INVENTORY OF GOOD PRACTICES ON OPEN INNOVATION Business Angels Region Stuttgart Stuttgart Region, Germany
Table of contents 1. Good Practice Profile... 3 2. Good Practice General Description... 6 3. Good Practice Analysis... 9 4. Lessons Learnt... 12 Page 2
1. Good Practice Profile 1.1. Name of good practice. Business Angels Region Stuttgart (BARS). 1.2. Localisation of the good practice. Stuttgart Region, Germany. 1.3. Promoter of good practice. Stuttgart Region Economic Development Corporation. 1.4. Sources of information (website): http://www.business-angels-region-stuttgart.de 1.5. Contact details. Dr. Andreas Chatzis Stuttgart Region Economic Development Corporation Tel.: +49 71122835 50 andreas.chatzis@region-stuttgart.de 1.6. Policy area addressed. Networking and Collaboration. Human Capital and Entrepreneurship Culture. IP management and Technology Markets. Access to Finance. Knowledge and Science and Technology base Page 3
1.7. Role/s played by regional public authorities. Enabler. Director. Facilitator. Financier. 1.8. Open Innovation Framework Conditions addressed. Capability: ability to exploit full potential. Network: interaction among actors in innovation systems. Institutional: Innovation system actors (universities, patent offices, ). Framework: regulatory frameworks, IPR regime, consumer demand. Policy: governance capacity. 1.9. Specific aspects dealt with in relation to the regional conditions conducive to better Open Innovation practices. Innovative coaching Critical mass of high quality research. Integrated approach on research valorisation: multidisciplinary team & high value services. Clear incentives and policies to encourage research groups and departments to actively seek knowledge transfer opportunities. Creation of appropriate entrepreneurial climate in a university context. Legal context with respect to exploitation of academic research. Innovation systems available in the region. Research and technical development Performing technological due diligence (assessing how unique the methodology/action is in the world / on the market). Creating an appropriate IP strategy. Developing a balanced innovation strategy (including R&D roadmap, balanced portfolio of short, medium and long term R&D objectives). Identifying and providing access to specialised R&D equipment and facilities. Identifying and relating to (global) networks of world-class scientists, experts, technical and/or industrial partners. Page 4
Operalisation Creating infrastructure for the valorisation or transfer process. Manage tacit knowledge in relation to hard knowledge, in order to implement the full picture. Developing adequate contractual arrangements related to IP/liabilities, partners and stakeholders. Management and organisation Developing management capabilities (decision making skills, deal making skills, presentation skills, etc.). Formation of a Board of Directors with management experience. Formation and development of a senior management team with business experience. Developing adequate HR administrative procedures and arrangements (incl tax/legal aspects). Page 5
2. Good Practice Description 2.1. Brief description (one page max.) Business Angels Region Stuttgart (BARS) was established at the end of 2003 as a joint initiative by the Stuttgart Region Economic Development Corporation, the City of Stuttgart, i.con (a private consultancy company) and several entrepreneurs. It is organized as an association (e.v.) in which all founders and new Business Angels are members. The association s branch office (contact point for investors, coordination) is managed by the Stuttgart Region Economic Development Corporation while the clearing agency (contact point for capital seeking start-ups) is managed by i.con innovation GmbH. BARS is a network of private investors, willing to invest in new technology-based firms (NTBF). In addition, it is a model of early stage financing aiming at the great potential of young high-tech firms. The association arranges contacts between selected innovative start-ups and private investors. The members of BARS are successful and well-funded entrepreneurs with experience in managing a company. They invest in promising firms with their own capital (30,000-300,000 EUR) in the early development stage in order to reduce the funding gap. Business Angels support young knowledge-based companies with their business experience, management and leadership skills and their network contacts. Individual mentoring, confidentiality and integrity are basic principles. BARS is bound in the regional start-up community and closely cooperates with PUSH!, a network of partners for academic start-ups, which was founded in 1998 under the auspices of Stuttgart Region Economic Development Corporation. BARS aims at fostering a Business Angels culture in the Stuttgart Region and the federal state of Baden-Württemberg to strengthen the regional culture of self-employment and entrepreneurship. Both, the start-ups and the Business Angels, are supported to be successful with their investment and to realize a good rate of return. Aid for innovative, young firms is regarded as highly important for the future development of the region. Start-ups and young firms should be based on innovative research results respectively knowledge-intensive technologies (preferred research spin offs). While all sectors are of interest for investments, the main focus lies in engineering, biotechnology and medical science as well as information and communication technologies. Preferably their place of business is or will be the Stuttgart Region respectively Baden-Württemberg. Investments by Business Angels are intended for long-term involvement. To ensure the sustainability of the investments, the applications from start-ups or young firms are previewed and preselected by the clearing agency, before contact to Business Angels is Page 6
