An interview with Sebastian Schwenke, managing director of Business Angels Club Berlin-Brandenburg (BACB), the new member of Business Angels Europe. BACB has more than 100 angel investor members and has invested more than €3.5m in 24 startups in 2021.
Hi Sebastian, how did you get involved in angel investing?
I started as an industrial engineer and worked in real estate construction. I always had the chance to participate in my family business, which comprised a boutique hotel. I started focussing on the hotel business, managing its finances, and building up special gastronomic events. This leads me to the creation of my startup in the cultural event space. Although building a good track record, the startup succumbed because of the covid crisis.
As a founder, this was my first connection to the Berlin Angels Club. At the same time, I was co-managing a family office that partook in the club. I thus had a hybrid role, seeing the Club’s activities from many sides for some 5 years. Since February 2021, I now work full-time for the network running it as managing director.
How was Berlin Angels founded?
The original core group goes way back. It was initiated in 1999 by a group of successful businessmen in Berlin, at a time when incubators and accelerators were not very present. The founding group had inspiring contacts in Israel and the US, and they wanted to build a similar ecosystem in Berlin.
Unfortunately, the senate and investment bank of Berlin did not quite have a view on how Berlin would develop in that direction. But at least they granted them some office space at the investment bank of Berlin (IBB). In any case, most of the companies pitching were very traditional, not the hyperscaling tech startups we see today.
Around 2003, the Berlin Investment Bank wanted the group to stand on its legs, which was the spark that led to the founding of the BACB as a German association. Since then, the network first grew quite a bit, and by 2016 we had about 150 members.
However, what held the club back was that not many members were interested in actually investing. A large group seemed more focussed on providing consulting services to startups, rather than equity investments.
So, in 2018, a new board was elected to change this and turn the association into a true business angels and investors network. Since then, we have been on an upward trajectory when it comes to investments and member growth.
What were the changes you implemented that had an impact?
First of all, raising the membership fee quite significantly to €1000. This worked very well, even though we dropped back to 33 members in 2018. All of these members were dedicated to funding startups. We have been slowly growing since then. The first investments were around €400k per year, next year closer to €1 million. I am proud to say that now we are around €3.5m.
We are growing member-wise very quickly now. We grew by about 80 members over the last four years. They like joining our club because it is great to have the aggregated deal flow of the whole Berlin region and our community and services are loved by experienced investors and “newbies” alike.
How would you describe the inner workings of your angel network?
We are operating very much in a hybrid manner. We have a core team in the office that is sourcing startups, organizing workshops, visiting incubators, and organizing events like the monthly BACB Pitching Day. In that way, our network is management-run and a service provider for the members. When it comes to contact between the angels and startups after the first match, the due diligence, and negotiation are mainly led by our members. We are proud that our non remunerated Board of directors is very active and our members do a lot of voluntary work, to support local founders.
Tell me more about your co-investment fund
Our BACB angel fund adds significant value to our investment proposition for startups. The fund co-invests with our member angels. It is not structured like a traditional VC fund but is rather a democratic-driven vehicle set up as an “evergreen” and without central investment management. Every member, who invests in a startup in our deal-flow can ask the fund to co-invest, in which case the member does the investment management for the fund and receives a small carry for administering. Two of the members who are administering the fund are also renumerated for their administrative work as fund directors.
Currently, 42 angels are participating in the fund (BACB members only), so almost half of our members are also shareholders. We currently have €2m assets under management with a fundraise of another million € coming up end of this year. The idea for the fund originated from the members.
What are some of the challenges you are facing in growing your club further?
Our main challenge is moving and delegating work processes from management to members. This is driven by amongst others our ambition to focus on clusters and verticals, whether it be Medtech or b2b vs b2c. We feel that not everything is interesting for all members, so clustering could help to speed up processes and increase member engagement.
This ties into our ambition to grow our member base, which in turn is connected to our educational offering to new angel investors. We are in the process of redefining our BACB Academy, thinking in the direction of establishing an “angel curriculum” for people just starting with angel investments.
We also see a lot of opportunities in educating the general public about angel investing. Even though traditionally most Germans tend to be risk averse and prefer investing in hard assets, we see a lot of potential with upcoming generations of successful founders. We look forward to enthusing a broader spectrum of people about opportunities in angel investing because we believe in this type of investing is the most beneficial for our local ecosystem. Especially the knowledge transfer from local people to local founders, which goes hand-in-hand with angel investment, is crucial for a successful, future-proof, and thriving economy. We want to work with business angels who care about making the Berlin region a better place and who are not only motivated by the financial returns, but by contributing to a greater picture.
Has your network moved part of your activities online?
I think we did a very good job, moving all our events to the online space due to the pandemic. We won many members outside of that time in Berlin. Now we are organizing most of our events in a hybrid format, which gives people abroad the opportunity to digitally participate.
Furthermore, the introduction of Dealum as our deal-flow management tool this year was a big step for our members to further participate in our activities digitally. I feel digital tools are key to enhancing (offline) engagement and are a great help in accelerating networks. A lot of angel networks still have to make the transition to fully use the potential of the digital tools out there. Without them, it will be hard to scale networks with limited resources.
How do you see angel investing develop in relation to equity crowdfunding?
What distinguishes angel investing from crowdfunding is that despite our online tools, personal contact and physical exchange between angels are key for solid and sustainable matchmaking and especially for educating new members. Our angels want to engage with like-minded people, learn from them, and co-invest with them. In my observation, this doesn’t happen with crowdfunding platforms, as they usually are more anonymous and users have a hard time connecting with other users.
Thankfully we have the know-how and experience to run high-quality events. And to be honest, if one does a good job in selecting members, the events are really easy to organize. You just tell them to come somewhere, and they start networking and exchanging by themselves.
What is your one tip for new angel investors?
Don’t jump on the first deal you see! Once you join a network, wait for 6 months before you do your first investment. In the angel investing game, it’s about benchmarking these deals for yourself. You need to see a lot of deals to understand what’s good for you and what isn’t. There are so many opportunities in the market, so be wise and calm where you place your money. Also, you need to understand your expectations - you have towards startups and founders - first. I always tell new angels: An investment into an early-stage startup is almost like a marriage, so make sure to do some dating beforehand.