Nation of angels

1. Sponsored by Barclays, BVCA, Deloitte and ESRC
January 2015
A report by the Centre for Entrepreneurs and the UK Business Angels Association
Research undertaken by the Enterprise Research Centre

2. Centre for Entrepreneurs
Launched in October 2013, the Centre for Entrepreneurs
think tank promotes the role of entrepreneurs in creating
economic growth and social well-being. It is home to
national enterprise campaign, StartUp Britain.
The Centre is a non-profit joint venture between FT
columnist and serial entrepreneur, Luke Johnson and the
Legatum Institute - a non-partisan charitable think tank
best known for its annual Prosperity Index.
It is supported by a prominent advisory board including
serial entrepreneur and investor Brent Hoberman, angel
investor Dale Murray, Supper Club founder Duncan
Cheatle, Betfair founder Ed Wray, and Smith & Williamson
partner Guy Rigby.
UK Business Angels Association
The UK Business Angels Association is the national
trade association representing angel and early stage
investment in the UK (England, Wales and Northern
Ireland). It has superseded the BBAA and was
re-launched in its new strengthened role in July 2012.
Each year private investors account for between £800
million and £1 billion of early stage investment in the
UK – the single largest source of early stage capital in
this country. The angel community in the UK is also
very diverse reflecting a range of different models and
approaches including angel networks, small groups and
syndicates; super angels; individual investors and new
models such as accelerators.
The UK Business Angels Association represents and
connects all those involved in the angel investment
market, including early stage VC funds, Banks and also
non traditional sources of finance, as well as advisers
and intermediaries; policy makers and academics with a
view to ensuring a coherent ecosystem for financing the
growth of start-up and early stage businesses.
2

3. Anecdotally, the impact of recent market
developments and government policies
have led to an explosion in angel investing
- particularly when examining the Seed
Enterprise Investment Scheme or the
rise of crowdfunding. But until now,
research that examines the impact of
such developments and the level of angel
investing was lacking.
To fill that gap, the Centre for
Entrepreneurs (CFE) and the UK Business
Angels Association (UKBAA) partnered to
undertake a major research project under
the ‘Nation of Angels’ campaign banner.
Over the past nine months, UKBAA and
CFE have worked with the Enterprise
Research Centre (ERC) to understand the
changing demographics and behaviour of
angel investors, the relationship between
angels and their investee companies, and
the economic and social impact of angel
investing.
Our research achieved unprecedented
scale. A record 403 angels responded to
our online survey to share details of their
portfolios. 42 angels engaged in in-depth
telephone interviews to discuss their
investment behaviour and 28 syndicate
and network leads representing 8,000
angels engaged in a separate online survey.
The resulting report, ‘Nation of angels:
assessing the impact of angel investing
across the UK’ published by the ERC makes
for encouraging reading. The findings -
summarised over the following pages
- demonstrate the crucial role that angel
investors are playing in the economy,
bringing risk capital, business experience
and skills to support the growth of small
businesses.
We are grateful to Barclays, the British
Venture Capital and Private Equity
Association, Deloitte and ESRC for
sponsoring this project; to Prof Mark
Hart, Prof Mike Wright and the ERC for
undertaking the research; and to Maserati
for providing prizes to incentivise angels
to engage in the survey.
Britain is becoming a nation of angels. As business formation
rates continue to hit new records, more and more individuals
are choosing to invest their capital in Britain’s engines of
growth: entrepreneurs.
FOREWORD
Jenny Tooth
Chief Executive,
UK Business Angels Association
Luke Johnson
Chair, Centre for Entrepreneurs
and Risk Capital Partners
3

4. RICHARD HEGGIE
Head of Proposition and
Delivery for Entrepreneurs
Barclays Wealth and
Investment Management
The UK business angel market is widely
recognised as one of the most mature
globally. Its importance to overall economic
growth is increasing and as the report
illustrates there is evidence to suggest that
this trend is likely to continue. We believe
one of the potential drivers of this increase
is a rising number of entrepreneurs who
are going through a phase of wealth
realisation and their desire to pass on their
business expertise and invest in potentially
high growth start-ups.
This is reflected in an overall rise of angel
investors with the population becoming
more diversified with regard to regional
location, gender and age. However, these
positive developments will need to be
tracked in this changing market and
throughout the current economic cycle.
TIM HAMES
Director General
BVCA - The British Private
Equity and Venture Capital
Association
This report is pioneering, encouraging and
challenging. It sets out a very different
landscape for angel investment than was
true a decade ago and offers a clear sense
of direction for what the angel arena will
look like a decade hence. Its fundamental
message is change. Change in who angels
are. Change in how angels invest. Change
in whom angels invest with. Change,
though, is both welcome and logical. Much
of what angels like to support could be
described as disruptive innovation. It is
rational, therefore, that the angel scene
itself is open to both disruption and
innovation. Change is our ally and not our
enemy.
There are important lessons to be learnt
here for all of those who work with angels
and who want to see them succeed. This
is true for venture capital as well. Our
sector needs to recognise the enhanced
role that angels now have and ensure
that our relationship with them evolves
in a positive fashion. There are real
similarities between the findings outlined
in this report and those for venture capital
uncovered by the BVCA’s own work on
the venture space, Venture Evolved. I am
convinced that through closer co-operation
between angels and VCs we can create a
far better climate for entrepreneurs and
their ideas.
COMMENT
4

