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The UK Business Angel Market 2020 british-business-bank.co.uk
Contents The UK Business Angel Market 2020
Contents
Foreword3 3. Our angel population – 2019 survey 25
UK Business Angels Association introduction 4 3.1. Gender 26
Executive summary 5 3.2. Ethnicity 28
Introduction6 3.3. Age 29
Sizing the market 9 3.4. Experience 30
A tale of two surveys 10 3.5. 2020 Survey 30
1. Investing in the time of Covid 11 4. Geographic spread of angels 31
1.1. New and follow-on investments 12
1.2. Targeted smart money 13 5. The impacts of angel diversity 34
1.3. Portfolio performance 14 5.1. Age and experience 35
1.4. Exits 16 5.2. Impacts on volume and value of investments 35
1.5. Government schemes 16 5.3. Decision making 37
1.6. Challenges and outlook for angel investing 18
6. Female angels 38
2. Investments 2017-2019 19 6.1. Why are there not more female angels? 39
2.1. Volume of investments 20 6.2. Are there any encouraging signs? 40
2.2. Value of investments 20 6.3. What is the industry doing to improve gender diversity? 41
2.3. Performance and exits 21
2.4. Sectors 23
2.5. Decision making 24
British Business Bank british-business-bank.co.uk 2Foreword The UK Business Angel Market 2020
Foreword
The British Business Bank is committed This UK Business Angel Market report, now in its It is, however, encouraging that business angels appear To address this, the British Business Bank supports the
to developing clusters of angels and second edition and published in collaboration with the to be responding positively to the Covid-19 pandemic, Angel CoFund and established its £100m Regional
UK Business Angels Association (UKBAA), highlights with more than half making an investment between Angels Programme in 2018. The programme seeks to
enhancing business angel networks the important role angels play in seed and early stage April and July this year, nearly half planning to build develop clusters of angels outside of London and the
across the UK, as part of its mission to investment. Given the private nature of the majority of their portfolio in 2020/21 and nearly three quarters South East so that other regions can start to build the
make finance markets work better for angel investments, it offers a unique lens on trends in confident about future growth. vital ‘grassroots’ components of an equity ecosystem,
such investments in the UK. particularly benefiting early stage businesses seeking
smaller businesses. The British Business Bank is committed to addressing
smaller investment sizes.
To build on the UK’s position as a scientific superpower, imbalances in the demand for and supply of capital so
we need to provide the world-class businesses of the that funding flows to talented entrepreneurs, Providing this angel funding can be especially beneficial
future with the capital they need to start-up, scale-up irrespective of their background or business location. in developing science and technology businesses, such
and remain anchored in the UK. Business angels are the This report shows early signs of improvement in the as prospective globally competitive companies in
most significant source of equity investment in start-up diversity of funders but many challenges remain in frontier sectors such as Biotech, Deeptech, and Clean
and early stage businesses seeking to grow, also achieving greater representation of diverse groups of Renewable Energy. By supporting these important
providing ‘smart capital’, alongside equity finance, as both funders and founders of smaller businesses. sectors, we can help maintain the UK’s position as a
they bring business experience, strategic advice and technology centre and provide the high-quality jobs and
networking opportunities. tax base necessary for a strong and advanced economy.
Supporting angels in the regions
We look forward to working with the UK’s business
Access to finance for businesses across the UK is angel community and the UKBAA as we continue to
A changing market
inconsistent, with uneven regional and local improve this vitally important area of the finance market
A record £8.5bn of equity finance was invested in 2019, distribution. For seemingly near-identical companies, so that smaller businesses can access the finance they
showing the strength of the UK equity ecosystem in where they are based has a significant impact on the need to grow and thrive.
supporting scale-up companies. but there were type of finance and the finance providers they access,
indications that the UK equity market was changing and this is particularly the case for equity finance.
even before the emergence of Covid-19. Catherine Lewis La Torre,
Angels can be key to creating and building regional or CEO, British Business Bank
The amount of annual investment going to seed stage local finance ecosystems as they make investments,
companies declined by 1% in 2019, however. Although exit, and then recycle their capital into new ventures.
the rate of decline is small, this ends continuous year They have historically been heavily concentrated in
on year increases since 2011, and coincides with 2019 London and the South East, alongside established
being the first year where the number of companies groupings in cities such as Oxford and Cambridge,
receiving follow on rounds exceeded the number of meaning many areas of the country have,
companies raising equity finance for the first time. unfortunately, missed out on the benefits they bring.
British Business Bank british-business-bank.co.uk 3Uk Business Angels Association Introduction The UK Business Angel Market 2020
UKBAA
Introduction We are very grateful for the support of the British
Business Bank once again in carrying out this research
The research results demonstrate the continuing
disparities in levels of angel investment across the UK
We are extremely grateful to our members and those
in the wider angel community who supported this
on the angel market in 2019 and the additional survey in regions and whilst we had a relatively low participation research and generously gave their time to complete
Angel investment is a vital part of the July 2020. This will enable us to better understand the from regional angels in the survey, we must continue to the survey, both in 2019 and the more recent one in
supply chain of risk capital to innovating trends, opportunities and needs across the angel conclude that many regions outside the Golden July 2020. On behalf of UKBAA, I should like to thank
growth focused small businesses across landscape and identify what more can be done to build Triangle lack sufficient angel investment. It will be vital once again the British Business Bank for providing this
further angel investment to support economic recovery. at this time as we seek to rebuild local economies to most valuable research report and look forward to
the UK and this has been a lifeline to increase the number and capacity of angels in the our continuing collaboration.
