Angels Go Where Venture Capital Fears to Tread

Last Updated Apr 9, 2009 1:49 PM EDT


If you're looking for green shoots, check out the UK's business angels networks. Entrepreneurs are flooding them with ideas.

I was chatting yesterday to the president of the British Business Angels Association, Anthony Clarke, about its research into angel investing with NESTA (the National Endowment for Science, Technology and the Arts), and although it's under embargo until the end of the month, I can reveal that the angel scene in the UK is very much alive and kicking.

Angels -- individuals who offer finance to very early stage and start-up businesses -- abound in the UK. So do active angel investing networks, which help them that help them screen potential investments and form syndicates to spread their risk.

Clarke reckons there are up to 5,000 angels in these groups, out of perhaps 20,000 small-scale investors in early-stage companies.

Just as well ,as half of all angel investments lose money. But by taking even a rudimentary portfolio approach -- and, where possible, bringing their own business experience and contacts to help their investee companies -- angels can generate pretty good returns over the long haul.

(I'll let you know how those numbers stack up when the research is formally published (or you can read the article I'm writing on angel investing in Accountancy in May.) But I can say about four per cent of angel exits in the UK yield more than 30 times their initial investment. Pretty good.

The UK government is doing its bit: there is tax relief on qualifying investments (more than 2,000 companies raised £699m under the Enterprise Investment Scheme in 2006-07), and is more supportive of angel funding than the US or any member of the EU.

But here's the best bit. The number of entrepreneurs seeking angel funding to get their business going has soared in recent months. That's partly thanks to risk aversion by the banks, of course. But it shows there's life in the economy yet.

There's still a lot of work to do, especially in educating entrepreneurs on how to make a pitch -- Clarke says 95 per cent of approaches are screened out by the angel networks.

But the fact that entrepreneurialism remains so evident in our economy despite the GDP numbers is certainly cause for celebration.

(Photo: Positiv, CC2.0)