This document discusses opportunities and risks for angel investors co-investing with venture capital firms (VC's) in early-stage financing. It provides an overview of Nicolas Berg and Redalpine Venture Partners, including their investment focus and portfolio examples. The document also discusses the early-stage financing gap, differences between angel and VC investors, successful investment strategies combining angels and VC's, and lessons learned from case studies.

1. Early-stage financing!
Opportunities & traps for angels
co-investing with VC’s!
Nicolas Berg, Redalpine Venture Partners!
7th EBAN Winter University !
Luxembourg – 31. October 2008!
Affärsängeldagen 2010
Stockholm 27 okt 2010
Successful early-stage investing:
Combine the best practices of
business angels and VCs

2. • About me + Redalpine 01
• Early-stage venture zone 02
• Investment process 03
• Case studies: XING, others 04
• Learnings 05
• Q&A 06
00 Agenda

3. • Founder of 8 start-ups since 1984
Borsalino 1998; 64 angels + 1 VC; sold 2000
• Angel investor in 16 start-ups 2000-2006
e.g. XING Angel Investor 2004, IPO 2006
• Partner Redalpine venture fund 2007-2015
• XING CM CH; journalist; coach@venturelab
• Swiss with norwegian roots, M.Sc. (BA)
01 About me
Nicolas Berg, Redalpine Venture Partners

4. • Redalpine invests $200k-2m in 12-15 highly
scalable European start-ups 2007-2015
• Track-record Partner: 5 trade-sales + 1 IPO
2006-2008 (multiples 7-35), 340 new jobs/$1m*
01 About Redalpine
*) Initial investment (excl. co-investors & following rounds)

5. • Restorm.com – right clearing between musicians and
creative producers
• Veeseo.com – SEO for TV & video platforms by real-time
speech to text indexing („google“ TV)
• Poken.com – digital business card connecting people,
objects and places at events
• Biognosys.ch – next generation proteomics platform to
enable personlized medicine
• Redbiotec.ch – produces virus like particles to enable
better and safer vaccines
• Insphero.com – 3D tissue production for faster and safer
drug development
01 Redalpine portfolio examples

6. • because start-ups difficult to evaluate
(you must judge people rather than paper)
• post-investment: high support need per $
• small transactions ($150k-2m)
> small fund > small management fee
• but: higher multiple if successful (>10, goal >30)
• and: 340+ new jobs per $1m initial investment
(2000-2006)
02 Early-stage financing gap
Valley of death: financing need $500k-2m

7. • Top in EU25 innovation ranking:
1. Swi, 2. Swe (EIS 2009)
• Among top 50 in world ranking of universities:
Zurich ETH (18.), Karolingska, Uppsala
• Quite good PISA results 2006 (2003):
Swi (7. math), Swe (7. reading)
• active start-up scene & top bluechips (Nestlé,
Volvo, Ericsson, Astra, Roche, Novartis, UBS)
• small home market > export oriented
02 Sweden and Switzerland
Almost equal conditions

8. 02 Early-stage financing gap

9. 02 Angels invest more than VCʻs
VC‘s
Start-up investment iceberg
• 90% from government grants, foundations,
and – first of all – angel investors
• 10% from VC funds, corporate funds or banks
• Unexploited potential: only 1 out of 200‘000
Swiss millionaires are serial angels
Start-up = (inter)national, highly scalable, innovative/high-tech company
90% from angel investors

10. • Virgin angel: low
• Fulltime angel & ex serial entrepreneur: medium
• Amateur angel, corporate manager: low
• Managing angel, hands-on: low
• Angel club without sidecar fund: low
• Angel club with sidecar fund: low to medium
• Angels co-investing with top VC fund: higher
02 Type of investors
Success rates uneven

11. • Most angel networks show a negative
performance: true for Switzerland 1999-2009
• Most angels are not successful: true
• Angels may kill a good deal: true - if VC didn‘t
enforce a proper shareholder agreement
• Angels act more emotional: true – so what?
• Avoid angels: wrong - good angels do much
more good things for start-ups than most VC‘s
02 Why some VCʻs distrust angels
Top 5 prejudices

12. • VC is rich & will say no (true - odds are 1 : 99)
• Most VC‘s don‘t invest in early-stage (true)
• A VC‘s will force you to sign his terms
(true- if he recognizes that he is the only one)
• Most start-ups will never get funded by a VC
(true - but most start-ups would fail anyway)
• A VC will not add value to our start-up
(wrong - best 25% improve odds for top exit)
02 Why most people hate VCʻs
Top 5 prejudices

13. • successful VC funds are
• managed and financed by successful former
angels/serial entrepreneurs
• systematically invite super angels for co-
investments or co-invest with them
• successful angels
• systematically co-invest with successful VC‘s or
invite them to co-invest
02 Successful combinations
VCʻs co-investing with top angels