The pandemic has presented new challenges to angel
many businesses during the crisis. investors over the past months, both in relation to
underserved regions to support the growth needs of
small business. The BBI Regional Angels Programme is
their own personal investment capacity and with Jenny Tooth OBE,
an important instrument in bringing much needed
many businesses in their portfolios requiring support. Chief Executive, UK Business Angels Association
co-investment funds alongside angel investment.
Angels have demonstrated throughout this period the
We hope that many more angel groups across the UK
important role they play in, not only bringing much
regions can take advantage of this in the year ahead.
needed capital, but providing business experience and
strategic advice, drawing on their own experience of UKBAA has for some time been working to increase
dealing with previous economic crises. It is heartening access for female founders to angel investment and we
to see that the angel community has shown such have been focusing on growing the number of female
resilience during this period and that many angels investors as a key part of the solution. We are proud to
feel positive about making new investment in the have been a founding signatory of the Investing in
coming months. Women Code which resulted from the Rose Review and
pleased that many members of our investment
community have also now signed the Code. It was good
to see that more women investors participated in the
research, but there is still considerable progress to be
made to increase the number of female angel investors
across the UK, as well as investors from ethnic minority
groups. Nevertheless, we know that many of our angel
groups are taking direct actions to increase diversity,
both in relation to their investments and in their investor
base and we will look to build on their work and
achievements going forward.
British Business Bank british-business-bank.co.uk 4Executive summary The UK Business Angel Market 2020
Executive
summary Due to the private nature of the vast majority of angel
deals, data on the size of the angel market is patchy at
This support is despite half of our respondents reporting
a negative impact from Covid-19 on their investments,
As with the investors who identify as female, the
number of ethnic minority respondents has increased
best. This report takes a look at a range of data sources with only one in ten seeing a positive impact due to the since the 2017 survey but Black and Asian investors
Angel investors play a key role in the and estimates of the size of the UK angel market in an current Covid-19 situation. While angels have continued remain underrepresented. This mirrors the Diversity VC
early stages of the equity finance attempt to quantify the support they provide privately to invest in and support businesses, this may have and OneTech survey of venture capitalists which
landscape with their ability and owned businesses with high-growth potential with our impacted the value of initial and follow-on investments suggested that the London VC community is also
best estimate at around £2bn a year. The UK angel made by angels since the end of the last tax year, both disproportionately White British.
willingness to make very high-risk investor community continues to lead the way in of which are lower than in previous years.
Business angels remain confident about the future
investments. They are also often referred Europe no matter which data source you choose,
Angels have had consistent sectoral preferences
to as ‘smart capital’ because, alongside though it is still some way behind the US. While the respondents from our latest survey noted
throughout both surveys
challenges and changes to come, the majority of angels
the equity finance they provide, they Given the lack of data, this report presents the findings
Our angels invest across a broad range of sectors, but (72%) are confident about the future growth in value of
of two surveys of business angels commissioned by
bring business experience, strategic the same four sectors received investment from the their portfolio and the opportunities for both
the British Business Bank with support from UK
advice and networking opportunities. Business Angels Association and independently run by
largest proportion of our respondents both pre and post investments and exits. Around a half of our
the onset of Covid-19. These sectors were Healthcare, respondents are open to building their portfolio in the
PwC Research. The findings reflect the responses of
Digital Health and MedTech, Bio Tech, Life Sciencesand current climate while only 12% said they did not intend
over 650 business angels and provides data and
Pharmaceuticals, Software as a Service and FinTech. to make any further investments.
insights into angel activity both before and after the
Our latest survey found that these were the sectors that
onset of Covid-19. This report yet again highlights the importance of angel
the majority of angels considered were performing
investors to the UK economy. The British Business Bank
relatively well since April 2020, suggesting it is unlikely
has been and remains committed to supporting UK
The report highlights several key themes: they will fall from favour anytime soon.
angels through our programmes whenever possible.
The UK business angel market has continued to There is a lack of gender and ethnic diversity in our The information we receive via this survey, alongside
support businesses since the onset of Covid-19 angel sample but some positive signs our more regular interactions with angel finance
partners and the UKBAA, is invaluable in informing the
During these unprecedented times, angels are still The demographic profile of angel investors from our
Bank’s and UK policy makers’ understanding of the
using both their money and expertise to support UK initial survey was largely consistent with that of
angel market and the challenges and opportunities
SMEs. At the time of our second survey (July 2020) previous studies - predominantly male, White, aged 55
it faces.
over half of our respondents had made at least one years on average and concentrated in London and the
investment and over half had increased their South East. However, the percentage of females in our
engagement with their investee businesses. This latter sample increased and over half of our respondents
point could prove the most important during these stated they were seeing an increase in the number of
challenging times given the years of experience the female investors in their network over the last three
average angel possesses. years. Furthermore, four in ten stated they always or
frequently co-invest with female angels, either in a
syndicate or via a mixed investor group.
