Business angel’s co-investment fund: FiBAN’s thoughts on goals and guiding principles
April 06, 2021
The Steering Group for Domestic Ownership, set by the Ministry of Economic Affairs and Employment, released its report on March 24th. As a basis for future work, FiBAN has set out some thoughts on goals as well as guiding principles for the fund.
The Steering Group for Domestic Ownership, set by the Ministry of Economic Affairs and Employment, released its report 24.3. In the report, the steering group recommended creating a business angel co-investment fund.
As the co-investment fund is still heavily a work in progress, going into the details of this fund is not feasible at this point. However, as a basis for future work, FiBAN has set out some thoughts on goals as well as guiding principles for the fund:
Goals for the co-investment fund
- Increase angel investment activity in Finland
- Raise the median angel investment round from 200.000-250.000 euros closer to 400.000-500.000 euros (reflecting the rounds in other Nordic countries)
- Invest 20 million to 30 million euros each year
- Invest in up to 200 startups annually
- Create 3.800 high-tech jobs in Finland
- Enhance syndication opportunities and increase the number of funding rounds outside the capital region
- Annualized profit of 15-20%
- Supplement European Angels Fund for those investors for whom the EAF is not suitable
Guiding principles for the creation of the fund
- Public money follows private money: The fund would not act as an anchor investor but would match an existing syndicate. Private investors would provide the deal flow, act as the anchor investors and be responsible for agreeing on the terms with the target companies. The fund would exit the investment alongside the private investors.
- Light administration and compliance: The fund should not generate an administrative burden for the investors or for the company. In due diligence, the fund should utilize the due diligence work performed by the investors as well as previous assessments made by Business Finland. The administration and compliance processes of the fund should be streamlined enough for the fund to be able to do 200 investments annually.
- Transparency: The investment process of the fund should be transparent so, that the private investors and the company can assess the suitability with reasonable certainty beforehand.
- Pre-seed rounds: The investments would be made into rounds between 100.000 and 500.000 euros.
- Equity: The investments would be made into the equity of the company. The instrument could be e.g. a non-interest bearing convertible capital loan note, which would give the financial returns of the shares (taking into account the aforementioned asymmetry) without the need of having the fund participating in the shareholder’s decision making in the company.
- Follow-on investments: In addition to the first tickets, the fund should also make follow-on investments, provided that the matched syndicate participate in the round.
- Profit-seeking fund: The fund would be profit-seeking and operate on market terms, with the exception of asymmetric profit distribution.
- Asymmetric profit distribution: In order to compensate angel investors for their contributions to the investment as well as to ensure the fund would get good quality deal-flow, the fund would forfeit part of its profits for the benefit of other investors.