Business Angels in Germany – EIF's initiative to support the non institutional financing market

Business Angels (BAs) are an important financing source for SMEs, and seed and start-up companies in particular. BAs are even more important in countries and regions lacking an institutionalised VC infrastructure, often being the only major source of equity finance for young innovative SMEs. An important additional element of their activity is often the provision of non-financial benefits like mentoring/advice, contacts etc. However, especially in comparison with the US, the European BAs segment is still in its emerging phase both in terms of the number of active BAs and the amounts invested by BAs. Strained exit markets as well as an overall deterioration of the private wealth situation of many business angels as result of the financial crisis additionally limit the investment activity of BAs with investment activity at low levels. This paper gives insights into the BA segment with a special focus on Germany. First we introduce the concept of BA financing. In a second step we analyse the BA market in Germany. We conclude that there is a significant excess demand for early stage financing. In the third part of this paper we explain, how the EIF aims to address this by providing a flexible and timely support to the BAs market through establishing an intermediation infrastructure to efficiently leverage this investor base. This infrastructure is going to be piloted in collaboration with the German Business Angel Network (BAND) in Germany soon (launch planned in the context of the Deutscher Business Angels Tag in March 2012), with the intention to conduct a roll-out in other geographies following the successful implementation of the pilot.