RESEARCH REPORT. The three main areas of early stage investment in Europe 1

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1 Student s name: Anton Petrov Title of the digital business idea: Web platform RESEARCH REPORT The total European early stage investment market is estimated to be worth 8,6 billion Euros. Business angels represent the biggest share of the investment market with 6,1 billion Euros of investment, followed by the venture capital industry investing 2.1 billion Euros in early stages. Equity crowdfunding investments have been growing quickly and are expected to continue at a fast pace. The three main areas of early stage investment in Europe 1 CROWDFUNDING 2 Crowdfunding has become one of the hottest topics for startups looking to raise investment. Some of the industry believe it could be seen as a potential savior from bank lending. 1 EVCA 2015 ( European Private Equity Activity.pdf) 2 content/uploads/2014/09/23. The Future of Crowdfunding.pdf

2 2 Crowdfunding is seen as an increasingly attractive, democratic option of funding. Supporters of the sector point to the wisdom of the crowd. The platforms also give young startups a way to boost their profile and visibility to both potential investors and customers. The large number of people that will see, research and invest in a business means the startup will likely benefit from more publicity and greater scrutiny. This can be invaluable for a fledgling business. A business that goes through the crowdfunding process comes out stronger because of the questions asked of it and the scrutiny it is put under. As opposed to one solitary angel investor, a business seeking crowdfunding will likely be put under the spotlight by finance, technology and marketing experts in the course of the application. By taking investment into the public realm, the table felt the examination is more diverse and more probing. Such an example can be found when a company didn t realise that its brand name was already registered to another business. The research by potential investors brought this to light and led the company to rectify the oversight. The table also agreed that just because a startup doesn t succeed in gaining crowdfunding, that is not to say the business isn t viable. The investors may not be on platform, or it simply wasn t the right time. The notion of the wisdom of the crowd to scrutinize was tempered by a discussion of whose responsibility it is to check the facts and confirm the claims of a startup looking for crowdfunding. Seedrs told us they check every part of a businesses proposal line by line, making sure everything is accurate. Others argued that it is the responsibility of the investor to take their own due diligence. There was no agreement on whether the platform itself should have to investigate and confirm the business s claims. For businesses, one of the biggest problems can be communicating and engaging with investors after successful funding. It may be the case that investors are interested in the big updates, but less bothered by the smaller, day-to-day running. The platforms themselves are split on whether to remain in contact following successful funding. Many are in touch with businesses afterwards often just to see how they re getting on and improving sometimes just for press purposes. BUSINESS ANGELS 3 A business angel is a private individual, often of high net worth, and usually with business experience, who directly invests part of his or her personal assets in new and growing private businesses. Business angels can invest individually or as part of a syndicate where one angel typically takes the lead role. Besides capital, angel investors provide business management experience, skills, and contacts for the entrepreneur. Experienced angels also know that they may have to wait for a return on their investment. They can therefore be a good source of smart and patient capital. Business angels play an important role in the economy. In many countries, they constitute the second largest source of external funding in newly established ventures, after family and 3 to finance/funding policies/business angels_en

3 3 friends. They are increasingly important in providing risk capital, as well as contributing to economic growth and technological advances. Tools to promote business angel investment are the responsibility of EU countries. They should create incentives for private individuals who are willing to invest in enterprises. This should include the use of public funds to target co-investment with business angels. Angel investment in Europe increased to 6,1 billion Euros in 2015, a growth of 8,3% from 2013, remaining the main financier of European startups. The investors community grew to investors which closed deals in Overall, taking into consideration other early stage investors operating in Europe, the sector reached 8,6b of investment in The main sector of investment is still ICT throughout 2014 and 2015, followed by growing MedTech and Biotech sectors. Angel investment by country Early Stage Market Statistics 2015

