Rapid growth limited only by the need to initiate angels into the field, by the Dragons’ Den type processes of selling investees to investors, and by shortage of syndicate leaders.  And in the longer term by the limited support that angel organisations offer to their investments. 

     Angel investing can sustain rapid growth limited only by its ability to attract and initiate new angels, and by its ability to find and develop syndicate leaders. The view of the current Chairman British Business Angels association (‘BBAA’) is that angel investing in the UK is growing fast and has a long way to go. The last decade has seen a clearer perception that this requires publicity and understanding, and that the gap left by venture capital funds is being filled by the growth of angel syndicates.

The Enterprise Investment Scheme already provides valuable financial incentives for investors in early-stage businesses; and the recently announced Seed Enterprise Investment Scheme targets nascent businesses – with provisions which have been described as ‘potentially one of the most extraordinary incentives ever created and…targeted at the weakest link in the economic chain’ (www.ft.com/businessspeak 17/18 March).

However, wealthy individuals do not necessarily understand how to get into and make use of acting as angels, and are often not acquainted with small businesses and their aches and pains. Leaders for angel syndicates are in short supply: few are available with the necessary time and experience, and growth in their number can only be achieved through their learning from one another. They tend to take the lead in such things as valuations, carrying out due diligence, the deal making, the legals, and acting as non-executive director.

Such is the attrition rate of small businesses that in terms of evaluation the spotlight inevitably falls upon the different types of risk and whether they have been perceived and addressed: ‘market size, potential for market penetration, ability to secure finance, adequate technology development and an assessment of barriers presented by competition’. (knowledge.wharton.edu/article.cfm?articleid=2946)

    (Among common mistakes by the finalists in last year’s Oxford Said Business School Venture Fund were:

·      not discovering and adapting to customer needs

·      not realising how long it takes to get a business up and running

·      not appreciating alternative routes to market

·      lack of realism, and in particular unrealistic valuations

And these are more likely the less has been the contact with mentors and other agents of external validation (‘you don’t know what you don’t know’.))

While seed investors tend to bet on the team, later stage investors evaluate the team through the specifics of their presentations – in the way they tell the story. And they are more interested in what you have achieved in the past as an indication of what you may be able to achieve in the future.(www.ft.com/businessspeak 24/25March)

Funders would like investees to be able to distinguish between higher risk projects – which may suit angels, from robust but perhaps less scaleable projects – which might suit Venture Capital Trusts or Enterprise Investment Scheme investors. Investees, they say, should research prospective investors so that they can pitch to meet their known investment criteria, and of course take references from previous investee companies. And one investor added: ‘walk away if a VC organisation does not respond promptly’!

There are some co-investment funds ready to invest alongside angel syndicates, as there are family investment funds; and although in the US venture capital has often teamed up with lead limited partners whose knowledge and facilities can help in the evaluation of candidates for investment, the same pattern is rarely found in this country.

Angels have not generally seen themselves as contributors to seed-investment, leaving that field to ‘family and friends’ and intermediaries – like investment clubs, regional development funds and the new ‘accelerators’, though some angels have invested in the latter alongside public funds. Angels see angel organisations (like Envestors and London Business Angels) as well able to attract (and sometimes search for) investable opportunities, and angel organisations tend to receive a large number of proposals of which they only pursue a small proportion.

The BBAA itself, previously a members’ club of angels is just now expanding its scope, to become more corporate and more comprehensive – to include super-angel groups, regional development funds and co-investment funds as well as individual angels. (It also of course has a role in influencing government policy and, especially just now, EEC policy and funding to enhance the growth of the venture capital sector in Europe.)

It may not be fanciful to consider the prospect of a unified trade body in the venturing field: the Science Parks Association, UK Business Incubator and the Business Angels Association all focus on different aspects of venture development, and they might usefully combine to create the Business Venture Development Association and thus be in a better position to offer a fuller range of services.

It seems likely that the future of angel organisations will lie in their becoming sector and stage specific, perhaps under larger umbrellas, even in closer collaboration with limited partners; and doing so, it is felt, without stakes being taken in them by institutions or external organisations. Their owners are of course all angels – in a unique position to invest in the best of their propositions! And it would be in their interest to make more contributions to the processes of developing the businesses in which their angels have invested – by providing a more sophisticated service of mentors and coaches, perhaps through more formal links with the likes of ‘Coaching for Business’. (More intervention will certainly be necessary for example if Venture Capital Trusts are to succeed in achieving the exits that their tax status requires.) 

The preoccupations of angel investment funds will be in finding and developing leaders for syndicates, in finding and bring on new angels, and in developing their own expertise, understanding and support capabilities in their special areas of knowledge.