Larissa Best: We Will Always Need Business Angels

LBAN President and EBAN Board Member, Larissa Best, paints a portrait of today’s angel investor, in which areas she likes to invest, and the challenges she will face in the coming years.

This article was originally published by the Luxemburger Wort and translated from French by EBAN.

How is the activity of business angels in Luxembourg?

It is very promising at the moment. There are many new members joining LBAN. We are much more present than a few years ago. We are much more present in incubators today. With the talk around the start-up nation, there are many more people who want to become an investor.

What does a business angel look like today?

A business angel is someone who is in their thirties to seventies and over. Today there are more men than women in the sector, however, this is changing. Women are gaining more experience as entrepreneurs. A good deal of business angels have initial entrepreneurial experience or have entrepreneurial activities alongside their business angel role to diversify their portfolio. We also have retirees who invest to stay connected to different sectors. As a business angel, we see what the future of our society will look like today. We find people who are also interested in innovation.

How much did the LBAN Business Angels invest in 2018?

We invested a total of 5.5 million euros in 2018, about 10% more than in 2017. In 2017, 1.5 million euros out of our total investment went to Luxembourgish companies, while in 2018 this number reached 2-3 million, so almost 50% more. This progression clearly shows that the deal flow (investment opportunities in Luxembourg) and therefore the work of incubators is paying off. We find more “investable” projects as there are more start-ups in incubators, which help them better express their business model.

Are there specific areas in which business angels like to invest?

There are projects in which we do not like to invest, such as restaurants, hotels or cafes, anything that does not lend itself to scaling. We like to invest in anything that is in tech, we invest a lot in fintech – this is the sector that is best represented in incubators in Luxembourg and our members know it well.

What are the goals of the association for this year?

This year, we are growing and professionalising ourselves a bit more. When LBAN was first launched in 2011, it had less than 20 members. There were few projects we could invest in, so it was easier to organise everything. Today, this is no longer the case, we are close to 70 members. At the end of the year, we may be between 80 and 85 or more. We are in the process of organising how to better communicate with start-ups, how to create the link between members and start-ups, and establishing a ‘code of conduct’ for our members.

The LBAN team has some new members, what will they bring to the association?

Two team members are focused on the business process, that is, how to manage the relationship between start-ups and LBAN. There are people working on the code of conduct and how to manage the board. We are also interested in co-investment structures. To make the link between start-ups and our members, we prefer to facilitate meetings with LBAN members interested in the start-up sector, rather than pitching with a small success rate. We want to help new business angels be well prepared for their first investment. When a first-time angel investor loses his or her money, there is a large possibility that we will lose the investor. Therefore, we want to help these novices not commit the mistakes we often made in the beginning.

There are few family businesses investing in start-ups, how do you explain that?

There are families who do it today, but most are simply focused on maintaining their own business and succession. Preparing a succession is very complicated and takes a lot of time. If the business is growing, there is often no time for other activities. If we maintain an ecosystem that is developing well, where there is good access to finance with companies that are profitable, more individuals will become business angels, similarly to the USA. Those dealing with problems in production, organisation, technology have no time to invest in other companies. People are very much focused on their own business. There are not enough ‘cashed out’ entrepreneurs or people in the family who are ‘cashed out’ who want and can reinvest in other businesses.

So family businesses aren’t scared to take risks?

I do not believe so. It is maintaining the family’s legacy that counts. If we focus on what we know and if the money that is in the family business stays there, we do not find ‘cashed out’ entrepreneurs in the ecosystem. The question is: was there or will there be an event where the other family members will be “bought out”. You need money, you need cash in the ecosystem to be able to invest, I do not think it’s a question of risk.

What should be done to make family businesses more involved in angel investing?

I believe that what the LOIC (Luxembourg Open Innovation Club) is doing, makes a lot of sense; initiating companies to think about how to work together with start-ups. Just the notion of what is a start-up? Where do I see value? This approach can help and is very important.

Why does Luxembourg need more philanthropy?

Because angel investment is between philanthropy and investment. If we look at the statistics, there are a lot of companies going bankrupt. We should treat the process as an investment and the investment horizon in philanthropy is around 7-10 years. In addition, we are doing something good for Luxembourg’s ecosystem. Philanthropy is used to make a positive societal impact. If we are willing to invest one way or another in these young startups, our investments will be more diversified.

Are tax incentives the best solution for start-up financing?

It depends on the definition of tax incentives. In many European countries, tax incentives for private investors exist. What exists in Britain, in Belgium, works very well. We discussed this with  BEAngels, and they confirmed that the tax incentives made all the difference in the number of people who invested in Belgium. There is plenty of evidence to show that it works.

Why are there no tax incentives in Luxembourg? Is it for political reasons, or just lack of knowledge?

No, it’s not due to lack of knowledge. We have lobbying on our side, the LPEA and Jerome Grandidier often talk about tax incentives, so do the Chamber of Commerce and the Host. Today, one can easily draw inspiration from neighboring countries to copy what they have done. But there are people within and around the government, different ministries who do not believe in it. In this sense, it is a blockage. I think there is a fear that the tax incentive will be interpreted by the general public as a tax that helps the rich. We will have to make sure that people understand that it is important for the ecosystem, for start-ups to find money, and for job creation in Luxembourg.

What are the challenges for business angels in the coming years?

We will always need business angels. Previously, most venture capitalists were pre-SEED funds (up to 2 million euros) and Seed funds (more than 2 million euros). Today, venture capitalists are much less interested in investing at an early stage in new companies due to the many risks associated with young startups. In the beginning, any company must survive with its own funds or those of friends or family, then find private investors to eventually have access to venture capitalists’ money. This gulf between the founders’ own funds and venture capitalists is growing. The needs of start-ups are growing. The challenge I see in Europe for all business angel networks is professionalisation. Managing an association is like a company but with a lot of volunteers, which is all the more difficult. The professionalisation of processes is important for the networks to grow and so, we need technology to help us cope.