A Nation of Angels (2015) – The main findings
In a European context, the UK business angel market is seen as one of the most mature and extensively researched. However, there is a lack of recent systematic evidence on the profile and approach of business angels, their investing activities and notably their impact on the growth and performance of the businesses in which they invest. This report sets out to fill this gap by providing new findings from the largest survey of business angels in the UK and the impact of their investment activities to date.
This report, commissioned by the UKBAA in association with the Centre for Entrepreneurs (CFE) and with the support of the BVCA, Deloitte, Barclays and the ESRC, presents the results of the largest study of the investment behaviour and impact of business angels in the UK to date. The study comprised responses from 403 individual angels who responded to the online Nation of Angels survey, detailed follow-up telephone interviews with 42 individual angels who shared more details of their investment behaviour, and an online survey of 28 angel syndicate and network leads across the UK representing 8,000 angels. What is clear from the results of this research is that the UK business angel market is changing.
The main findings of the study are as follows:
Rise in Female Angels
The characteristics of individual angels have changed with more women becoming involved (14% of all angels) and a rise in the number of younger individuals (16% are less than 35 years of age). As a consequence, UK angels have fewer years’ experience than observed in previous studies of the UK business angel marketplace.
Angels are more active than ever
Alongside this changing profile of angels, there is evidence to show that individual angels are making more investments than ever before. The median number of investments is 5 compared to 2.5 reported by an earlier study published in 2009.
..and investing further from home
Previous studies have indicated that angels tend to invest in businesses close to their home base. The evidence presented here indicates a much higher incidence of angels investing beyond their home region (58.4%), as well as outside the UK (22.3%), and, therefore, geographical distance would seem to be becoming less important in the investment decision.
Angels increasingly invest alongside funding vehicles
One possible explanation of this trend is the increase in angels investing alongside other funding vehicles and especially crowdfunding platforms. The observed growth in the use of these digital platforms by individual angels is a major development in the UK business angel market place.
90% of Angels report using EIS or SEIS Tax Relief Schemes
Government has sought to provide tax incentives for angel investment through the Enterprise Investment Scheme (EIS), for individual investors in higher-risk small companies, and the Seed Enterprise Investment Scheme (SEIS), for individual investors in small, early stage companies. Almost 9 out of 10 angel investors have invested either through the EIS or the SEIS and around 80% of the total investments in angels’ investment portfolios were made under these schemes with over half (55%) investing in EIS and a quarter (24%) investing in SEIS. The increased awareness of and use of these schemes in recent years might suggest a changing attitude to risk and it has been the existence and extension of these schemes that have encouraged angels to keep investing in turbulent economic conditions.
Syndicates show preference for an experienced Lead Angel over presence on board
Angels play a key role in achieving the successful growth and outcome of their investments by aligning the management team and investors with regard to planning, executing the growth plan and exit. For those cases where a syndicate of investors was involved, syndicate members considered that strong coordination and communication by the lead investor was very important for a successful outcome. These factors were more important than having a presence on the board.
Increased expectations of returns
Angels reported a lower rate of low returns and a higher rate of expected higher returns than in previous research which shows considerable confidence in the market. Over 4 out of 10 investments were expected to generate a return in the range 1-5 times the initial investment. A further 2 out of 10 investments were expected to produce a return of 6-10 times the initial investment and 1 out of 10 were expected to achieve returns in excess of 10 times their initial investment. This is a higher rate of expected higher returns than found in earlier studies.
25% of Angels have invested in Social Impact
Recent growing interest in social entrepreneurship suggests a potentially significant role for business angels in businesses focussed on social impact as a primary objective. We define angel investments having a social impact as any kind of activity that has a particularly social, environmental or community objective. About 1 in 4 angels (25.7%) have invested in ventures that have a social impact. Social impact investments account for almost 23.8% of total investment deals of the angels in the survey. It may well be the case that the rise in younger and less experienced angels as well as more women angels has led to an increase in social impact investments.