5. MARK DOLEMAN
Head of UK
Entrepreneurial
Business
Deloitte
As a leading global professional services
provider working with many and varied
organisations, we are also determined to
have our roots well established in local
communities. The angel community has
developed into a vital cog within the
economic wheel. Entrepreneurialism is no
longer seen as a destination for eccentrics
and drop outs. Society heaps praise on
those prepared to take risk and reach for
their dreams. The dramatic increase in new
start-ups, incubator hubs and alternate
sources of finance reflect the change that
has occurred. At the source of this are
the angels that provide the much needed
finance and mentoring.
The survey supports a number of
intuitively known thoughts. For example,
the government tax incentives are
enormously helpful. The improved
economic sentiment is being reflected in
the angel portfolios and that technology
is a favoured area of investment probably
both pull and push.
However the survey throws a few
surprises. Angels are getting younger and
slightly less white and male. This can only
be welcomed and we all have a duty to
work together to find ways to accelerate
this trend. What the survey does not give
us the answer to is the big question – EXIT.
There is more liquidity in the market, but
has it reached the normal range for an
angel investee company? My experience is
that achieving good value on exit for many
is still a challenge and options are limited.
It is vital that as a community we continue
to lobby relevant organisations to provide
the platform for successful businesses to
obtain development capital and enable
angels to re-invest in their core market.
I would like to thank everyone involved
in producing this report and the valued
insight.
COMMENT
5

6. The profile of angels is
changing, attracting a
more diverse group of
investors, with more
women and younger
individuals becoming
angels.
Encouragingly, the proportion
of women angels at 14% is an
increase on the 7% observed
in 2008. However, the UK still
ranks below the US where
in 2013 20% of angels were
women and there is still a
long way to go to achieve a
significant gender balance
of angel investors. 44% are
young angels aged under 45
and almost three-quarters
are aged 54 years or less.
In contrast, survey evidence
from 2008 found the median
age of angels was 53 years.
1
Sohl, J. (2014)
The angel market
in 2013: a return
to seed investing,
Center for Venture
Research, University
of New Hampshire.
2
“Wiltbank, R. E.
(2009) Siding with
the angels: Business
angel investing –
promisingoutcomes
and effective
strategies, London:
NESTA”.
86%
Male
14%
Female
Fig. 2.0
UK business
angels by
gender
0
5
10
15
20
25
30
<25
years
25-34
years
35-44
years
45-54
years
55-64
years
65+
years
Fig. 1.0
UK business
angels
by age
HEADLINE FIGURES
6

7. 77.9% White British
4.3% White Irish
1.0% White and Asian
0.5% Bangladeshi
1.9% Chinese
7.2% Other
6.7% Indian
0.5% White and
Black African
Fig. 4.0
UK business
angels by
ethnicity
Fig. 3.0
Investment
experience of
angels
12.3%
11.4%
17.5%
58.8%
15+ years experience
11-15 years experience
6-10 years experience
1-5 years experience
CALL TO ACTION
Work to raise further awareness about angel investing
to attract a wider range of individuals with the
finance and experience to become angels, particularly
identifying lead angels. Build capacity and professional
skills through training workshops and online learning.
7

8. Alongside the changing
demographics of angels,
they are making more
investments than ever
before.
Overall, the findings indicate a much
higher rate of investment activity
than a 2008 survey, which showed
a median of 2.5 investments.3
3
Wiltbank, op. cit.
Angels are investing more
widely and internationally,
geographical distance seeming
to become less important in
the investment decision.
Previous studies had indicated that
angels tend to invest in businesses
close to their home base.
0%
10%
20%
30%
40%
50%
60%
53.3%
0-5 6-10 11-15
Number of investments
16-20 20-50
20.7%
10.1%
4.4%
11%
0%
5%
10%
15%
20%
25%
30%
0 1 2 3-5
Number of investments in 2014
24.3%
25.7%
15.7%
16.7%
12.4%
5.2%
6-10 11+
Fig. 7.0
Number of
investments by
angels last year
Fig. 8.0
Number of
investments by
angels
Fig. 5.0
Investment location by angels
Fig. 6.0
Investment location by angels
58% 86%
20% 22%
Outside
home region
(in the UK)
Inside
home region
(in the UK)
Both inside and
outside the UK
Outside the UK
8