4 4 The following chart illustrates the evolution of business angel investment by country. We observe that Finland, Denmark and Sweden are continuing to grow at steady rates, but Nordic neighbour Norway is still struggling to formalise and activate its business angel community, although reportssuggests this has started to change in the past year. France and Spain took a dip in 2014 but recovered in 2015, while UK maintains front-runner status with strong growth. Multiple new countries appear on this chart for the first time Latvia, Kosovo, Macedonia, Slovakia and Slovenia a good sign that business angel activity is increasing the CEE/Baltic regions. Evolution of angel investment by country ( ); Amounts in M 5 EU FUNDS 6 The EU has several different funding programmes that we may be able to apply for, depending on the nature of our business or project. There are two different types: direct funding and indirect funding. Direct funding The allocation of direct funding capital is managed by the European Institutions. There are two types of funding available: grants and contracts. 5 Early Stage Market Statistics grants/eu programmes/index_en.htm

5 5 Grants are given to specific projects that relate to EU policies, usually following a public announcement known as a call for proposals. Indirect funding Indirect funding is managed by national and regional authorities and comprises nearly 80% of the EU budget, mainly through 5 big funds that come under the umbrella of the European Structural and Investment Funds. The funds are: European Regional Development Fund regional and urban development European Social Fund social inclusion and good governance Cohesion Fund economic convergence by less-developed regions European Agricultural Fund for Rural Development European Maritime and Fisheries Fund Other funds are managed directly by the EU. These are provided in the form of: Grants for specific projects in relation to EU policies, usually following a public announcement known as a 'call for proposals'. Part of the funding comes from the EU, part from other sources. Contracts issued by EU institutions to buy in services, goods or works they need for their operations like studies, training, conference organisation, IT equipment. Contracts are awarded through calls for tender. OTHER EU FUNDS As showed in the EU funds overview, there not any other projects subsidized by EU that we can recognize to be close to our idea. One of possible reasons is the Eastern Europa is not well developed on one hand and late start of this funding on the other. The majority of people that are using these funds are doing so to support and develop a business that is not IT related. But we believe this is to be changes with the growing part of the population been involved in startups, co-working projects and NON-profit organizations. Strong case can be made about the fact that EU will support our idea Cultural Capital of Europa is coming soon. The chosen city is Plovdiv (Bulgaria and this is exactly where the app and the website will be launched. BULGARIA Own funds are one of the main element in the financing mix, used by Bulgarian companies, especially those in early development stage. Close to 40% of those rely mainly on own funds for the development of their ideas. In general, companies rely mainly on local funding sources, as the share of foreign investors stands at slightly below 30% (37% for venture capital) The lower use of conventional financing methods such as debt or EU grants is notable, as those account for 10% each. Modern funding methods such as crowd-funding are still not used widely enough, as just 8 companies declare to have used such. PLAYERS ON THE MARKET

6 6 Since the core idea is not present at the moment on the Bulgarian market, our focus will be on closest working projects. If we are to choose 3 most similar players in the market, we have to acknowledged: A. GoGuide.bg The aim for the website is to present the information in systematic way. It is divided into categories such as Places, Events, City culture, Who/What/Why, Review. In which there are more subcategories that concentrate the information in a way to address the individual needs. The content is well put together in modern layout with pictures on almost all the articles and reviews. Strong Well put together information Modern layout Paper copy distributed locally bulletin Weak Need to be concreated with the search No possibility to receive new ideas outside the search No English version

7 7 No mobile application Opportunities Include wider target groups interest Small local events Threats Facebook communities Mobile apps B. Programata.bg Another way of informing yourself for interesting events and gatherings is visiting programata.bg. This website is focused on six main topics Cinema, Stage, Music, Exhibition, Logos, Clubs and Restaurants. The information is covering five big Bulgaria cities Sofia, Plovdiv, Varna, Burgas and Stara Zagora. Strong

8 8 Information segregated by cities Modern layout Paper copy distributed locally bulletin Mobile apps English version Weak Need to be concreated with the search No possibility to receive new ideas outside the search No mobile application available (it is present on the webpage but not accessible) Calendar available only for the present and next week. Opportunities Include more cities into the loop Planning calendar in advance Threats Facebook communities Mobile apps Possibility of losing channel of distribution paper copies C. Peika.bg Peika.bg or if we decide to translate it - Bulgarian bench, is a website focus on traveling and events. The unique value proposition is presenting the possibility to explore Bulgaria and other countries in very easy and fun way. If you search throe the pages you will come across some interesting places and not so well-known cities.

