Business angels are a key part of the venture capital cycle and a vital source of deal flow for VCs, according to a survey by the Danish Business Angel Network and the Danish Investment Fund. From a survey of 76 business angels in Denmark, total financial assets of these angels totalled €400 million to €500 million. Of these angels, 63 per cent have financial assets of up to €2.7 million. This group of angels has started a total of over 200 companies.
The Danish government is supporting business angel activity with the creation of its national business angel network, the Danish Business Angel Network (DBAN), which matches business angels and entrepreneurs through regional angel networks and an Internet-based matching service, Markedspladsen (The Marketplace). The typical business angel in Denmark is a serial entrepreneur with a strong entrepreneurial background. Sale of companies is the main source of their own financial resources.
The survey reveals that business angels think it is more difficult for companies to find and identify angels than the other way round. Around 40 per cent of angels find it difficult to identify potential entrepreneurs and investment possibilities.
As far as syndicating deals goes, business angels will syndicate investments with other business angels and VCs, but this is sometimes problematic, says Kim Forum Jacobsen of the Danish Investment Fund. “Syndications have some problems – the willingness to invest with VCs is 50/50. Some are reluctant to invest with VCs as they are afraid of being pushed out, while the VCs sometimes think the business angels want too much.” But this needs to be resolved, he says. “VCs need business angels otherwise they won’t have a pipeline of deals coming in – there is a shortage of seed funding. Whether they can work well together remains to be seen because they both have vested interests.”
A total of 66 per cent of angels have co-invested with other investor types within the last year, revealing that Danish angels syndicate more than their British counterparts, but less compared to business angels in the US. When business angels syndicate, it is more likely to be with other angels. One-fifth syndicate with venture capitalists. The angels surveyed describe the relationship with the formal venture market as being valuable, although they acknowledge that any collaboration with VCs is not without problems. The angels fear there is a serious risk of their stakes in companies being washed out when the venture capitalist enters the investment, according to the report.