The Ascent of the European Super Angels

Like hamburgers and Coca-Cola, the U.S.-based trend of groups of angel investors banding together to form syndicates and large super angel funds, has crossed the Atlantic Ocean and landed in the United Kingdom and mainland Europe.

The movement is transforming the investment landscape for early stage and startup companies and changing the rules of the game for some VCs in Europe.

Similar to how Y Combinator, TechStars and AngelList have spawned a new kind of platform for angel investing in the United States, groups like Seedcamp, Braveheart, Angel Investment Network and Cambridge Angels in the United Kingdom, along with others across Europe, have sprung up in recent years to focus on early stage investment opportunities.

“We have definitely seen a movement towards super angel groupings,” says Sherry Coutu, grande dame of the U.K. angel community and veteran of dozens of successful early stage investments.

“There are so many examples where this is happening, with associations of angels getting together to do better due diligence, share administration, improve leverage and nurture investments,” says the Canadian-born Coutu, who last year invested in Brainient, Recurly and Timetric.

With shared investment potential comes better access to power. Angel syndicates typically nominate one of their members to take a position on the company’s board they backed, helping to ensure their investments are protected and overseen.

With operations like London-based Seedcamp, which provide investments of £50,000 ($80,000) to selected startups, other angels can observe their early progress and decide whether to invest further.

“It’s a question of learning what works and what doesn’t,” Coutu says. “If you’re an entrepreneur, a reason not to use angels is that you think they don’t have deep enough pockets and won’t be able to stay with you on the journey. So it’s in the best interest of angels to stand together.”

Just like in the United States, angels in Europe have begun to occupy territory vacated by some venture firms, which have instead concentrated on higher-value investments in later stage companies.

3i and Atlas Ventures, for example, have moved away from early stage investment. But the interface between angels and VCs, at least in Europe, appears to be free of conflict or competition for the most part, unlike in the United States.

Coutu says that she very often finds herself co-investing alongside VCs, while many angels will have some of their money invested in VC portfolios.

Anthony Clarke, chairman of the British Business Angels Association (BBAA), says that European angel activity is equal to about one-fifth of the estimated $20 billion to $25 billion invested in the United States. Clarke also says that competition between individual investors and VCs has arisen in Europe through the big-ticket activity of some large syndicates.

Simon Walker, CEO of the British Venture Capital Association (BVCA), says that he’s comfortable with the current relations among VCs and angels.

“The models are complementary rather than competitive, particularly in the current environment with the challenges faced by startups looking to raise capital,” he says. “We see the rise of super angels as an opportunity for collaboration with venture firms.”

Walker also notes that some VCs have vacated early stage funding, particularly since the global financial crisis took hold. However, he notes that “it’s important to emphasize that there are still a whole host of VCs operating in the startup space.”

If you’re an entrepreneur, a reason not to use angels is that you think they don’t have deep enough pockets and won’t be able to stay with you on the journey. So it’s in the best interest of angels to stand together.”

Sherry CoutuAngel Investor

He adds that these firms are working with super angels to “build and grow some of the U.K.’s most exciting companies.”

The BVCA accepts membership applications from angel groups, several are already members, and Walker says that his association has strong ties with the BBAA.

The financial crisis has certainly helped bring about more angel investors. But other factors have also helped to spur European angel groupings.

Historically, low interest rates have meant that investors are loath to keep assets in savings accounts; many are already highly exposed to the property and equities markets, which have performed poorly, and are looking for growth opportunities.

“We’re busier than ever,” says Oliver Woolley, partner at Envestors, an investment firm that’s also a member of the BVCA.

The U.K. government’s attitude to angel investment is broadly supportive, with the Enterprise Investment Scheme (EIS) continuing to bring more investors to the table. EIS offers tax incentives and guarantees, meaning that investors are rewarded for taking part and indemnified against some losses. A further £100 million ($161,000) Business Angel Co-investment Fund has been proposed, to inject money into areas hit by public sector funding cuts.

“This fund recognizes that business angels are the most significant source of early stage capital in the sub-£1 million ($1.6 million) market,” says Ken Cooper, deputy CEO at Capital for Enterprise, a quasi-governmental organization. “The fund would aim to act as a big business angel sharing the risk with private investors, investing as a partner alongside angel networks and syndicates.”

Both public and private resources have attempted to raise the influence and number of angels in Britain and Europe. The Angel Investment Network has 25,000 members spread worldwide, including 6,500 in the United Kingdom, 4,000 in France, 1,900 in Spain and 1,200 in Germany.

Mike Lebus, Co-founder and director of the network, argues that angels in Europe have become more professional, more experienced and more methodical in their operations, partly through television coverage of the issues.

For example, “Dragon’s Den,” a British reality TV series in which angel-type investors interrogate entrepreneurs before deciding whether to invest, has “massively increased awareness,” Lebus says. “It has encouraged entrepreneurs and given them a lot more confidence, while for investors it has made them feel they can make their own decisions and invest directly into companies rather than putting money into property or with wealth managers.”

The underlying principles of angel investing remain very close to those of VCs, Lebus says.

“They’re looking for a strong growth market, a good management team with startup, industry and exit experience, and a good exit strategy,” he says.

A further advantage for entrepreneurs, says Clarke at the BBAA, is that angels can be more hands-on, spend more time with companies and then work with VCs to attract second or third rounds of funding.

Clarke says that he would like to see even more angel investors emerge onto the scene, since the demand for funding far outstrips the supply of angel investors.

“We get 800 enquiries a year but only 5% have meetings with investors,” Clarke says.

The models are complementary rather than competitive, particularly in the current environment with the challenges faced by startups looking to raise capital. We see the rise of super angels as an opportunity for collaboration with venture firms.”

Simon WalkerCEOBritish Venture Capital Association

Time will tell whether the sense of competition and friction that has emerged between U.S. angels and VCs is replicated on the other side of the Pond.

For now, the economic hopes of the British and other European economies are partially resting on an upsurge of activity and prosperity from this once obscure but now increasingly mainstream form of investment.

Notable Angel-Backed Startups

New Energy Finance

London

Provides energy data to the financial services industry from its U.K. headquarters; was launched in 2004 and acquired by Bloomberg in 2009 for an undisclosed sum.

Ubisense

Cambridge, U.K.

Provides a real-time location tracking service, using RFID technology. The company’s technology is used in the logistics, manufacturing, military, health care and entertainment industries and in hazardous environments.

Abcam plc

Cambridge. U.K.

Produces and distributes research-grade antibodies and associated products. Also has offices in Cambridge, Mass.; Tokyo, Japan and Hong Kong.

Net-a-Porter

London

Online designer and clothes retailer, employing 600 people and distributing items by 300 brands to customers in 170 countries. It was launched in 2000 by former magazine journalist Natalie Massanet and is now owned by Richemont, the luxury goods group which acquired the company in 2010. Massenet made £50 million in the deal, after getting £850,000 in an original angel investment. Net-a-Porter was valued at £350 million at the time of sale.

Source: VCJ reporting