9. However, the market remains less
developed outside London and the
South East.
Additionally, London and the South East
appear to be attracting newer, younger
angels more so than the rest of the UK.
Fig. 10
Angels by
age and
location
CALL TO ACTION
Increase efforts to build
angel capacity in the regions
outside London and South
East, building effective hubs
for angel investment.
0%
20%
40%
60%
80%
100%
All the rest of the UK
Gam
ing
Fashion
&
D
esign
FilmSecurity
85%
81.8%
78.6%
77.8%
77.4%
76.9%
72.1%
71.4%
70.6%
70.6%
70.0%
69.0%
67.9%
67.6%
64.4%
63.2%
62.9%
62.8%
61.5%
61.3%
60.7%
57.7%
56.7%
50.0%
44.4%
15%
18.2%
21.4%
22.2%
22.6%
23.1%
27.9%
28.6%
29.4%
29.4%
30.0%
31.0%
32.1%
32.4%
35.6%
36.8%
37.1%
37.2%
38.5%
38.7%
39.3%
42.3%
43.3%
50.0%
55.6%
SocialM
edia
D
igitalM
edia
&
Content
FinanicalServices
O
ther
Creative
Energy
&
Environm
ent
Paper,Print
Publishing
Food
&
D
rink
ICT
Softw
are
Advanced
M
anufacturing
M
obile
&
Telecom
m
s
Professional&
Support
ServicesO
ther
FinancialTechnologyLeisure
Retail/
e-com
m
/
m
-com
m
M
anufacturing
(other)
H
ealthcare
&
M
editech
Property
&
Construction
Biotech
-
Life
Sciences
Transport
&
Logistics
Consum
er
Electronics
London / South East
0 20
<25 <25-34 <35-44 <45-54 <55-64 <65+
40 60 80 100
14% 31% 28% 19% 8%
10% 25% 31% 21% 10%
1%
London /
South East
Rest of
the UK
2%
Fig. 9.0
Location of
business angel
investments by
sector
9

10. Crowdfunding
43.3%
Other Angel
Syndicates
36.5%
VC Funds
23.6%
Loan / Debt
23.1%
Grants
(e.g. TSB)
20.2%
Angel
Co-Investment
Funds
19.2%
None
17.6%
Alternate
Finance
12%
CALL
TO ACTION
Work with key finance
players to ensure that
angels can connect with
all relevant sources of
co-investment, including
crowdfunding, to address
entrepreneur funding
requirements from start-up
to exit.
Angels are
co-investing with a
wide range of sources,
especially crowdfunding.
Angels have been shown to be
co-investing with a range of
different finance sources
including VC and debt finance.
However, it is clear that a
considerable proportion of angels
and especially younger ones have
responded to the opportunities
offered by online platforms and
crowdfunding to source deals and
co-invest. In fact, London is the
world leader for raising capital
through crowdfunding platforms,
beating cities like New York and
San Francisco.4
4
Crowdfunding Centre
10

11. Angels are increasingly
investing in businesses
that achieve a social
impact.
They not only bring risk capital,
business experience and skills
to support the growth of small
businesses, but also create social
impact through their investments.
One in four angels (25.7%) have
invested in ventures that have
a social impact. Social impact
investments account for almost
23.8% of total investment deals
of the angels in the survey.
EIS
55%
24%
21%
SEIS
None
1in 4
angels (25.7%) have
invested in ventures that
have a social impact.
CALL TO ACTION
The next government should ensure the continuation of the EIS and SEIS. They
should engage with the angel and entrepreneur communities to address any
challenges or make any improvements relating to the operation of these schemes.
CALL TO ACTION
Work with all key players to build greater
awareness and opportunities to invest
in social impact businesses.
SEIS and EIS tax
breaks have played a
big role in encouraging
investment.
9 out of 10 angel investors
report using the SEIS/EIS
schemes, and almost 80% of all
investments were made using EIS
(55%) or SEIS (24%).
11