British Business Bank british-business-bank.co.uk 5Introduction The UK Business Angel Market 2020
Introduction
This is the second edition of the British The 2020 edition was originally due to be published in majority of angel investments, offers a different lens on Figure 1
Business Bank (‘Bank’) UK Business Spring 2020 following a survey completed in the latter trends in seed and early stage equity investments in Cohort analysis of companies receiving initial
half of 2019. However, given the impact Covid-19 has had the UK. The survey responses received from the angel VC funding in 2011-2012
Angel Report examining trends in UK in 2020 we decided to delay the publication of the community will act as a record of previous activity and
Source: British Business Bank analysis of PitchBook
angel investing, which is published in report until Autumn 2020. This delay has allowed us to will help inform policy makers, both local and national,
collaboration with the UK Business go back out in the field with a follow-on survey designed as the situation evolves. Per cent
to gain insight into the impacts of Covid-19 on angel 60
Angels Association (‘UKBAA’). Due to 55 57
investment in real-time, while the data collected during 50
the lack of published angel data, the original survey serves as an important benchmark of UK equity finance and the importance of
40
as discussed in the Sizing the Market the market prior to the pandemic and gives context to business angels 35 36
30
what has happened since.
chapter, the reports are based on The UK is a world-leading place to start a business. 20 19
22
As noted in the British Business Bank Equity Tracker Despite this, UK productivity lags those of our G7
surveys of those angels we can reach via 10 11 11
Report 2020, Beauhurst reported a record £8.5bn peers and the Bank’s Small Business Finance Markets 5 5
the UKBAA and our own programmes. of equity finance was invested in 2019, showing the report2 notes that whilst international comparison of 0 2 2
Round 2 Round 3 Round 4 Round 5 Round 6 Round 7
strength of the UK equity ecosystem in supporting UK performance in translating start-ups into scale-ups
scale-up companies.1 Strong investment was combined has improved, some of the UK’s highest potential, UK US
with an increase in the number of announced equity most innovative start-ups can struggle to scale up
deals which grew 4% in 2019 to 1,832, the highest because of a lack of finance. Figure 2
annual number since the series began in 2011. Cohort analysis of companies receiving initial
SMEs are a crucial part of the UK real economy and
supporting scale-up SMEs could help to address VC funding in 2011-2012
Although activity has been strong overall in 2019,
Average deal size by funding round (£ million)
there were indications that the UK equity market was the UK’s productivity puzzle. Research has shown
changing even before the emergence of Covid-19. that successfully increasing the number of firms that Source: British Business Bank analysis of PitchBook
The amount of annual investment going to seed stage scale-up would substantially impact job creation, £ million
companies declined by 1% in 2019. Although the rate of productivity and growth. As such, there remains more to 80
decline is small, this ends continuous year on year be done to deliver an effective patient capital system. 70
66
increases since 2011. This reversal coincides with 2019 60
Evidence suggests that there is a lack of effective
being the first year where the number of companies 50
supply of long-term investment in innovative firms
receiving follow-on rounds exceeded the number of 40
led by ambitious entrepreneurs who want to build 36
companies raising equity finance for the first time. 30
large-scale businesses in the UK. For a start, fewer UK 23 23
20 22
Against this wider equity background, the following companies with high growth aspirations attract early
10 12
stage equity funding at scale, particularly relative to 8 9
report discusses the important role angels play in early 2 4 3 5
0 1 2
stage investment and, given the private nature of the their American competitors (figures 1 & 2).
Round 1 Round 2 Round 3 Round 4 Round 5 Round 6 Round 7
UK US
British Business Bank british-business-bank.co.uk 6Introduction The UK Business Angel Market 2020
Although this can come from any combination of Business angels, rather than legally structured VC Figure 3
venture capital (‘VC’) funds or individual investors, funds, are therefore most likely to be able to Maturity of businesses angels typically invest in
business angels, defined as people who invest their sustainably make these small ticket, very high-risk
Source: The UK Business Angel Market survey 2019 (n=508)
own money in businesses in exchange for a equity investments. Cost issues are less acute
participation in capital, have been recognised as the compared to a fund of investment professionals that Seed 45
most significant source of equity investment in start-up must report to its limited partners and abide by
and early stage businesses seeking to grow. This is regulatory requirements. Financial incentives for Start-up 55
backed up by our survey which finds our angels are an angel are just as well aligned as with a fund, Early stage 70
largely investing in the initial stages of a business as individuals earn profit from the successes in their
(figures 3 & 4). portfolio of investment companies and they only Later stage 16
take ordinary shares.
This is in part because at the early stages, companies Growth/Scale-up 18
often require smaller absolute sums of investment, Angels are also typically engaged in providing support Rescue/Turnaround 5
but at higher risk of loss and for longer periods of time to businesses they invest in and do so through a wide
before any return can be expected as they are farther range of ‘smart capital’. This can be just as important, Percentage of angels
away from revenue or profit generation. However, if not more so, than the finance they provide, who invest in each stage 0 20 40 60 80
such companies are subject to information particularly to young companies who are finding their
asymmetries which can cause a structural market way and may lack some key skills, know-how and
failure in the provision of sufficient supply of contacts. This has also proven to be a key role since Figure 4
appropriate equity capital. the onset of Covid-19, more of which is discussed in The equity ecosystem
chapter 1.
