The best European "business angel"

Klaus Hommels was named tonight in St Gallen (Switzerland) "most successful European entrepreneurial private investor of the year". The award, attributed for the first time, is given by a group comprised of IESE, INSEAD and the University of St Gallen (three leading European business schools) together with three banks and the "angel network" BrainsToVentures.

"Entrepreneurial private investors", most commonly known as "business angels", are generally entrepreneurs who have become wealthy and invest their own money - typically sums under 2 million euros per investment - in young growth companies. They intervene early in the financing of the company, sometimes already at the stage of business concepts, taking higher risks but expecting higher returns than would be given by more traditional investments. With their past experience they usually play a rather active role in the operations of the company. "A good 'angel' is ideally someone who invests in a startup but also plays a role as a sparring partner to the entrepreneurs, telling them flatly what (s)he thinks", says Florian Schweitzer, a partner with BrainsToVentures.

Hommels - who just joined venture-capital firm Benchmark Capital as their first European partner a few weeks ago - is a typical European "angel". He worked at Deutsche Bank, then joined AOL (through the takeover of CompuServe) and was for several years member of their management board. After which he built a track record as a venture capitalist (with Apax and BV Partners) and business angel (investing among others in Sykpe - a deal that propelled him to today's award - Stardoll and OpenBC).

Angel investing, which has risen out of Silicon Valley in the last 50 years, used to be an arcane activity for geeky rich and successful entrepreneurs. It is now on the way to professionalization - and with it comes division of labour. B-to-V is a "network of angels" - some 40 of them across Europe - which share information and access to investment opportunities, and often co-invest. The B-to-V staff pre-screens the opportunities and helps matching them with the right "angels". There are other similar networks, for example CommonAngels in Boston and PI Capital in the UK. "We do see more than 1500 business plans per year", says Schweitzer. "In 2005 we did finance 12; to date in 2006, we have financed 8". This means that the "deal flow", as it is called, is accelerating - as is the overall tech investment scene.

I asked Schweitzer to point out the currently "hot" sectors in Europe. "Internet-related businesses are the focus", he said. "The web will have huge impacts on society, we've seen nothing yet". At a global level, "biotech is definitely an area with extraordinary potential, but it's generally not a field for angel investors as time-to-market may be very long and require significant financing. In the Internet, telco and industrial sectors instead, angels are often able to finance the company by themselves up to break-even". Some feel that we're experiencing a return to the pre-bubble euphoria: do you agree? Schweitzer: "No I don't. Prices are going up because the markets for IPO are opening up again, but investors haven't forgotten that morning they woke up in 2000 and 2001".