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Stock Exchanges Driving Angel Exits


There have been increasing exits with secondary markets
amongst investors. We look at how global stock exchanges can
create more exit options for Business Angels.

The role of secondary markets in the world early stage investment ecosystem

Start-ups and SME’s around the world have always had difficulty making use of capital market funding opportunities and accessing adequate resourcing. Some of these challenges are due to a lack of equity culture, the low levels of capital market development, and risk-taking attitudes being low. Furthermore, the burden of compliance to corporate governance standards and regulatory authorities keeps small companies out of capital markets and, for the most part, on the ground. Notwithstanding, there has also been significant progress for entrepreneurship thanks to Angel Investment, shown by the fact that in 2014, over US$24 billion in capital was raised for some seventy-three thousand entrepreneurial ventures in the USA alone. Unfortunately, exit strategy limitations are a deterrent to many Business Angels.

Recognising the important role small businesses play in economic growth, capital market regulatory authorities and securities exchanges around the world are taking active steps to support small businesses with initiatives such as private secondary market platforms.

The European Commission recently launched a business plan called Capital Market Union with the explicit aim of supporting SME’s and providing funding opportunities for start-ups, marking a very big step for the success of small businesses across Europe. The Union provides unprecedented cross-border networking between Business Angels and SME’s, facilitating the funding process.

Perhaps even more promisingly, stock exchanges around the world are launching new platforms to assist start-ups. The Toronto SE and Deutsche Börse AG both created, and launched, private platforms in 2015, while Borsa Istanbul launched its own in 2014. The Turkish innovation is a webbased, member-based platform that connects SME’s and startups looking for funding with Business Angels looking for small companies to invest in, and so far has over 300 members.

It has become increasingly clear that stock exchanges can play a role in the early stage investment ecosystem; and with secondary markets coming to the fore to facilitate the investment process, the future looks promisingly bright.

How can stock exchanges help to create exit strategies for Business Angels?

“Stock exchanges can play a role, but beware of the fact that this has to be a completely different philosophical approach – for the simple reason that equity investors invest in businesses that are making money and Angel Investors invest in businesses that are losing money”, this is the endorsement and warning that Peter Jungen, Emeritus President of EBAN, gives when considering the role stock exchanges could play in creating Angel investing secondary markets. Jungen suggests that Venture Capital trends require Business Angels and markets to adapt.

Venture Capital has had a stellar time in recent years as the industry blossoms in China and India – nearing the peaks of 2000. One consequence has been that Venture Capital investments have become bigger and made at a later stage than previously, leaving Business Angels with the prospect of holding onto investments for longer periods, possibly up to eight or nine years before realising an exit. In this context there is a need and incentive for alternative options for Business Angels to make full or partial exits. Greater liquidity means more Angels are able to make more investments – a critical driver for growth in early stage investment markets.

“We need to find ways to support the
development of secondary markets
without getting too close to the
regulation of traditional stock markets.”

Stock exchanges can, and are, playing a role in creating exit options. Carsten Borring, Head of Listings and Capital Markets at NASDAQ Denmark, acknowledges that over the last twenty years most stock exchanges have raised the burden, and cost, of listing and compliance – to mitigate against fraud and mistakes. This has been good for risk management, but has made it increasingly difficult for small companies to be listed on stock exchanges – “so, now we need to look at things a little more pragmatically, we need to help SMEs get to the markets”. At the Nasdaq, Borring maintains they are actively being more visible to SMEs and working hard behind the scenes, “we have a strong passion in our DNA to help entrepreneurs, so that is what we are doing everyday”. Aysegul Eksit, Vice Chairperson, Capital Markets Board (CMB) of Turkey, is confident that measures taken in Turkey are working in favour of making IPOs more accessible and attractive. Eksit urges all regulators to take the view that CMB holds, that their job is, “to address market failures efficiently” because, “as the regulator we want to see all exit options working.” In this vein, it should be of interest to many to see how Turkey’s recent change in regulations, allowing Business Angels special trading dispensations, fares over the coming years.



Representing one of the world’s leading stock exchanges, Luca Peyrano, Head of Continental Europe for Primary Markets at the London Stock Exchange Group (LSEG), outlined a programme the LSEG initiated to build relationships with SMEs at an earlier stage. Titled the ELITE programme, “it offers a blend of coaching, training, and market visibility” to SMEs that makes the world of stock exchanges more familiar and opens up networks. A separate initiative Peyrano highlights as relevant to exits is that, “our [LSEG’s] listed corporates – not financial institutions – are being invited to take a closer look at early stage businesses as investment or co-investment opportunities, in order for these businesses to have a bigger brother.” And for the businesses’ Angels to have an exit.

Carsten Borring provides food for thought with this challenge, “I think there are many Business Angels and entrepreneurs who are missing the fact that we have markets like AIM, AltX and First North which are trying to offer this platform” – a trading platform for risk capital. Peter Jungen cautions though that, “Angel investing is an informal business, and if we do not leave it as an informal business – even in secondary markets – then it will stop. So, if we want to see more repeat Angel investing then we need to find ways to support the development of secondary markets without getting too close to the regulation of traditional stock markets.”

The relatively new Private Market of Borsa Istanbul is an example of just this – a market with far lower compliance requirements, much more appropriate for, and accessible to, Business Angels and SMEs.

In summary, to help create exit options for Business Angels, stock exchanges can use their existing infrastructure to create markets similar to the Borsa Istanbul Private Market; they can be more visible to, and supportive of, SMEs through programmes such as LSEG’s ELITE; they can matchmake their listed corporates with potential investments or co-investments; and they can consider less burdensome listing and compliance requirements for start-ups and SMEs.


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