Fixed costs for obtaining information about businesses’ Source: UK Business Angels Association
investment prospects mean that smaller deals are less
attractive to investors than larger deals due to relatively Proof of concept Seed and early stage Early growth Expansion Exit
Equity bridge
and start-up
high costs for investment appraisal and other
transaction costs which remain constant across Friends & family: Business Angel Angels co-invest with Formal VC and Private Trade sale or
different sizes of investment. Furthermore, relatively Credit Cards, Syndicate also use Venture Capital & Super Equity co-invest with MBO IPO-AIM
Grants Crowd Co-Investment Funds Angels Angel Funds Angels, or offer liquiditY
more information is freely available or at least readily
attainable on the viability and potential returns of
larger, older, more stable businesses than for smaller,
younger, high potential but volatile SMEs.
Up to £100k £100k - £2m+ £2m+ - £3m £3m - £20m+ Angels can invest
Angels can pass on through to Exit or IPO
batton to a bigger VC or
PE - or stay in the game.
British Business Bank british-business-bank.co.uk 7Introduction The UK Business Angel Market 2020
In more normal times, this advice from angel investors Not all scale-up SMEs need equity finance, be it from Figure 5
can help SMEs form productive relationships and an angel or elsewhere, to grow. External equity finance Type of experience business angels share with the businesses they invest in
connections with other businesses and institutions. is only used by about 1% of the UK small business
Source: The UK Business Angel Market survey 2019 (n=396)
These links help form entrepreneurial ecosystems, population and by only a small proportion of those that
connected systems of businesses, finance providers fit into the standard definition of ‘high-growth’. Strategic advice 85
and other entities that influence entrepreneurial
However, external equity becomes much more
outcomes. Chapter 4 looks at the vital role of angel Sounding board 81
important to firms with ambitious plans for growth and
investors in regional and local entrepreneurial
those focusing on technology commercialisation, Access to further investment rounds 56
ecosystems in more depth.
where revenues often lag investment significantly.
51% of our respondents from the initial survey said they For example, nearly half of high-growth technology Specialist sector/industry knowledge 50
took an active role in supporting their businesses. The firms use external equity finance and external equity
types of experience angels share with the businesses investment is essential for firms who do not yet Operational advice 48
they invest in varies considerably and depends both on generate revenues that are looking to commercialise Access to customers/suppliers/
47
the background and experience of the angel but also their R&D results. markets/wider business networks
the needs of the individual business (figure 5). Recruitment of key personnel 31
These innovative firms have a disproportionate impact
Strategic advice topped our list with 85% of the on productivity through the new ideas that they Implementing management control/
30
angels who reported actively supporting businesses commercialise and bring to market. To drive reporting systems
offering this support, closely followed by being a productivity, it is therefore critical that innovative UK Other 6
sounding board. However, angels can offer much more companies efficiently secure sufficient and
specific help and guidance as shown by the fact 31% appropriate equity finance. Percentage of angels 0 10 20 30 40 50 60 70 80 90
reported carrying out recruiting of key personnel
whilst 30% helped implement management control
and reporting systems.
British Business Bank british-business-bank.co.uk 8Sizing the market The UK Business Angel Market 2020
Sizing the
market Despite the importance of angel investors, as noted by
the UKBAA, the size of the market is difficult to
We don’t have 2019 data from the European Business
Angels Network (‘EBAN’) but they estimated the size of
(figure 6). However, 2018/2019 is the first full year that
captures the risk to capital changes made at the Patient
calculate with any degree of accuracy. This is because the UK angel market at around £1bn in 2018, roughly Capital Review that removed asset backed EIS
many business angels do not publicly disclose their 15% of their estimated total European market. This was investment. Given that the asset backed section of the
deals, so there are no robust figures available on the made up of £98.1m (€109.4m) visible angel investment EIS market traditionally raised in the region of £300-
The angel investor market is difficult to size of the UK or any other angel market. Furthermore, and the assumption that the visible market accounts £400m, this represents a relatively small fall in the total
calculate with any degree of accuracy many angels invest independently and are not part of a for only 10% of the total size of angel investing.4 investment into EIS.5 While not all this will be angel
recognised network or syndicate. An OECD study This was an increase of 2.7% on their 2017 number. investment and not all angel investment is captured in
Existing data sources provide a range of stated that ‘While methods of estimating the full angel
PitchBook’s equivalent measure shows £396m of
this data it is probably the best estimate available to
market size vary, it has been documented through measure the size of the business angel market in the UK.
estimates for the visible UK angel market angel investment in 2018, which is 47% of the total
many studies over the past decade that total angel
European angel investment they have recorded. Whilst these are significant numbers the US still leads
investment is much greater than overall VC investment
The UK remains the number one in the United States and as well as in some countries
The UK number was a decrease of 7% on the £427m the way. Angel investment in the US has been
reported in 2017. Not only is there a considerable estimated to be in the early-to-mid $20bn.6 However,
European angel market in Europe’.3
difference between these two measures but they the UK remains the number one European angel market
Existing providers of equity data offer a range of show different directions of travel and different UK no matter which measure you choose to look at.
estimates for the number of deals and value of the shares of the European total too.
visible UK angel market. Beauhurst, who provide data
A further potential indicator of the size of the angel Figure 6
for the Bank’s Equity Tracker reports, records angels
market can be found via Enterprise Investment Scheme Amount raised via EIS and SEIS, £bn
were involved in 404 disclosed equity deals in 2019.
