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Angels down, but not out!

The government has published the second independent report on business angel activity in the UK, which shows how angels have continued to invest millions in promising young firms in 2009/10 despite a challenging environment.

The report, prepared by Prof. Colin Mason of Strathclyde Business School and Prof. Richard Harrison of Queen’s University Management School, was commissioned by a consortium led by the Department for Business, Innovation and Skills (BIS) and comprising ACCA (the Association of Chartered Certified Accountants); the British Business Angels Association (BBAA); the British Private Equity and Venture Capital Association (BVCA); and LINC Scotland, the Scottish Angel Capital Association.

The researchers found that the tightening supply of finance from other sources, coupled with growing awareness of the sector, has driven more businesses to approach angel networks, which received 11% more business plans in the last fiscal year than the one before.

In turn, business angel networks have had to redouble their efforts: given a growing pool of applicants, they have become more selective in choosing which opportunities to present to investors (7.9% of those received, down from 9.5%) and more effective in picking the best ones: 31% of businesses presented to business angels actually got the investment they sought, up from 28% in 2008/9.

Overall, the amount of investment provided to angel-funded businesses remained broadly constant year-on-year, largely due to angels’ ability to leverage more investment from third parties than they had in previous years. With the average deal size falling, more businesses benefited from angel investment and a larger share of these received seed funding compared to the previous year.

The report underscores the importance of the Enterprise Investment Scheme (EIS) to angel investment. EIS was used by more than two-thirds of investors, although it is likely that recent changes to eligibility criteria could drive this percentage upwards.

Business and Enterprise Minister Mark Prisk said: “This research shows that business angels continue to play a very important role in funding new and growing businesses, which are vital to economic growth in the UK. The support of angels is hugely significant and I am encouraged to see that businesses have been looking to angels as a viable source of finance. I hope that this trend will continue. In addition to investment, business angels also provide valuable business expertise and guidance.”

Anthony Clarke, Chairman of BBAA said: “BBAA welcomes this second report and whilst 2009-10 statistics from our networks show some lasting effects of the financial crisis we have received strong indications that the level of investing among the angel community has improved during the past 12 months with a significant number of new investors and investor groups entering the marketplace place. With the recently announced EIS tax relief rise to 30% and the new UK £50m Angel co-investment fund launching later this year, angel investing will continue to increase in 2011/12.

Prof. Robin Jarvis, Head of SME affairs at ACCA said: “Information on business angels and their activity is notoriously hard to come by; we need more research like this if government is to design appropriate policies to encourage investment. Accountants and other business advisers also need such insights to help them refer clients to the appropriate sources of finance for their business.”

The research report is available on the website of the Department for Business, Innovation and Skills, at: http://www.bis.gov.uk/assets/biscore/enterprise/docs/a/11-p116-annual-report-business-angel-market-uk-2009-10.pdf


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