Angels spread their love more widely

Angel investors are becoming an increasingly popular choice for early-stage funding - and more companies are benefiting.

by Michael Northcott
Last Updated: 06 Jun 2011
Business angels are backing more businesses now than they were before the recession, according to a new report by the Department for Business, Innovation and Skills. OK, so the actual amount of investment has remained static since 2008 - but at least a larger number of start-ups are getting some backing. By the looks of it, business angel networks have become more attractive as traditional sources of funding have dried up. Or to put it another way: when banks forsake them, entrepreneurs are loving angels instead...

According to the report, angel networks received 11% more business plans in 2009/10 than the previous year, as awareness of their services increased. But with applications on the rise, they've had to get a little more selective: 7.5% of all the business plans submitted to networks made it through to investors, down from 9.5% last year (although a higher proportion of these ended up getting the money they wanted). Overall, investment levels were more or less the same, but the average deal size went down - suggesting that angels are choosing to make a larger number of smaller bets.

Happily, the hope is that all these numbers will rise in the coming year, thanks partly to recent changes to the Enterprise Investment Scheme (which offers tax relief to investors in high-risk companies) that make angel investing a more attractive option for those with a few hundred grand burning a hole in their pocket. That’s one tax break that almost everyone would support.
Angels didn't get an entirely glowing report, though. The Association of Chartered Certified Accountants reckons they need to be more transparent: 'Information on business angels and their activity is notoriously hard to come by; we need more research like this if the Government is to design appropriate policies to encourage investment'. Presumably the theory is that it's easier for their members to recommend this as an option if they have better data on outcomes. And angels should have nothing to fear: companies they back tend to be safer bets than those who rely on other early-stage funding providers, according to a 2010 paper from the Harvard Business School.

Given the banks' apparent (and much-discussed) reluctance to offer money on decent terms to early-stage firms. it's no wonder that the popularity of angels is growing. So let's hope British Business Angels Association chairman Anthony Clarke is right to predict that angel investment will continue to increase in 2011-12. If that's true, and the banks are persuaded/ forced to be more forthcoming with their funds, we may yet have a chance of hitting the Government's optimistic-looking growth targets this year.

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