(EIS) and Seed Enterprise Investment Scheme (SEIS)
The value of these equity deals involving business Source: Enterprise Investment Scheme, Seed Enterprise Investment
data. EIS and SEIS are tax efficient benefits the UK Scheme and Social Investment Tax Relief statistics: May 2020
angels was £1.25bn, a record year for the series.
government offers to UK taxpayers for their equity
However, because this figure is the total deal size, 2.5
investment in higher-risk early stage start-ups and small
and angels invest alongside other investor types like
companies. EIS is designed so that a company can raise 2.0
VC funds, it does not provide an indication of the size
money to help grow their business and SEIS is designed
of angel investment itself. 1.5
to help companies raise money when it is starting to
PitchBook is another commercial equity data provider trade. Our survey, in line with previous surveys, found 1.0
and they have estimated angels were involved in 395 that 86% of respondents utilised the EIS or SEIS
0.5
deals worth £345m in 2019. This includes some deals scheme during the tax year (2018/19).
made by angels using crowdfunding platforms. As 0.0
The latest HMRC data shows that £1.82bn was raised
mentioned above, commercial data providers are likely 2012/13 2013/14 2014/15 2015/16 2016/17 2017/18 2018/19
via the EIS scheme in 2018/19, down from £2bn in (b) (a)(b)
to underestimate the amount of angel activity in the
2017/18, and a further £163m via SEIS, a total of just (a) first full year that captures the risk to capital changes
UK, as most angel deals are not publicly disclosed.
under £2bn. This was the lowest combined total since (b) provisional data
2013/14 and followed a record year in 2017/18 (£2.2bn)
British Business Bank british-business-bank.co.uk 9A tale of two surveys The UK Business Angel Market 2020
A tale of
two surveys Via the UKBAA, our Regional Angels Programme and
the Angel CoFund, 508 business angels completed our
Our second survey was online only and we had 265
business angels complete it. Of these, 102 had also
Definition of business angel used as
qualifying criteria:
online survey. The survey was conducted between the completed the original survey in 2019. The fieldwork
As part of its mission to improve finance 4th September and the 26th November 2019 and was conducted between the 15th July and the 2nd One constant across the two surveys is the definition
markets for smaller UK businesses, asked about both the profile of the respondent and the August 2020. This survey also asked about the profile used for a business angel. We defined this as an
characteristics of their investments. Questions covered of the respondent and the characteristics of their individual who has made at least one equity investment
the British Business Bank commissioned in a small unquoted business that is not owned by their
full tax years from 2016/17 to 2018/19 and the first half investments in the last full tax year (2019/20) and finally
PwC Research to conduct a business of 2019/20. about their experiences since the end of the last tax spouse, child or grandchild. The investee business may
angel survey in 2019, to build on the 168 of these respondents also chose to complete a
year and the onset of Covid-19 in the UK. be at start-up stage, or in the early stages of
development, or more established and looking for
findings from the ‘2017 UK Business telephone survey. This was conducted between the Where appropriate we have combined the two surveys further growth. The investment may be made by an
Angel Market Survey’.7 The 2019 survey 16th September and the 29th November 2019 and for the fullest picture but on other occasions, given the individual acting alone, or through an angel syndicate,
provided further insights into the location of differing sample and the unique questions in both,
was designed to both update the network or club.
investments, female investors and female-founded most chapters of this report only utilise one of the two.
findings of our first business angel report businesses. Much of the original data informs chapters 2 onwards Participants were required to have made an equity
and to delve into the important issues which now serve as an important historical benchmark investment as a business angel within the past three
This first survey was meant to form the basis of our years (since September 2016 for the initial survey,
of diversity and the role angels play in of angel activity while the second survey informed our
entire original publication but with the onset of Covid-19 July 2017 for follow-on survey) or, for a small number
discussion on the role angels have played during
regional and local ecosystems. and the initial lockdown we not only delayed the original
Covid-19 (chapter 1). of respondents, to still have an active investment
publication but soon realised this new dynamic needed portfolio as a business angel predating this. For the
to be addressed for the industry and policy makers to purposes of this research, participants were asked to
get the most out of the report. As such we made the exclude any investments that they have made as an
decision to go back out into the field with a second individual on an online investment platform or
survey to help our understanding of what is happening crowdfunding site but to include those made when
in the angel market as a result of Covid-19. co-investing.
British Business Bank british-business-bank.co.uk 10Chapter 1. Investing in the time of Covid Angels have continued to invest, albeit at lower values Half of angels have increased their engagement with their investee businesses Covid-19 has had varying impacts on industries Investment performance by location is highly polarised Exits have been rare, but mostly positive Angels generally have a good level of awareness of Covid-19 support measures Economic uncertainty is the biggest challenge which our angels foresee
1. Investing in the time of Covid The UK Business Angel Market 2020
1. Investing in the
time of Covid Thankfully, so far at least, this has not been the case.