9 9 Strong Modern layout Not so popular places reviewed Top 50 contest Weak No search structure No mobile application available No English version Information mostly from 2016 Opportunities Include more cities into the loop Planning calendar Threats Facebook communities

10 10 Mobile apps Loosing audience but not posting everyday TEAM In order to secure the project, the know-how needed and functions that have to be present are: IT developer Sales representative Customer service agent Management can be addressed by the people starting the project and potential split of responsibilities. For the beginning, not all the tasks will be 100% present and the people on the team will not be fully occupied. Having sad that, the core the idea requires a developer that will build the platform, define the logic, create the mobile application. So, it may not a single person, but rather a coordinator with IT background who will manage the distribute the task to a team if internal or may be external free lancers. Sales representative will be the key person when the project is ready to start getting the information from the market. This person will be the connection btw the platform and the people uploading the information. Customer service will be there when needed. It will coordinate everything from the office. Once the project go life, the search for this person may start. Task 2 WHAT DO I DO NOW? Where do I go today? Can I try something new? These are some of the questions that everyone one of us will ask himself at some point during a long week. Why not having that at one place where all the information about interesting things that we may experience or take part of, will be presented? And it is as simple as that just ask WHERE 2 GO? In the world we live in now, it is of great importance to be able to get what we desire in a timeframe that will allow us to get more things done. You may not be a local, you may not be from this country, you may not know the good places in town. Or maybe, just a drive to a new place will bring a smile on your face. This is WHERE 2 GO. App on your mobile phone, that will allow you to do a quick search how long my new adventure will be, how much I am willing to spend, how many of us will take part?

11 11 The unique value proposition is simple go and do something new! When searching for information, we tend to start from familiar place. And that s fine, but the chance of us been surprised is very low. If we are looking for a bar to grab a beer, we will miss that special night with painting and wine event. Want to get to a movie, for sure the free street screen with old Italian movie will be out of the search. But we think people would love to experience new things as well as plan their budget. Having a limited budget is not a reason to stay at home. There are plenty of options for people to do with limited or no money at all. As of today, the way to do the search is through three structured menus in few sites that have no user friendly mobile apps. This will take time and the result will partly satisfy. So who will use it? Everyone with a smart phone or computer. People that live in the city, but what to see what is out there. People that will visit the city on a business trip. People that will come for a vacation. People that want to visit something during the weekend and are willing to travel. The aim is to present something that is so easy to access. A new restaurant with dinner special. That beautiful eco path that is leading to an amazing view. Or just a walk through the city that in 3 hours will show you most of the stunning sceneries. Acquiring customers will take few steps. On the first one it will be distributed true personal contacts and local events. On a later stage, ones preparation for 2019 Cultural Capital of Europa starts, it will be advertised via tourist information centers and websites abroad that will be focused on the hosting town Plovdiv. The realistic period for starting this project is 6 months with a soft start 2 months before. During this time, we can test and get a feedback from target groups. Attending events and co sponsoring ones will be the most secure approach to attract people that will love the idea, that will help us develop it and we will turn into an early adopter. This can continue up to 6 moths during which the content will generate more and more users. The cost for retaining customers may vary from personal time especially in the beginning for the founders to listen to the customers, to adding more to the travel bill to get that new place on the map with that special wine event. Of course, retaining customer is the key. Customer relationship management is the way. No feedback will be left unanswered. No new idea will be left without discussion. The app is life will be a recreation of the experience. People will be allowed to add places and interesting events. Business owners and event managers will be able to promote. This will attract both sides to upload the content on time, so more people can take part and share the experience.