The UK Business Angels Market Report

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THE UK BUSINESS ANGEL MARKET3FOREWORDKEITH MORGAN,CEO, BRITISH BUSINESS BANKThe British Business Bank, the UK’s economic development bank, has a mission toimprove fnance markets for smaller UK businesses. As part of that mission, it worksto enhance the business angel eco-system across the country.This report provides fresh insight into businessangel investors in the UK. The right funding atthe right time, coupled with the expertise thatexternal angel investors can bring, is often the keyto unlocking rapid growth for companies wanting toexpand, diversify, or enter new markets. A vibrantand healthy business angel market is therefore akey ingredient for a successful national economy.Business angel investments tend to be of a privatenature. This has meant that data on this part ofthe market has often been hard to collate fromconventional sources. For this research, the BritishBusiness Bank and the UK Business Angels Associationundertook a direct survey of angels across the UK.Our research gathered details of factors such as thebackground, expertise, portfolio composition anddecision-making of over 650 individuals, creatinga multi-faceted picture of the UK business angelpopulation. This has enabled us to produce anin-depth analysis of the overall market.It is clear from this report that angel investors playa vital role in the economy, bringing patient capital,business experience and skills to support the growthof smaller businesses. Encouragingly, the businessangel market has been maturing, with the experienceof the investors and the volume and value ofinvestments made increasing in recent years.The British Business Bank-supported Angel CoFundhas played an important role in catalysing those angelfnance markets, enabling over 228m of investmentin growing businesses since November 2011.Our research fnds, however, that regional imbalancesexist in the location of angels and the investmentsthey make. To address these imbalances, we areestablishing a new commercial programme tosupport developing clusters of business angelsoutside London.Alongside our existing programmes, we expect thisnew initiative to deliver further improvements in theUK’s business angel fnance market, making it moredynamic and diverse.I look forward to working with our partners to deliverthese improvements, and to helping our smaller UKbusinesses to fulfl their growth potential.

4BRITISH BUSINESS BANKJENNY TOOTH OBECHIEF EXECUTIVEUK BUSINESS ANGELSASSOCIATIONUK Business Angels Association is the trade body for angel and early-stage investingfor the UK, working with over 15,000 angel investors, as well as VC funds, crowdfundingplatforms, accelerators and the advisory community to build a connected entrepreneurialfnance ecosystem.Business Angel Investment is the most signifcantsource of risk capital to support the early growth andscale-up of small businesses here in the UK, whilstit remains a challenge to understand the trends anddevelopments in the angel market. I should thuslike to express our great appreciation to the BritishBusiness Bank for supporting UKBAA with thisvital new study of the investment behaviour andperspectives of angel investors here in the UK.With 658 Angel investors participating in the research,this is the largest sample of angel investors everresearched in the market to date and we are verygrateful to all of those in our angel community whosupported this survey. As may be seen in the fndingsbelow, there are hugely positive signs of continuinggrowth in the angel market, with 41% of angel investorshaving increased their level of investing in the 2016-17tax year. With 69% identifying strong growth andscale-up of their investee businesses, exceedingtheir expectations. In addition, this research showsthe continuing importance to the angel communityof the EIS/SEIS scheme to support their investmentsand we welcome the new enhanced EIS schememade available by the government to supportinvestment in Knowledge Intensive Businesses.Nevertheless, despite these positive signs of growth,the survey reveals ongoing challenges for the market,with over 57% of angel investors based in London andthe South East, whilst many regions continue tohave an underserved level of angel investment.At the same time there remains an untapped pool ofwomen angel investment. We therefore welcomethe British Business Bank’s implementation of amajor new fnancial instrument to leverage newregional angel groups, as well as the launch of amajor new digital information hub to help companiesaround the UK to understand their fnance optionsfor growth and scale-up.At UKBAA, we are complementing these importantinitiatives with capacity building actions, includingopening new Angel Hubs in key locations aroundthe regions to provide a focal point for connectivity,awareness and education1. Our recently launchednew national e-learning programme will also enableindividuals to increase their knowledge and skills onhow to be an efective angel investor2. In addition,we have implemented a major campaign to increasethe level of women investors across the UK, includingimportant research of women’s perspectives onangel investing.We look forward to working with the British BusinessBank and all of the major players in the fnancialecosystem to enable the angel and early-stagemarket to continue to grow and thrive across theUK in backing the nation’s entrepreneurs.