The level of activity from syndicates, networks or clubs
The two main reasons cited by respondents for why
Covid-19 has had a negative impact were that the
they normally invest in have benefited from Covid-19
and that valuations are lower, but also that they have
has largely stayed the same (40%) or increased (26%) economic uncertainty had affected the angel’s own allocated more of their personal annual wealth to invest
Given the often personal nature of angel since the onset of Covid-19, with only around a quarter personal investment capacity and that they during this time and have identified additional sectors
investing and the prevalence of syndicates, seeing less interactions. Furthermore, angels are still concentrated on supporting and investing in their to invest in that have benefited from Covid-19 (figure 8).
using both their money and expertise to support SMEs portfolio businesses (figure 7). It should be noted that
networks or clubs in the industry there during these challenging times. 2019/20 had already shown a small fall in these average
The top sectors angels have invested in remain
were fears that angel activity could be consistent, with Healthcare, Digital Health and
values to £100k and £70k from a series peaks of £108k
MedTech, Bio Tech, Life Sciences and Pharmaceuticals,
seriously impacted by Covid-19. Given the 1.1. New and follow-on investments and £77k, possibly reflecting the increased economic
Software as a Service and FinTech still attracting the
uncertainty seen in 2019.
important role they play in the equity Angels have continued to invest, albeit at most investors. This is both consistent with previous
ecosystem, as described in the The small number of respondents (25) reporting a findings but also unsurprising given the nature of the
lower values positive impact from Covid-19 gave a couple of crisis and the impact it is having on various industries.
introduction, a significant decrease in At the time of our survey (July 2020) over half of our unsurprising reasons why, that the sectors/activities
angel activity could have a lasting negative respondents had made at least one investment with
impact on the UK economy. the sample average being 1.5 investments, pro rata this
Figure 7 Figure 8
is above the 2018/19 rate and not out of line with the
finding from 2019/20. However, market contacts tell us Top main reasons why Covid-19 has had a Top main reasons why Covid-19 has had a
some angels have been bringing capital forward in Q1 negative impact positive impact
and Q2 to support their portfolio businesses suggesting Source: The UK Business Angel Market survey 2020 (n=130) Source: The UK Business Angel Market survey 2020 (n=25)
it is unlikely there will be the same level of angel capital Percentage Percentage
available in Q3 and Q4 to make new investments. of angels of angels
Economic uncertainty has affected my own 55 The sectors/activities I normally invest in have 48
While two in five of our respondents reported not being personal investment capacity benefited from Covid-19
impacted by Covid-19, half of angels cited a negative
I have concentrated on supporting and investing 52 I have allocated more of my personal annual wealth 40
impact on their level of investments, with only one in in my own portfolio business to invest during this time
ten seeing a positive impact. The value of initial and Lack of access to relevant investment opportunities 18 Valuations have been lower 36
follow-on investments during 2020/21 to-date is
Lack of co-investment available 12 There has been a strong flow of quality investment opportunities 24
considerably lower than previous years, sitting at an
The sector(s) I normally invest in have been 9 I have identified additional sectors to invest in that have 24
average of £69k and £46k respectively. badly affected by Covid-19 benefited from Covid-19
Lack of access to relevant Government measures 8 Strong levels of co-investment available 24
Lack of next stage investment 6 I have successfully accessed relevant Government 12
support measures
Inability to meet F2F/travel restrictions 5
More time to focus on investments 8
Reduced/conserving funds 5
British Business Bank british-business-bank.co.uk 121. Investing in the time of Covid The UK Business Angel Market 2020
1.2. Targeted smart money Figure 9 Figure 11
Half of angels have increased their engagement Change in engagement/involvement with portfolio Basis on which investee businesses were prioritised
since the onset of Covid-19 Source: The UK Business Angel Market survey 2020 (n=112)
with their investee businesses
Source: The UK Business Angel Market survey 2020 (n=263)
Since the onset of Covid-19, half of business angels Needed support to achieve their growth milestones 56
Percentage of angels
have increased their engagement with their investee Needed help to survive 46
businesses. 54% of respondents reported greater 8 37 43 12
Likely to benefit under Covid-19 38
engagement with their portfolio companies
but importantly only 12% said they have greater Less involvement Had been blocked from achieving their next round of investments 29
involvement with all the businesses within their No change
Had been blocked from achieving exit 6
Greater involvement with selected businesses in my portfolio
portfolio (figure 9). Over half of our respondents
Greater involvement with all businesses in my portfolio Where I can add most value/best support 4
had prioritised between 11-50% of their portfolio
for greater support (figure 10). Other 4
Over half of our angels said those investee businesses Percentage of angels 0 20 40 60
were prioritised as they needed support to achieve
their growth milestones, while just under half reported Figure 10 Figure 12
they needed help to survive (figure 11). ‘Smart capital’ Proportion of portfolio prioritised for Support provided since the onset of Covid-19
remains key for angels in providing support with over greater support Source: The UK Business Angel Market survey 2020 (n=143)
three quarters of angels reporting they have provided
Source: The UK Business Angel Market survey 2020 (n=112)
strategic advice (figure 12). Strategic advice 77
Market contacts have noted that for many angel More than 75% 4
Sounding board 69
investors, whilst the pandemic may have brought a 51% - 75% 13 Operational advice 43
number of specific additional challenges, having been
26% - 50% 27
through the dotcom era and the previous financial crisis Access to further/earlier investment rounds 39
has enabled them to bring valuable experience and 11% - 25% 31 Specialist sector/industry knowledge 38
insights to their portfolio businesses on how to maintain
5% - 10% 16 Invested more of my own money for working capital 37
resilience and take relevant business decisions during
this period. This has included taking a lean business Less than 5% 4 Mean: 30 Access to customers/suppliers/markets/wider business networks 27
model approach and lengthening the runway to the Implementing management control/reporting systems 20
Percentage of angels 0 5 10 15 20 25 30 35
next main funding round.