made. Only promising concepts afterwards run through a specified due diligence process. The start-ups have to present their profile, idea and business plan. The aim is an investment with calculable chances and risks and with prospect of a long-term as well as fruitful partnership. 2.2. Key features of the good practice. Creating a new investment culture Network of private investors, willing to invest in NTBF (early stage) Bundling know-how of regional partners Regional focus: fast, direct and personal Business Angels are willing to provide risk capital, know-how and business contacts BARS as equity broker 2.3. Base financing for the good practice. The funding for the BARS association is provided by the Stuttgart Region Economic Development Corporation and mainly includes personnel expenses for establishing and running the association s sociation s coordination office. All members of BARS have to pay an annual membership fee of 500 EUR, which is used to finance events and marketing activities. The executive board of the association works voluntarily whereas the clearing agency is self-financing (ROI, consulting services). 2.4. Owner of the good practice. Business Angels Region Stuttgart e.v. is owned by the Stuttgart Region Economic Development Corporation. 2.5. Background and prior references: is the good practice a spin-out? As there were considerations how to bridge the gaps in early stage financing for young high-tech firms, the Stuttgart Region Economic Development Corporation together with the City of Stuttgart developed the concept of Business Angels Region Stuttgart and searched for potential investors within the region, using the existing regional networks. The concept was a successful transfer of the Cambridge Early Stage Financing system integrating Business Angels and private equity funds. Stuttgart Region Economic Development Corp. got to know this best practice through the EU-funded project SPRING under the PAXIS initiative. 2.6. Maturity of the good practice. BARS was founded in 2003. The number of members is currently 31, starting with 10. Further (slow) growth is projected, however high quality is in general much more Page 7
important than quantity, referring to the basic principles mentioned above and the sustainability of the initiative. 2.7. Sustainability of the good practice. BARS was designed as a permanent initiative. Taking into account the experiences gained within the 8 years of existence, it is constantly enhanced. Since the start of the initiative, there has been no exit of an investor so far. In 2010 BARS started a new initiative: the BARS Beteiligungs GmbH (equity holding company) was founded by Business Angels, who committed themselves to invest in a seed capital fund. It offers co-investments when Business Angels make a single investment or if another lead-investor is in charge. Up to now the capital stock amounts to 575,000 EUR, sufficient for 5 to 6 co-investments (3 have already been arranged). With it the financial basis of start-ups can be improved and the risks of single investments are limited. Page 8
3. Good Practice Analysis 3.1. Criteria used to evaluate the Good Practice and main success factors. As main indicators for evaluation serve the number of members of the Business Angels network and the amount of investments made plus all investments generated additionally. Generally the measurable indicators are more qualitative than quantitative, as for example the private investments by Business Angels are normally not made public. As main success factors of BARS can be noted: Close contact to universities and research institutes by link to PUSH! (see 2.1) Institutionalisation of BARS: Institutionalised sed as association (e.v.) Democratic structures and clear decision process Creation of trust between network members Slow growth, focus on quality instead of quantity Could be fostered by strict affiliation criteria, e.g. membership fee, commitment to invest in capital seed fund, no consultants Clear benefit for Business Angels Experienced investors can fulfil role as a mentor Personal links between Business Angels and venture capital organisations Easier access to public investment programmes High grade of flexibility in terms of possible investment constellations High efficiency through bundling competencies on a regional level 3.2. Good Practice Results and impact indicators. Number of BARS members increased from 10 to 31 18 investments have been made by Business Angels No exits of investors so far 70-100 requests per annum 20-30 presentations by start-ups p.a. 8-12 investment interviews p.a. 3-5 investments p.a. 3.3. Level of importance for Good Practice s success of (1-5 scale, 1 = low...5 = Very high) Please rate the level of importance of the following elements in their contribution to the success of the good practice. Page 9
Element Building a partnership Ensuring contribution from the private sector Placing the project into wider policy context Ensuring political support Planning and formulating a proposal Administrative management Externalising management of activities Private financial resources (investments) Public financial resources (coordination office) Addressing a clear need/demand Filling a gap in the innovation infrastructure 1 2 3 4 5 3.4. Stakeholders involvement Description of Stakeholders involved: Stuttgart Region Economic Development Corporation (WRS) City of Stuttgart i.con innovation GmbH Several entrepreneurs acting as Business Angels Stakeholders who participated in the design of the good practice and level of involvement during planning stage: Stakeholder Regional public authority Regional agency (WRS) Knowledge Institutes Companies 1 2 3 4 5 Page 10
Business networks National public authority National agency Other: private investors (Business Angels) Actors who participated in the implementation of the good practice and level of involvement during implementation stage: 1 2 3 4 5 Regional public authority Regional agency (WRS) Knowledge Institutes Companies Business networks National public authority National agency Other: private investors (Business Angels) Page 11
4. Lessons Learnt 4.1. Lessons Learnt: Things you would do differently if you were to start again. At the beginning the number of requests from start-ups was small. Looking for the reason the marketing activities emerged to be insufficient. Consequently the internet presence of BARS was newly designed with emphasis on higher attractiveness, more clarity and more transparency. Apart from that, the initiative developed very well. Nevertheless some factors should be taken into account for a successful implementation: A network like BARS highly depends on the characters involved. Therefore the network manager needs to be both communicative and empathetic. The selection of firms for potential investments is crucial and must be taken with care. Trust between the network members has to develop (private investments are a sensitive topic) and should be fostered by confidence-building activities. So openness will grow. Confidentiality may be essential to some members and must be guaranteed. For the growth of such a network transparency to some extent may be helpful. Patience is needed anyway. Page 12