The British Business Bank has recently published a report on the Business Angel market in the UK[i], and I wanted to share some of my own experience running one the UK’s largest traditional Business Angel networks in the UK, Minerva.
It is without a doubt, the majority of money that is invested via Angel networks uses the Enterprise Investment Scheme and Small Enterprise Investment Scheme – both two tax efficient mechanisms to support the investment in small but potentially fast-growing companies by the HMRC. The HMRC reports for 2017-18 that £1.8bn was invested and £175m of that was invested through SEIS in a total of 5,730 companies through these schemes. These are great schemes, and without it, I question whether we would see the flow of capital into these companies.
How much of this passes through Venture Capitalists, Crowd platforms or individual Angels is unclear. Arguably its all from individuals and the other parties are just conduits for delivering the funds?
However, there is a problem. All the statistics point to the Southern concentric nature of our investment culture. HMRC quote of 67% of the EIS fund had investment from and was invested in companies based in London and the South East, with 63% under the SEIS. [ii]
Taken from the British Business Bank report on the UK Business Angel Market: “the so-called golden triangle between London- Cambridge-Oxford is where most UK angels are located, and where they tend to invest. Over half (57%) of angels are based in London and the South East, with the majority (80%) of London based angels making at least one investment in London. But angels elsewhere are also attracted to investing in London with 63% of non-London based investors making at least one London based investment”
As to the distribution of the £ 1.97bn invested through the EIS & SEIS Schemes, HMRC reports:-
Ultimately, it’s incumbent on us all to work to try and change this trend and it is with no doubt this results in the migration of jobs, skills, companies and money from else where down South.
Oxford Economics[iii] has estimated the economic impact on the UK of firms using venture capital or business angel finance or both for 15,000 angel-backed businesses over five years to 2015 helped contribute £4.5bn to GDP and created 69,700 full-time equivalent jobs in the UK economy. Therefore Angel investment is essential to the economy and it is the distribution which is flawed.
What could we do with many more active Angels groups across the UK?
Minerva’s contribution is trying to grow more investment groups to help and to overcome what is potentially a cultural difference between the North and South in investment attitudes. Why is investment so prolific down South? Nobody seems to have a ready answer but it is no doubt not only linked to the ecosystem, they have created a greater financial awareness but also the wealth and capital release created by exits.
So what is an Angel investor?
The Financial Conduct Authority set some criteria which describes a High Net Worth Individual or Sophisticated investor [iv]and provided you meet either/or criteria then you can be an Angel investor.
In reality, many Angel investors will invest anything from £5,000 with a typical mean of £25,000 in any one company which somewhat opens it up to a group of individuals who had never even considered being an Angel. A fact which isn’t well known.
Of course, there is the additional subtext; for those interested, they can frequently go on to support fledgeling companies – sharing their experience and helping them grow. Boosting any companies intellectual assets through the sharing of experience is an important collateral in helping with their future success.
In Minerva, we have over 90 registered investors from all walks of life including both men and women who meet regularly in distinct groups to discuss investing in a wide variety of companies. We have both active or passive investors and we have invested over £11mn is +70 companies with very few failures.
If we are to break this South East and London concentric challenge outlined above we need to all rally behind our local entrepreneurs and work together to grow our local Angel communities. Equally, companies need to realise an injection of capital (and expertise) can help their growth. It’s with this in mind we are working with Black Country Consortium to seek to address this imbalance and stem the flow of local capital and entrepreneurs to other regions.
The Black Country launch of Minerva is taking place on the 14th March 2019
Head of Minerva
[iii] The Contribution to the UK Economy of firms using Venture Capital and Business Angel Finance – Oxford Economics & BVCA April 2017