Recruitment of key personnel 20
Other 2
Percentage of angels 0 10 20 30 40 50 60 70 80 90
British Business Bank british-business-bank.co.uk 131. Investing in the time of Covid The UK Business Angel Market 2020
1.3. Portfolio performance Covid-19 has had varying impacts on industries Figure 13
Unsurprisingly, industries that rely on travel, in person Selected sector performance since the onset of Covid-19 (a)
In both the original and follow-on survey we asked
interactions or have limited remote working capabilities Source: The UK Business Angel Market survey 2020
angels to rate the performance of their portfolios over
have suffered the most since the onset of Covid-19
a full tax year against the previous year’s performance. Leisure, Hospitality and Tourism (n=44) 93 7
according to our respondents (figure 13). Leisure,
Given how little of the 2020/21 tax year had elapsed
Hospitality and Tourism and Film, Theatre and Film, Theatre and Entertainment (n=28) 75 21 4
when we carried out the second survey we did not ask
Entertainment have at times been completely shut
this question for 2020/21. Instead we asked the Property and Construction (n=32) 69 22 9
down while others, such as Property and Construction,
respondents if they were seeing any geographic or
have been hampered by supply chain and staffing Fashion and Design (n=22) 64 27 9
industrial differences in performance. While the
issues as well as a lack of demand.
sample sizes were very small for some locations and Advertising and Publishing (n=25) 60 28 12
industries, performance was quite varied. A higher proportion of respondents reported industries
Energy, Environment and Clean Tech (n=60) 25 45 30
such as Healthcare, Digital Health and MedTech,
Education technology, E-commerce and Gaming have Education technology (n=42) 21 17 62
been performing better since the onset of Covid-19.
Mobile and Telecoms (n=28) 18 46 36
These are mostly industries that have helped their
consumers deal with the many challenges of lockdown, E-commerce (n=59) 17 22 61
including procuring the essentials, entertaining the
Electronics and Hardware (n=37) 16 70 14
household and replacing in-person schooling. They
have also benefited from either being produced and/or Digital Media and Content (n=52) 15 38 46
supplied via the internet or being deemed essential
Security and Cyber Security (n=35) 14 34 51
services during lockdown.
Healthcare, Digital Health and MedTech (n=97) 14 26 60
Gaming (n=21) 14 24 62
Bio Tech, Life Sciences and Pharma (n=89) 11 37 52
Percentage of angels reporting:
Worse than pre-Covid-19 No change Better than pre-Covid-19
(a) Sample sizes are small for some sectors, results should be treated with caution
British Business Bank british-business-bank.co.uk 141. Investing in the time of Covid The UK Business Angel Market 2020
Investment performance by location is There are several potential reasons for these Figure 14
highly polarised outcomes. For London specifically, it could be that Location performance since the onset of Covid-19 (a)
it was first, and hardest hit by Covid-19. For some
Sample sizes are very small for many locations meaning locations it could be they have a greater share of
Source: The UK Business Angel Market survey 2020
these findings need to be treated with caution, but badly hit sectors, such as theatres and tourism, South West (n=35) 46 31 23
some of the angel and indeed equity investment compared to some of the locations viewed as
hotspots in the UK such as London and the South East performing better. It could alternatively be a more East of England (excl. Cambridge) (n=22) 45 41 14
are in the top half of worst performing locations since positive story of industries performing well being Greater London (n=120) 44 32 24
the onset of Covid-19 (figure 14). Scotland, Oxford and situated in these better performing regions such as
Cambridge appear to be holding up somewhat better Life Sciences in Cambridge or Oxford. However, Outside the UK (n=44) 43 25 32
alongside some locations with much smaller angel it could also be due to the very low sample sizes for North West (n=22) 36 41 23
activity in general. many locations.