14. • Investment Managers: Serial entrepreneurs
• Stage: early
• Business model: highly scalable
• Capital need: $500k-2m, $500k-7m in total
• Region: Zurich/Stockholm, Switzerland/
Sweden, Nordics/DACH, Europe, World
• Sectors: ICT, Life Sciences, Greentec
• Exit multiple goal: >20 bis >30 / deal (1:10)
02 Successful investment strategy
Highly scalable & diversified

15. • Sourcing: get access to deal-flow 500-1000
• Selection: Pre-screened pitches only
1. top team. 2. unique & disruptive idea.
3. clear business model. 4. moderate valuation $1-3m.
5. multiple >30 in best-case exit scenario
• Negotiating: 1. Professional lead, 2. VC terms,
3. Simple structure (board of 3, angels pooled)
• Support: Active role of lead + 1 co-investor
• Harvest: Plan, seek & go for top exit from start
03 Investment process
Top 5 criteria of winning angels

16. • 500 times no within 5 min = $ 5‘000
• 450 times no within 30 min = $ 15‘000
• 50 times face-to-face (8h) = $ 30‘000
• 2-5 deals after due dilligence
technology, market & team = $ 50‘000
• Total $100‘000
03 Sourcing and selection
Deal-flow of 1000: Quantity provides quality
Annahme von CHF 500/Manntag (CHF 10‘000/Monat)

17. 03 Negotiating
Term sheet, due diligence, legal
• 4 days term sheet negotiation $ 4000
• 1-2 days lawier $ 3200+
• 1 day legal/financial due diligence $ 2000
• expenses $ 1800
• Total $ 10-20k

18. 03 Post-investment support
by lead investor till exit
• 0.5 - 1 days / week per portfolio company
• 5 investments = 50-100% job
• 10 investments = 100-200% job
• Total for 10 investments: $ 120-250‘000

19. 03 Total cost per portfolio of 10
annual cost of early stage investing
• Sourcing & selection $100‘000
• Negotiating & legal $ 20‘000
• Post-investment support $ 200‘000
• Total annual cost: $ 320‘000

20. • since 2001 we were pro-actively searching for
a social network (SN) investment opportunity
with a good business model
• After looking at 5 other SN, we met XING in
2004 and become lead angel (1st rd €500k)
• we developped model for world-wide roll-out
in Switzerland as XING Country Managers
• 2005 XING accepts €5m from VC in a pre-IPO
round – 2006 IPO at €200m valuation
04 Pro-active sourcing & support
Case study 1: XING

21. • Lead investor was an unexperienced angel
• Lawiers bill of >$ 50‘000 (!)
• Big3 company (!) mandated for accounting
• headhunter (!) mandated CMO & CFO search
• later early-stage VC took lead, initiated more
cost efficiency & tuned strategy, and syndi-
cated 2nd rd (VC, super angel, corporate VC)
04 Challenging examples
Case study 2: Project T

22. • 1st round by 2 angels (ex big pharma)
introduced by VC, they convinced a difficult
co-founder to leave and sell his shares
• Then early-stage VC joined first round and
added additional terms & shareholder agr‘t
• 2nd round with foreign VC and super angel
• after 3 years big pharma shows interest
beyond joint research (exit signals)
04 Challenging examples
Case study 3: Project Q

23. • Top angels and VC‘s hand in hand
• Outsource sourcing & pre-screening
• Check pre-selection, trust your intuition
• Check terms
• be active in post investment phase
• diversify in 10+, sectors, time-wise
05 Learnings for angel investors
Fulltime, quality, diversification

24. 05 Q&A
Any questions?
• Thanks for your attention

25. • follow serial entrepreneurs (ICT 25-50y, LS 35-70y)
• 7 years for angel investment learning curve
(faster in business angel network or with VC)
• Diversify on >7 start-ups
• keep 50% for next round
• talk with VC‘s (some are human beings)
• Read*, speak, publish
*) Amis: Winning Angels;
Guy Kawasaki: The Art of Start
06 Winning Angels
Bonus tips

26. Instrument Return* Risk Liquidity
Gold ?% quite high high
Cash** 2% low high
Real Estate 4% moderate moderate
Bonds-CHF 3% moderate medium
listed Equity 7% quite high moderate
VC-early 20% high low
PE-leverg 20% very high low
02 Risk and return
*) in the long run
**) your currency

27. • Team team team: Can it implement the vision?
• Product/market: No-brainer? Disruptive?
• Business model: Who pays whom how much?
• Can I provide an added value for this deal?
• When can I sell my shares to whom?
(multiple high enough? Higher than 20?)
06 Investment criteria
More bonus tips

28. • 50% eat too much and move to little
• Organic Food that keeps you smart & slim
• 50% of ads wasted – never again!
• Media: We spend 5 out of 10h with new media
• Multimedia- & Meta-Search (Mediaclipping, Swoodoo)
• Vertical Social Networks (Quevita, Triphunter)
• Connecting Devices & Toys (DoYouPoken)
• 3D Virtual Apps (WoW, 2L, Starfruit, vMeet, vLearn, vShop)
08 Trends for pro-active sourcing