THE UK BUSINESS ANGEL MARKET5EXECUTIVESUMMARYThe angel investor community in the UKis a growing and vibrant sector that bringstogether investors and entrepreneursto help develop and grow businesses.Compared to other European nations theUK has the most mature business angeleco-system3, but in comparison to the US,there is still much ground to make up.Business angels invest their own money intoprivately owned businesses with high-growthpotential. Angel investors are also often referredto as ‘smart capital’ because, alongside theequity fnance they provide, they bring businessexperience, strategic advice and networkingopportunities. The angel investors surveyed for thisreport make a signifcant time commitment to thebusinesses in which they invest. Business angelsare increasingly investing through networks orsyndicates and may also co-invest alongside othertypes of fnance.This report presents the fndings of a new surveyof business angels commissioned by the BritishBusiness Bank with support from UK BusinessAngels Association and run by IFF Research. Thefndings refect the responses of over 650 businessangels, making this one of the most comprehensivesurveys of angels in the UK to date.The report highlights several key themes:The UK business angel market is maturingThe survey fndings indicate that the businessangel market is maturing, both regarding theexperience of investors and the volume and valueof investments the investors are making. More thanhalf of angels have more than fve years’ experienceas an investor and over 600 business angels mademore than 2,500 equity investments in 2016-17,although many of those were part of a syndicateinvestment. The high level of respondents usingbusiness angel syndicates as an investment vehicleis another indication of the maturity of the angelmarket eco-system. Almost four out of fve businessangels invested as part of a syndicate.Angels continue to ofer patient capitalto smaller businessesIn 2017 the Patient Capital Consultation identifedand quantifed the lack of funding for scaling-upcompanies in Britain.4 This research demonstratesthat angels are a source of patient capital5 and helpprovide fnance for scale-up companies. The averageduration of an angel’s investments is six years. Thishelps align entrepreneurs’ and angels’ incentives tosecure the long-term success of the business.

6BRITISH BUSINESS BANKAngels invest in future entrepreneurs beyond thebusiness planMany entrepreneurs with an unproven business planstruggle to fnance their ideas. Angels assist theseentrepreneurs and help them to fourish with initial andfollow-on capital to further fnance the entrepreneur’sbusiness. The survey fndings confrms angel’s investmentdecisions are based on their assessment of the individualsrunning the business, as well as the business plan.Almost all of the investors (93%) think it is essential thatentrepreneurs have relevant skills and experience, with asimilar number (89%) emphasising the importance of thepotential of the business to achieve growth and scale.Business angels and the businesses supported areconcentrated in London and the South EastThe so-called golden triangle between LondonCambridge-Oxford is where most UK angels are located,and where they tend to invest. Over half (57%) ofangels are based in London and the South East, withthe majority (80%) of London based angels making atleast one investment in London. But angels elsewhereare also attracted to investing in London with 63% ofnon-London based investors making at least one Londonbased investment.These themes highlight the important role of angelinvestment in the UK economy. Since its inception, theBritish Business Bank has been active in supportingangel fnance. Through the Angel CoFund, investmentis provided alongside syndicates of business angels tosupport business with strong growth potential. On thedemand side, we raise awareness of business angelinvestment through the Business Finance Guide.As part of the Patient Capital Consultation, the governmentconsulted on potential barriers to accessing fnance andthe means to overcome them. In last year’s Budget 2017,the Chancellor announced an action plan to unlock over 20 billion to fnance growth in innovative frms over10 years. This plan allocated additional resources to theBritish Business Bank in response to the Patient CapitalReview. The British Business Bank will be launching acommercial investment programme to support developingclusters of business angels outside London.

