Jenny Tooth discusses the challenges that lay ahead in 2020 for the early stage investment market

Author

UK Business Angels Association

13 February 2020

Jenny ToothAs we now look forward to seeing what the UK-EU trade agreement will look like, I wonder how many of us have started to feel any post Brexit bounce?

If we look at the latest report from Beauhurst on the past year’s investment deals, we might think that the equity market is on a sound footing with a record breaking level of 12bn investments in UK small businesses in 2019.

But it is clear that the early stage investment market has some challenges in the year ahead to regain its momentum.

As the VCs go for ever higher, less risky investment levels, it is very worrying to see that the early and seed stage investment deals have been reported to once again show a decline this past year, having fallen from 789 in 2018 to 689 in 2019 and with a continuing decrease in deals under £500k. Notably angel networks have been reported to be on a further decline this past year. However we must remember that these are reported deals and we know that so many angel deals go unannounced. We need to be more open about reporting publicly the deals we are doing as angels and angel groups if we are to get a true picture, and I encourage UKBAA members to keep us updated on your investments so that we can ensure these receive coverage and recognition.

A further challenge is that 73% of the amount of investment identified was focused on London in 2019. So we will need to better understand how the Government’s “ levelling up” agenda is going to impact on the small businesses seeking growth capital in those regions we need to specifically identify how we can capitalise on this policy agenda to level up the regional Angel and early stage investment market.

The signing off of the HS2 project this week, with the promise of greater connectivity for business between London, the Midlands and ultimately the North, will take many years to achieve impact on the economies of these regions, Meanwhile, we need to build many more opportunities to increase the connections between our investment communities to ensure an effective flow of risk capital from London and the South East to these regional entrepreneurs from start-up to scale-up. As many of you will have read in The Times last week, the British Business Bank recognised the important role it will play in supporting the levelling up agenda and replacing lost European funding and the need to increase the supply of funding available for the BBB to deploy to support businesses in the regions. Yet we need to ensure that angel investment, which is such an important part of the equity supply chain, can also access these benefits. The British Business Investment Regional Angels programme launched last year offers access to valuable new co-investment funds, but much more capacity building is required to mobilise a sufficient level of angel investment.

Nevertheless it is heartening to see that two UKBAA members Par Equity and Equity Gap have been identified as among the most active investors in 2019. Equity Gap was indeed celebrated at UKBAA Angel Investment Awards 2019 as most active early stage regional investor.

In my next blog I will be highlighting the key points in UKBAA’s budget submission to the Chancellor of the Exchequer and how the government can ensure an effective policy agenda to enable angel and early stage investment to thrive in the years ahead.

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