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The British Business Angels Association (BBAA) recently produced a comprehensive ‘state of the nation’ report into the success and challenges facing business angel investment in the UK. Michael Weaver, CEO of Beer & Partners, the UK’s largest business investment agency, comments:

“We applaud the initiative by BBAA, BERR and NESTA in producing the research report ‘Siding with the Angels’ in May 2009 and their planned angel awareness campaign being run nationally and regionally. Much of what the BBAA is calling for is in line with our own areas of campaigning and we would like to express our support.

"In general, the BBAA document largely backs up our own experience regarding the profile and what factors attract business angels to invest. The campaign is certainly timely with a major increase in demand from businesses for angel equity and smart money. There are more than 3.5 times the number of business angels per head of population in the US, but over the last 3 or 4 years this type of investing has gained acceptance in the UK and become an important part of investment portfolio’s.

“Since the turn of the year, Beer & Partners has had over 100 new business angels register with us as potential investors into the 50 or more projects that we fund each year to a total of over £12m each year. These new investors have funds available to invest in excess of £300 million.

“In terms of the major areas of change highlighted by the BBAA:

• Enterprise Investment Scheme (EIS) improvements - Beer & Partners has been campaigning for improvements to the EIS scheme which puts the UK in the forefront of tax incentives in Europe and the US as one of the few who actively encourage this investment. In addition to the measures proposed by the BBAA to move the initial incentive up from 20% to 30% we would like to see the Government lift the annual cap for investors from the present £400,000 pa investment and £2m cap for companies.

• Amendments to Enterprise Management Incentive (EMI) - The vast majority of angel investors have previously founded and owned a small business so are well-positioned to add considerable value. They consider the investment of their general management expertise and experience equally as important as their money. Business angel involvement in new businesses is one of the key benefits to entrepreneurs in developing their business from an early stage and the report highlights the importance of business angel involvement and the effect upon the successful and profitable eventual exit. The BBAA is driving a policy change to amend the EMI to allow angels to take options in the company to encourage and reward this involvement with using up scare cash resources.

• Co-investment funds by Early Growth Funds/Regional Venture Capital Funds – these would be great if they are given a little more freedom to act as private sector investors. To date investment by RDAs and the like have tended to be overly cautious with terms more akin to the larger VCs than the angel investment market.

• Need for greater due diligence - The ‘Siding with Angels’ report highlights the improvement in results from due diligence exercises undertaken by investors and this is very true. However in the past the due diligence undertaken by some co-funders has been so extensive and time consuming that the investee company has been unable to devote sufficient time to running its day-to-day affairs and gone backwards resulting in the funding exercise being abandoned. Beer & Partners has recently introduced a pre-pack legal due diligence with costs contingent upon raising investment leaving investors clear to focus upon commercial due diligence.”

Download Research Report: Siding with the Angels