THE UK BUSINESS ANGEL MARKETCHAPTER 1IntroductionThis chapter provides a high level overview of business angels and their contribution to theeconomy (section 1.1). It then introduces the new survey that gives insight into angel activityin the UK (section 1.2).1.1Who and what arebusiness angels?Business angels are individuals who make equityinvestments in businesses with growth potential.These can either be businesses in the early stages ofdevelopment or in established companies looking forexpansion capital. Angels can invest on their own, orthrough an angel group/syndicate. Most commonly,angels invest in these syndicates via a lead angel. Angelscan provide multiple rounds of fnance and frequentlyco-invest with other sources of equity.Business angels provide two key assets. One is ‘smart capital’where they ofer their business experience and networksto pivot early-stage businesses to a higher growth trajectory.For example, they will often take a non-executive boardposition in the company. The second is ‘patient capital’because to develop the business in this way takes time.Therefore, by acting as long-term investors, angels canplay a signifcant role in getting innovative businessesideas of the ground. For a growing business, thiscombination of expertise and capital can be crucialfor success.The angel investment market tends to be less sensitiveto economic cycles6, and they tend to invest locally,resulting in potentially broader regional coverage ofinvestment compared with venture capital7.Business angels make a signifcant contribution to the UKeconomy. For example, Oxford Economics have estimatedthe economic impact on the UK of frms using venture capitalor business angel fnance or both. This analysis identifed15,000 angel-backed businesses over fve years to 2015.It estimated that angel supported businesses had a turnoverof over 9bn, contributed 4.5bn to GDP and created69,700 full-time equivalent jobs in the UK economy.8This report draws on a new business angel survey,commissioned by the British Business Bank and the UKBusiness Angel Association. It provides a comprehensiveupdate on business angel market developments sincethe publication of the Nation of Angels report.28What is the profle of the typicalbusiness angel? The typical business angel in the UK is male,white and are most likely to live in London. The average age of respondents to the surveyis 52 years old. Business angels are highly experienced with8 years of investment experience. The median initial investment is 25,000,and the median follow-on investment is 7,500. On average this typical angel spends 1.6 daysa week in the new business they invest in andholds their investment for 6 years. Typically, this angel makes efective use of theEIS and SEIS scheme.7

8BRITISH BUSINESS BANK1.2Survey methodologyThe survey was promoted extensively by the UK BusinessAngels Association and the British Business Bank, via directtelephone and email contact with the UK Business AngelsAssociation’s contact list, as well as via social media.Emails were sent to individual angels, leads for existingangel syndicates and over 70 business angel networks.Screening questions ensured that respondents werelimited to current, active business angels that made oneor more investments over the last three fnancial years.The online survey contained 12 questions, consistingmostly of multiple-choice questions.All 658 online respondents were invited to opt-in totake part in a more detailed telephone interview, bysharing their contact information at the end of the onlinequestionnaire. As a result, 159 follow-up telephoneinterviews were conducted by IFF Research. Responseswere linked for those individuals that completed both theonline and telephone questionnaires.Every efort was made to reach as wide an audience ofactive angel investors as possible. However, as thereis no comprehensive database of business angels, wecannot be sure that the results are perfectly refective ofthe overall population. These results, therefore, requirecareful interpretation and direct comparisons with previousstudies, including Nation of Angels9 need to be treatedwith caution. That said, this research represents a detailsnapshot ofering insights into the attitudes, motivationsand activities of business angel investors and thecompanies they invest in.

