They were one of the first in Europe to set up a “side-car” fund, in 2007. In 2021, BAN Vlaanderen is launching its third angel fund, aiming for a size of 15-20 million euro, to be invested in 15-20 companies. It speaks to the way BAN Vlaanderen has continuously improved their services for the fund-raising entrepreneurs and their angels. Since 2004, some 800 angel investors have invested in a whopping 436 propositions. We spoke with Reginald Vossen, Managing Director of BAN Vlaanderen since its inception, to explore some of the most important lessons learned.
1. Improve your offer to both entrepreneurs and angels
“Why start an angel fund? An early driver for us was to improve our offer to entrepreneurs. Although our angels invest with relatively high tickets (€75k on average), there were not always enough of them to properly finance our bigger projects. An angel fund allows us to coinvest alongside our angels.
Secondly, it services our business angel members. For a ticket of €50k in the fund, you will have invested in more than 15 companies, spreading your risk. Furthermore, you can be part of those projects which are a bit too big for your liking. This is interesting in particular for two types of angels: those at the beginning of their angel journey, and those who are lacking follow-up time for next investments.
For those new angels, being part of the fund allows them to get a feel for what kind of projects are invested in, what the role of business angels are, and what potential returns might become.
On the other side, those investors who have already invested in a couple of companies and feel like they do not have more time on their hands to properly be involved in new ventures, being part of a fund still allows them to be engaged with exciting new startups and their potential returns.
In our first fund we had 40 angels, in our second we had 60. This year we are aiming for over 60 again.”
2. Be Smart With Fund Management
“Although seemingly similar, an angel fund is not a VC fund. A traditional VC is ‘later stage’ because they need a certain size to pay their management costs, via a management fee of around 2%. Moreover, they like to invest with bigger tickets, to get better absolute exit values, over which they also charge a carried interest.
Keeping in mind that qualified and dedicated fund managers are crucial to the running of a well performing fund, how do you solve the puzzle of when your fund and your tickets (and thus, your exits) are significantly smaller?
This is a key challenge for any angel fund. At BAN Vlaanderen, we look for different profiles for our fund managers: those that are professional and are experienced, but who also understand that “giving back” is part of the ride. For example, our two current managers have years of experience, are willing to do this part-time, and feel this is an interesting step in their career. Of course, we make sure to properly incentivize them through carried interest instruments – meaning they will receive a bonus after the returns of the fund reach a certain multiple.
3. Size Matters
“One of our biggest lessons learnt in the last 15 years is that size does matter. First, a larger fund allows you to have proper staffing as discussed above.
Secondly, a larger fund simply means you can diversify your portfolio with more firepower. In our first fund, only 6.7 million euro sized, we could only do smaller tickets and oriented ourselves primarily to start-ups. On the other hand, we had too much of a focus on scaling companies in our larger second fund. Like angel investing, the angel fund also knows its failures and needs to be present in both phases. Spreading is crucial!
Raising a bigger fund means it is imperative to have a large shareholder by your side. We are very pleased that the Flemish Participation Company and a second institutional investor agree with the important bridge funding we provide to our high potential start-ups and provide each up to 5 million euro alongside our angel-shareholders.”
4. Your Angels Are Your Asset – Let Them Lead
“One of the interesting dynamics we have observed is that there is a tendency for angel investors who are part of the fund, to have the fund managers take the lead in important decisions. This is understandable, because the fund managers are skilled in executing the due diligence, the presenting of the projects to our investment committees (in several rounds), and the portfolio management.
However, it is the power of the “wise money” of the angel investors that will eventually make the angel fund successful. We need to leverage on their expertise, experience, and network to make sure the best deals are presented, and the best follow up to the investments is given.”
5. Dealflow is Key – But Follow On Too
“A lot of funds cannot invest all of their money because of the lack of good deal flow. BAN Vlaanderen’s recognition in the market means that we have over 500 start-ups applying to our network per year. In principle, it is this quality and exclusive deal flow that is brought to our fund’s attention.
Because angel funds co-invest with the angels, there is a longer runway, and thus less chance of a “lock up”, where the angels cannot exit their shares because of a lack of interest from VC (because it’s too early stage) or other exit routes.
Regarding follow-on investments: make sure you invest “good money after good money.” Meaning: make sure to cut of your failing investments early, do not keep funding them.
One more thing: do not be afraid of having your fund do follow-on investments to or even buying out the shares of your angel members. A delicate affair, where your fund managers on the one and your angel investors on the other side, have to negotiate about a price. However, we deem it a worthwhile undertaking, as we have the success of our +400 portfolio companies in mind."
6. Make sure your angel network is remunerated
“Although separate legal entities, we make sure that BAN Vlaanderen is remunerated for bringing in the capital, the dealflow and the management of the fund. We are a shareholder of the fund and also receive a part of the ‘carried’.
Furthermore, BAN Vlaanderen receives a ‘success fee’, the same one it receives over any investments by an angel member, over the amounts invested by the fund. In that way you could consider the fund a ‘member’ of BAN Vlaanderen.
All of this ensures the sustainability of our organisations, so that we can keep providing our services for Flemish entrepreneurs and investors for the next decades.”
This announcement or listing is not an offer to subscribe for shares of the fund. Any offering of shares of the fund will be made on the basis of fund documentation which will only be made available in accordance with the regulatory and legal restrictions applicable to the offering of investment opportunities.