Jenny Tooth highlights importance of angel investing and early stage investment to the economy

Author

UK Business Angels Association

04 June 2020

As we emerge out of lockdown and start to take account of the impact on our economy and the businesses that our community has been supporting during this period, it is heartening to see how many portfolio businesses have not only survived, but thrived during the crisis. Angel and early stage-backed businesses have been developing exciting new innovations and solutions to address the impact of Covid across a whole spectrum of activity. In many cases, this is due to the support, advice, guidance, experience, as well as funding, that our investment community has brought to these investee businesses that has enabled so many of them to succeed through these times.

The Government has brought forward some important new measures over the past months to help small businesses address the challenges of Covid, although not all accessible for very early stage, non-profitable businesses with equity backing and some businesses will have fallen through the cracks. The Future Fund, whilst aimed at equity backed small businesses remains inaccessible for those seeking EIS/SEIS backed co-investors. There has been overwhelming demand for the first £250m tranche from VCs and some angel investors in our community have been prepared to forego their tax reliefs in order to access a convertible loan, the lack of a solution for very many of the portfolio businesses across the UK remains a clear concern. It is vital that the contribution of our investment community is therefore recognised by Government as having played such a significant role in supporting and maintaining the growth and resilience of many of the small businesses across the UK during this period.

As we emerge from the crisis and begin to scan the future landscape of funding in the UK, Government needs to recognise that angel and early stage investment will be even more important to the economy as we look towards recovery and growth. Early stage investment needs to be further boosted to ensure that existing portfolio businesses can continue to scale, also to ensure that there is capacity within the angel community to meet the needs of the many new exciting innovators and disrupters seeking new investment in the coming months. This is especially the case for founders based in the regions outside the golden triangle where angel capacity is already fragmented and among women and more diverse founding teams. If the Government’s Levelling up Agenda is to become a reality in the next phase, then measures to build much wider and deeper pools of early stage capital to meet the needs of businesses in these underserved regions and communities is vital.

Whilst there is likely to be a further tranche of funding for the Future Fund in the coming months, Co-investment Funds on terms that work for Angels and early stage investors who wish to mitigate their risks through EIS will be needed to leverage and stimulate further investment. This is where existing schemes such as the £100m Regional Angels Programme supported by British Business Investments could play an important part, but so far only a few pots of co-investment funding have been allocated and thus the opportunity for this Fund to make an impact on the capacity for regional angel investment remains unrealised. There is a need to ensure that this Fund is more rapidly deployed and that many more angel groups can benefit from expanding their investing in the regions. We will also be exploring further options and models with Government and the British Business Bank over the coming weeks to ensure further co-investment funds can be accessible by more investors and syndicates across the UK.

It’s worth bearing in mind that grants offer a strong source of undiluted co-investment and so the Innovate UK’s £750m package has been a valuable addition to support investment in innovation. I was delighted to have Dr Ian Campbell, Executive Chair of Innovate UK join me last week in a virtual fireside chat to present the new Innovate UK’s grant programmes and support framework. While the Continuity grants, bringing additional support to existing grant holders, have now closed for applications, there is a further pot of around £200m new grant money offering up to £175k per project coming forward in the coming days for new innovative projects.

Angel investors are ready and willing to help galvanise further investment into the UK’s innovators, but more bespoke measures are now needed if we are going to maximise this pool of early stage capital which is so vital to the UK’s future economic growth.

We will continue to keep you informed of developments and do join our programme of webinars and virtual roundtables that we are running at UKBAA over the coming weeks.

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