By Gabriel Shin, Partnership Lead at VAUBAN
“Building cross-border angel investment is a very useful first step building a more unified EU funding market,” says Robert Mollen, counsel at Fried, Frank, Harris, Shriver & Jacobson LLP.
Here at Vauban, we agree. Business angels play a critical role in the entrepreneurial ecosystem, providing the vital capital for many startups at the beginning of their business journey. Based on Pitchbook, capital investments made by Angels in Europe amounted to €8.0bn in 2021 from €4.3bn in 2020, almost double the investment from 2020!!! 2022 continues to remain robust as angel investments in Europe amounted to €1.85bn year-to-date.
This growth can be attributed to both foreign and domestic capital as well as the expanding pool of entrepreneurs who successfully built, scaled, and sold companies and now want to invest in early stage start ups themselves. In 2022, Europe has 130 unicorns, 237 soon-icorns, and 46 exited unicorns based on a report from i5invest.
The challenges of crossborder angel investing
The challenges in crossborder investing for pan-European business angels is not a new topic. When 90 business angels in 11 European countries were surveyed by EBAN, 55% of them said cross-border investment was ‘difficult.’
This is predominantly due to a number of constraints, most notably:
- Lack of information
- Accessibility of cross-border investment opportunities
- Preference of investing locally
- Tax incentives
Europe represents a fairly fragmented landscape with different languages, laws and regulations, and even customer behaviours. But the world’s a different place to what it was even a couple years ago.
Business angel networks adapting to the new world
A survey recently found that business angels prefer the use of networking events, direct approaches from entrepreneurs, and referrals from friends and business associates to find investment opportunities.
Due to the impact of COVID and the acceleration of digitalization, business angels also had to adapt on how they invest in Europe. With the rise of various communication platforms such as zoom, slack – business angels are able to connect with other entrepreneurs and investors across the globe. They were welcomed into new online communities around Europe with like minded individuals with the same passion and missions. Technology changed how business angels source opportunities, network, and even compare businesses rather than the merits of the location of a company.
Angel networks can promote cross border investments and are able to easily communicate, share knowledge, capital, and experience to support the top deals in early stage companies in Europe. Based on a research by McKinsey issued a report that researched the top 1,000 European start-ups founded after 2000 in 33 countries, “The tech champions.” In this study, there were four notable distinct roads to success in companies in Europe.
- Network approach
- Product Approach
- Deep Tech Approach
- Scale Approach
Atlas – no longer is the success of European companies based on geography! It’s governed by the fundamentals of their business models and strategies such as gaining users, economies of scale, having an outstanding product, and or really focused R&D to commercialize scientific breakthroughs. As an investor – basing investment judgements on these merits hold a lot of weight on being able to generate a return or not.
Facilitate pan-European cross-border investments through a single platform.
Vauban helps investment networks promote cross-border opportunities by being able to onboard global investors into a simple, easy to use, and tax transparent SPV.
SPVs are set up by angel networks to participate in a fundraising round negotiated with the founder. The typical angel networks on the Vauban platform have 3-5 different nationalities of investor base investing into some of the top leading European tech startups such as Revolut, & Bolt,. The SPV structure is a pass through vehicle allowing any realized gains to be taxed based on the investor’s local tax jurisdiction.
It’s also become extremely popular for angel investing in the DACH region – (Germany (D), Austria (A) and Switzerland (CH) – where there are thriving startups ripe for investment is notoriously complex due to notary requirements. An SPV allows angels to bypass all that hassle at a fraction of the cost. That’s because just one entity signs on behalf of the syndicate, saving huge amounts of time and significant legal fees – and leaving more money available for investing.
Vauban, a platform for setting up SPVs automates the back office from legal documents, investor onboarding, banking, and administration. Leaving the Angel Investment networks to focus on what they are passionate about: finding quality deal flow and building investor relations.
Incentivize your network. Invest together and win together.
Vauban platform allows for the possibility to split carried interest to incentivise the network of angels to invest together but also win together. For example, customers may incentivize members who sourced the opportunity a portion of the carried interest or if a group of business angels conduct the due diligence – they receive a portion of the carried interest. You can slice the cake in so many different ways that everyone can win from structuring a deal.
The results are beneficial for all: startups can grow, angels can invest and Europe benefits from innovation and advancement on a global scale.
Vauban is a member of the European Business Angels Network (EBAN)