THE UK BUSINESS ANGEL MARKET9CHAPTER 2The UK business angel market is maturingThe survey fndings suggest that the UK business angel market is maturing, in terms of theexperience of investors and the volume and value of investments those investors make.This chapter reviews the basic demographics of the angels surveyed (section 2.1), beforeconsidering the experience of angels (section 2.2). Turning to the scale of angel activity,section 2.3 reviews the volume and regional distribution of those investments. Finally, thischapter highlights the extensive use of syndicates as an investment vehicle (section 2.4).2.1Basic demographics:gender, ethnicity, ageA majority (91%) of the survey respondents are male(fgure 2.1). However, it is important to note that justprior to this survey the UK Business Angels Associationparticipated in an European-funded programme, WomenBusiness Angels for Europe’s Entrepreneurs (WA4E)– The Barriers and Opportunities for Women AngelInvesting in Europe10. This may have skewed the data dueto survey fatigue amongst female angels. It is noteworthythat the WA4E women angel survey has a higher numberof female respondents in the UK than our survey.11Nevertheless, these results are consistent with priorresearch in showing gender diferences in participationin angel investment.12Gender diferences in angel investment are likely to betied to broader contextual or structural factors such associal norms and labour market structures. The surveyresults suggest female angels can be concentrated inLondon, with around half of the total number of suchrespondents being London-based. The survey also showsthat female angels have made less investments with themajority (51%) having made fve or fewer investments intotal, compared with 41% of men.Out of the 658 angels, only 45 (7%) identifed themselvesas any other ethnic group. In contrast, the UK 2011 Censusreports that 13% of the population can be grouped asany other ethnicity (fgure 2.2).13FIG 2.1Business angels by genderSource: B2. How would you best describe your gender? (online survey, n 650)91%9%n 591n 59

10 BRITISH BUSINESS BANKFIG 2.2FIG 2.3Business angels by ethnicityBusiness angels by ageSource: B3. What is your ethnic group? (online survey, n 635)Source: B1. Please indicate your age (online survey, n 653)7%16%9%21%93%WhiteOther ethnic groupThe lack of gender and ethnic diversity amongst UK angelsmay have an impact on the entrepreneurs receivingfunding. Evidence from the United States suggests thatindividuals tend to invest in “people like them”14. TheWA4E female investor survey found that female angelsare more likely to invest in female founders. Therefore, thepositive efect of a more diverse angel investor communitycould help broaden the range of entrepreneurs receivingequity fnance into their businesses.18-3435-4424%30%45-5455-6465 A typical angel has amassed some wealth over the yearsby achieving a successful business-oriented career, butthere are also individuals who have inherited capital.Angels are represented across all age bands, but mostare concentrated in middle and older age brackets. 75%of angels are between the age of 45 and 64 where mostfree investable net wealth would be expected, whilst25% are between the age of 18 and 44 which shows anemerging cohort of younger angel investors (fgure 2.3).

THE UK BUSINESS ANGEL MARKET 112.2Experience of investorsThe maturity of the business angel is demonstrated bythe fnding that more than half (56%) have fve or moreyears of experience as an angel investor. However, thebusiness angel market has also seen a steady fow ofnew investors entering in recent years, with 17% of thesurveyed angels entered the market in the last two years,alongside the more experienced investors (fgure 2.4).Angels in the survey have on average around 8 years ofinvesting experience, with the majority of angel investorsholding a portfolio of investment in more than 5 companies(fgure 2.5).The allocation of assets to angel investment varies betweenangels, accounting for a mean score of around a ffth(19%) of their total investable assets (fgure 2.6).FIG 2.4FIG 2.5Business angels by experienceTotal number of investments ever heldSource: A1a. How long have you been investing as a business angel?(telephone survey, n 159)Source: A1. Total number of investments ever held(online survey,, n 658)508040Per centPer cent6040200302010Less thana year1 year but lessthan 2 years2 to less than5 yearsMore than5 years01-56-1011-1516-2021-5051

12 BRITISH BUSINESS BANKFIG 2.6FIG 2.7Investable assets allocated to business angel investmentInvestable assets allocated to business angel investmentby experienceSource: A2. Approximately what percentage of your investable assetsdo you allocate to business angel investment? (telephone survey, n 159)Source: A2. Approximately what percentage of your investable assets do you allocateto business angel investment? (telephone survey, n 159)50n 9n 6n 1340n

Business Bank and the UK Business Angels Association undertook a direct survey of angels across the UK. Our research gathered details of factors such as the background, expertise, portfolio composition and decision-making of over 650 individuals, creating a multi-faceted picture of the UK business angel population. This has enabled us to produce an in-depth analysis of the overall market. It .

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