12. Angels provide
ongoing support to
scale and grow their
investee businesses.
Angel investors were also
asked the growth status of
current investments and
about likely returns on the
investments. This allows for
an assessment of the likely
impact angel investments will
have in the future.
Angels identified significant
growth in their portfolio
businesses and low negative
growth, and are confident they
will see higher than expected
returns and lower levels of
negative returns than seen in
previous studies.
Fig. 11 - Growth status of current
investment portfolios by angels
Fig. 12 - Growth status of current investment
portfolios by investments
22.8%
5.0%
31.2%
9.0%
57.9%
33.0%
63.9%
34.0%
Likely to exit
in next year
Likely to exit
in next year
Negative
growth
Negative
growth
No Real
growth
No real
growth
Reasonable
growth
Reasonable
growth
45.0%
19.0%
High
growth
High
growth
CALL
TO ACTION
Work with the
entrepreneur
community and
those advising
and supporting
entrepreneurs on
how to successfully
attract angel
investment to
accelerate their
growth.
12

13. 5%
10-15 x
3%
15-20 x
4%
>20 x
24%
<1 x
19%
6-10 x 44%
1-5 x
Fig. 14
Expected returns on investments
made since January 2012 by angels
44% 70% 45% 18% 12% 15%
<1 x
1-5 x
6-10 x
10-15 x
15-20 x
>20 x
Fig. 13
Growth status
of current
investment
portfolios by
investments
CALL TO ACTION
Facilitate access to liquidity to enable angels to
re-invest in the next wave of UK entrepreneurs.
13

14. Fig. 15 - Growth status and sector (% of investments)
020406080100
5%45%33%12%5%
5%37%39%12%7%
17%26%43%35.6%2%12%
7%34%42%13%4%
7%42%34%13%4%
10%37%33%15%4%
10%46%26%15%4%
7%45%28%15%5%
8%31%41%15%4%
6%38%38%15%2%
8%42%32%16%3%
9%47%26%16%3%
14%32%33%16%5%
11%35%31%17%6%
12%34%32%18%4%
10%36%29%19%6%
8%41%27%20%4%
15%32%23%20%9%
10%32%33%20%5%
10%33%31%21%6%
4%47%20%21%8%
12%26%35%22%6%
12%37%24%22%5%
8%26%40%24%3%
9%28%31%28%4%
Property&Construction
Transport&Logistics
Security
Food&Drink
Manufacturing(other)
DigitalMedia&Content
SocialMedia
Energy&Environment
Film
Paper,Print,Publishing
Leisure
FashionandDesign
ICTSoftware
Retail/e-commerce
Healthcare&Medtech
Biotech-LifeSciences
Professional&SupportServices
Other
AdvancedManufacturing
Mobile&Telecomms
ConsumerElectronics
OtherCreative
Gaming
FinancialServices
FinancialTechnology
100
80
60
40
20
0
All of the survey
results in this report
are from Wright,
M. Hart, M. Fu, K.
(2014) Nation of
Angels: Assessing
the Impact of Angel
investing across
the UK, Enterprise
Research Centre.
Negative
growth
No real
growth
Reasonable
growth
High
growth
Likely to exit
in next year
14

15. METHODOLOGY
UKBAA and CFE commissioned the Enterprise Research Centre to
undertake the Nation of Angels research. An online research survey
ran between June and October 2014 receiving 403 responses -
making it the largest survey of business angels in the UK.
Alongside the online survey of individual angels, an additional online
survey was launched in October 2014 to known angel syndicate and
network leads in the UKBAA Membership, covering 8,000 investors..
Finally, a series of telephone interviews were also carried out with
42 angels who had participated in the larger online survey and had
agreed to be contacted to share further detailed information on their
investments and their role within the business. The responses are from
wide cross-section of angels across the country and a range of sectors.
The Enterprise Research Centre (ERC) was established in 2013 to
answer one central question, ‘What drives SME growth?’ Our mission is
to become the focal point internationally for research, knowledge and
expertise on SME growth and entrepreneurship. ERC develops and brings
the evidence base on SMEs and enterprise together, and works with
policy makers and practitioners to ensure research shapes better policies
and practices to help ensure SMEs grow. The centre is a collaboration
between 5 University Business Schools: Warwick, Aston, Birmingham,
Strathclyde and Imperial College and currently receives funding from the
Economic & Social Research Council, the British Bankers Association, the
Dept. for Business, Innovation & Skills and Innovate UK.
15

16. Centre for Entrepreneurs
11 Charles Street,
London, W1J 5DW
@CFEntrepreneurs
Email: info@centreforentrepreneurs.org
UK Business Angels Association
5th Floor, Chancery House,
53-64 Chancery Lane,
London, WC2A 1QS
@UKBAngels
Email: info@ukbusinessangelsassociation.org.uk