – which began in 2005, recently valued the businesses that passed through its programme in the following 5 years at US$4.7 billion.

Clearly, that is a massive success and one that would surely beat even the best traditional business angel model.

For instance, the volume of businesses passing through is 210 – that is an average of 42 for the first 5 years.

Do even the best business angels get anywhere near these numbers?

Clearly, no – neither in terms of volumes of investments nor

Now, Y Combinator invested around 20,000 US$ in each of its 210 startups  – so that’s a total of around US$4m. Let’s just gestimate that the cost of running the programme was another US$4 for those 5 years. So, total costs US$8m.

Of course, the Y Combinator partners have also invested 5 years into helping these startups – but then active business angels would expect to do the same – so no real difference there.

Okay, so assuming an average 6% stake in each investment means that the value of Y Combinators share is US$282m.

That means US$8m has been turned into US$282 in 5 years and the partners have been paid an annual salary whilst building this cash pile. This equates to a 35 fold growth over the period.

So, let’s ask the question, how many business angels can beat this performance? Okay, a few venture capitalist who hit big home runs on Facebook etc might beat this – but, for business angels who have built up a portfolio of businesses, can you beat 210 companies and a 35 fold growth over a 5 year period?

Okay, business angels, time to join your local business accelerator?

Here is our current list of the tech startup and business accelerators based in the UK, France, Germany, Spain and the rest of Europe.

If you are a business or startup accelerator and we’ve missed you out of this list – please add your details in the comments box at the end of this article…

UK

Accelerator (London)

Accelerator Academy (London)

Acceler8.me (West London)

Betafoundry (Oxford alumi in London)

Bethnal Green Ventures (London)

Idea Alive (Manchester)

Ignite100 (Newcastle)

Oxygen Accelerator (Birmingham)

Seedcamp (London)

Springboard (Cambridge)

Springboard (London)

Start VI (Belfast)

Denmark

Startup bootcamp (Copenhagen)

Accelerace.dk (Copenhagen)

France

Le Camping (Paris)

Germany

HackFwd (Hamburg)

Hanse Ventures (Hamburg)

Startup Bootcamp (Berlin)

Greece:

The Open Fund (Athens)

Ireland:

Startup bootcamp (Dublin)

Propeller Venture Accelerator Fund (Dublin)

NDRC Launchpad (Dublin)

Israel

Lool Ventures

Venture Geeks (Petah-Tikva)

Italy

H-Farm (Treviso)

Cultiva (Lamezia Terme)

Portugal

Seed Capital (Lisbon)

Slovenia:

Seedcamp (Ljubljana)

Spain:

AthenaSeed (Barcelona)

Business Booster (Valencia)

SeedRocket (Barcelona)

Startup bootcamp (Madrid)

Sweden

Seedcamp (Stockholm)

Ukraine

GrowthUP

If you are a business or startup accelerator and we’ve missed you out of this list – please add your details in the comments box below…

Over the recent years the success of earlystage business development programmes such as Tech Stars in the US and Seed Camp in the UK, have drawn mentors into their programmes.

Mentors vary from would-be non-exec directors to PR and Marketing firms looking for new clients as well as business angels and early stage VCs.

Now, the recent report (July 2011) from NESTA suggests that there will be an explosion in accelerators in the coming couple of years across the UK and Europe.

Nesta believes that the US has 40 programmes to Europe’s 10, however Nesta predicts a 4-fold increase in European accelerators in the coming few years.

This appears to be a reasonable prediction as accelerators are cropping up in 2nd-tier locations such as Valencia, Spain.

The accelerators are also beginning to expand out from digital and tech into areas such as healthcare, meaning that accelerators are no longer limited to web based or software projects.

In fact, there is no reason why accelerators shouldn’t work for any IP or knowledge intensive business start-up. This means that only capital intensive growth sectors – such as energy or alternative energy – will remain the perserve of the business angel networks and VCs.

Hence, quickly, business angels are moving in with the accelerators – providing advice or mentoring on a free basis – as this gives them a chance to see how the team and business progress over a 10 to 13 week period.

Great for business angels

For business angels, this is a great improvement on the traditional business angel network which leaves them exposed to questions (and costs) of due diligence etc…

Instead, the accelerators have already done the hard work of sifting many propositions into a select band of 10 or so companies, of whom, 5 or more are expected to receive funding after completing the programme.

So, for those business angels who like to roll-up their sleeves and get involved in business growth, then the accelertor model provides a perfect route forward, and they no longer need the formal angel network.

Of course, the business angel who wants to maintain a more distant and hands off role in a start-up will still find the networks attractive, but will the entrepreneurs be willing to pay the costs of the network in future? This certainly is not clear.

Perhaps business angel networks will simple move away from very early stage businesses to second round funding? In otherwords, they will become more and more like traditional venture capital funds. To some degree this is already happening with large angel networks like Beer and Partners seeking capital intensive and later stage investments.

In the meantime, smart business angels are dusting down their mentoring skills and getting into bed with local business accelerators. Which begs the question, where is my local business accelerator? Find out here.

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Wanted: Business Angels to provide mentoring for early stage business accelerator in NW England

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