Meeting European VC Champions: Collaborating with Business Angels

Michael Hansen is the CEO of the Danish Business Angels Network and joined us for a chat.

We chatted about:

  • The importance of politicians making brave strategic decisions in promoting cluster development;
  • The story of the Danish Robotics Cluster in which the first collaborative robots were hatched, counting with two acquisitions at a valuation of almost 1 billion EUR;
  • How to work with national clusters to generate deal flow and fast track deals;
  • Collaboration models between Business Angels and VCs.

If you’d like to listen to more of these meetings with European VC champions, follow the EUVC podcast.

A little bit about Michael Hansen

We were joined by Michael Hansen, CEO of DanBAN, Denmark’s leading Business Angel Association. DanBAN consists of more than 200 active Angels who collectively invest more than 30 M€ on an annual basis.

Prior to joining DanBAN, Michael was the chief architect behind the sprawling investment environment around the Danish Robotics Cluster which is broadly recognized as one of the very strongest clusters for Robotics companies in Europe if not the world.

We focus on Michael’s time taking the investor ecosystem around the robotics cluster from nothing to world class and on translating his learnings from that side of the table to relevant advice to VCs and angels. 

Standing on the shoulders of giants

The first step in building a strong investor ecosystem is to have something for people to invest in. The Odense Robotics Cluster, for example, was built upon the 30 year long history of robotics in the shipyard industry. It did so by leveraging strong cluster management capabilities. These capabilities resulted from a strong team of highly skilled business developers.

This is what really helped bridging the gap between companies looking for moneys and investors. The focus was really on making sure that companies worked together to create business cases. Michael’s view is quite straightforward. More business cases leads to more companies. More companies leads to more investment possibilities. Which ultimately led to increased investor interest. It’s basically about marketing. It’s showing all the successes in the cluster.

With that in mind, investor relations also played a huge role in the development of the Odense Robotics Cluster. In that sense, the image of a single point of contact was created. This one person who served as an entry point into the cluster for all stakeholders. Everybody with money and looking into investing in robotics, would contact this same person. By centralising all these contacts, this one person became extremely well connected and was able to quickly capitalize on synergies of the whole network.

You don’t just call a guy with money and say: “Hey, come and see us”. You need to show the whole story.

Michael Hansen

Cluster management needs to be totally aligned with the top 10 investors in a cluster/geography. Single point of contact approach leverages this.

It’s about more than just money

Michael shares that he has seen highly skilled and intelligent successful entrepreneurs, who have done it themselves, shifting gears into investing. These former entrepreneurs suddenly have a lot of money, a track record and network and want to invest themselves. unlike other asset classes, like for example real estate, they don’t want others handling their cash. This is mostly because they have had success in this area in the past. In developing startups and venture investing, they want to do it.

These emerging investors and business angels tend spread risk and work together with investors within the ecosystem; particularly, in Odense’s case, around robotics. Some of these people are extremely well connected and tap into an informal network of highly skilled individual with money and access to deal flow. Michael shared that this network can get up to 1 to 5 pitch decks every day, each person.

It’s really up to founders to screen if investors can help with more than just money. Venture success is when money, investment opportunity (i.e. deal) and guidance meet. These former entrepreneurs are in fact people who have done it before and that is worth a lot. However, one success doesn’t mean future successes.

The role of politicians in cluster development

The city of Odense was deeply involved in the development of the Robotics Cluster. The politicians made some tough decisions and were brave. They made a strategic decision, ensured funding for 5 years to deploy it and hired highly skilled business developers who actually cared about making a difference. Money, dedication and strategy made the cluster.

The money was not only sufficient, but deployed in the right manner. It had a long term perspective to it. In the sense that the cluster had enough time to develop, but also had to show some results after the first two years. tho whole business case around the cluster was quite simple. More employees means more taxes collected by the city,. And since the city cannot invest directly in ventures, this was it. It was all about matching companies with potential investors.

Business Angels in Denmark work with VCs

The Danish Business Angels Network (DANBAN) has a total of 230 members and sees around 600 deals per year. In 2019, it invested a total of 30M€ in, mostly, Danish startups. This money is really good for early stage startups and is, often, the first relevant investment being done into these small ventures.

However, there is still some work to be done. DANBAN isn’t great, yet, in showing its portfolio. This portfolio goes through the due diligence of more than 230 business angels, and consists of more than 1000 startups. It is quite clear for them that venture capitalists are quire interested in collaborating. They can be a great source of deal flow for these funds. In fact, it’s more than access, it is also knowledge. Funds can actually get to know these companies 12 to 18 months well before investing. This is really the next step in terms of collaborating with venture capitalists.

Even though the collaboration medal is still in its early days, the relationship seems to be getting stronger and stronger. Over the last 2 years, 4 new venture capital funds have joined as members.

One of the ways this collaboration happens is by funds reverse pitching into the network of business angels. This is basically an opportunity for business angels to invest directly into a specialised financial intermediary (i.e. venture capital funds).

Similarly, all partner funds are participating in the activities of DANBAN and its pitch and memo meetings. To this point, venture capitalists add value by educating investors and startups on the basics of venture investing.

The future shines bright in Michael’s opinion, and this collaboration will further develop itself and add even more values for all parties – business angels, founders and venture capital funds.

In the future, Michael wants to make this showroom and have all the basic info on all companies available. But it’s about much more than just basic business information. It’s about working on a way to show investors when portfolio companies are looking for money. The concept being that this should be done in a proactive way. Meaning, investors should have visibility of the companies before they are actually ready for the investment, so that there is more information into past venture development. By knowing, beforehand, that companies will move into fundraising, investors can actually reduce their risk.

This will not come without its challenges. Particularly in terms of privacy and data. It has to be done in a way that founders and investors are comfortable with. If it’s done right, and all stakeholders truly understand how it is done and value reaped, the impact in the ecosystem will be huge. At the end of the day, Michael sees it as a game of stakeholders relations. There are so many different people with so many interests. You really need to map out interests. But more importantly, truly grasp shared interests. These mobilise the whole ecosystem. A truly shared interest gathers support from all stakeholders and creates a synergy with a snowball effect.

Quickfire round

  • In investing across Europe, culture, language and taxation rules are second to the business case.
  • In cross-border investing, call your friends from that region and syndicate: it removes a ton of obstacles.
  • Michael is adamant on showing European VCs that Denmark has amazing startups funded by really good BAs
  • Currently, DANBAN only has 10% of the potential investors Denmark. In 3 years time, they will a have national coverage.

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