South East (excl. Oxford) (n=53) 34 40 26
Wales (n=27) 33 52 15
East Midlands (n=18) 33 39 28
West Midlands (n=32) 31 50 19
Scotland (n=45) 27 49 24
Oxford (n=23) 26 57 17
North East (n=17) 24 53 24
Cambridge (n=26) 23 58 19
Yorkshire and Humberside (n=19) 21 63 16
Northern Ireland (n=10) 10 80 10
Percentage of angels reporting:
Worse than pre-Covid-19 No change Better than pre-Covid-19
(a) Sample sizes are small for some sectors, results should be treated with caution
British Business Bank british-business-bank.co.uk 151. Investing in the time of Covid The UK Business Angel Market 2020
1.4. Exits 1.5. Government schemes Figure 15
Proportion of angels who reported realised and expected exits
Exits have been rare, but mostly positive Angels generally have a good level of Source: The UK Business Angel Market survey 2020 (n=265)
Only a minority (13) of angel respondents have had an awareness of Covid-19 support measures
During last tax year (2019/20)
exit since the end of the last tax year (figure 15). This In our original survey we asked about the use of EIS and
exit rate compares with a quarter of our angels who SEIS. The government scheme landscape is somewhat 2 72 26
had at least one exit in 2019/20. Positively though, one more varied now following a raft of interventions
in five are anticipating an exit during the rest of 2020/21 Since last tax year (6th April 2020 - July 2020)
unveiled to support businesses as a result of Covid-19.
which would bring the exit rate close to the previous As one would expect, given the experience and 2 93 5
year though understandably there is much more expertise of the average angel investor, respondents
uncertainty currently. generally had a good level of awareness of Covid-19 Expected during rest of current tax year (2020/21)
Of those few who have experienced an exit (13), just support measures (figure 17). Only 3% reported knowing 19 61 20
over three quarters experienced mostly or all positive about none of the measures.
outcomes (figure 16). This is certainly higher than last Usage of these schemes is somewhat more varied. Don't know/prefer not to say No Yes
year, but as noted a small sample. We also asked what For some of the schemes this will be the case of a
their expected outcomes were for the remainder of the portfolio business not needing to access the schemes
year and this is much more in line with 2019/20. while for others many businesses will not qualify. Figure 16
The same three schemes top both awareness and Proportion of angels who reported outcomes of realised and expected exits
usage, the Coronavirus Job Retention scheme, the Source: The UK Business Angel Market survey 2020
Bounce Back Loans Scheme and Deferring of VAT/
During last tax year (2019/20) (n=68)
income tax scheme (figure 18).
1 9 13 13 32 31
Since last tax year (6th April 2020 - July 2020) (n=13)
15 8 23 54
Expected during rest of current tax year (2020/21) (n=54)
9 7 7 9 35 31
Don't know/prefer not to say All negative More negative than positive Equal positive and negative
More positive than negative All positive
Percentages may not total 100 due to rounding
British Business Bank british-business-bank.co.uk 161. Investing in the time of Covid The UK Business Angel Market 2020
Figure 17 Figure 18
Awareness of Covid-19 schemes Usage of Covid-19 schemes
Source: The UK Business Angel Market survey 2020 (n=265) Source: The UK Business Angel Market survey 2020 (n=256)
Coronavirus Jobs Retention Scheme 88 Coronavirus Jobs Retention Scheme 52
Bounce Back Loan Scheme 81 Bounce Back Loan Scheme 40
Deferring of VAT/Income Tax Payments 80 Deferring of VAT/Income Tax Payments 44
Coronavirus Business Interruption Loan 75 Coronavirus Business Interruption Loan 19
Future Fund 74 Future Fund 23
Coronavirus Self-Employment Income Support Scheme 65 Coronavirus Self-Employment Income Support Scheme 4
HMRC Time to Pay Scheme 62 HMRC Time to Pay Scheme 22
Grants/Loans via Innovate UK Continuity Scheme, Grants/Loans via Innovate UK Continuity Scheme,
58 24
Fast Start Scheme, Sustainable Innovation Fund Fast Start Scheme, Sustainable Innovation Fund
Statutory Sick Pay Relief Package 42 Statutory Sick Pay Relief Package 4
LEPS/Devolved Government Grants 37 LEPS/Devolved Government Grants 14
None of these 3 None of these 11
Don't Know/Prefer not to say 19
Percentage of angels 0 20 40 60 80 100
Percentage of angels 0 10 20 30 40 50 60
British Business Bank british-business-bank.co.uk 171. Investing in the time of Covid The UK Business Angel Market 2020
1.6. Challenges and outlook for angel investing Figure 19 Figure 20
The biggest challenges to investing Main investment intention for rest of 2020/21
Economic uncertainty is the biggest challenge Source: The UK Business Angel Market survey 2020 (n=265) Source: The UK Business Angel Market survey 2020 (n=265)
which our angels foresee
Economic uncertainty 45 Make new investments to build my portfolio 46
Economic uncertainty is the biggest challenge which
our angels foresee, followed by Covid-19. Given the Only make follow-on investments
Impact of COVID-19 32 21
in my existing portfolio
unprecedented challenges the UK economy has faced
in the last few years this is hardly surprising (figure 19). Lack of liquidity/exit opportunities 26 No further new investments 12
Some respondents suggested this could lead to
Selecting/finding the right opportunities 26 Seek exit opportunities for my portfolio 6
cautious investment choices by angels and a general
reduction in investment while there continues to be EIS/SEIS challenges/removal 23 Don't Know 6
economic uncertainty. Reflecting this outlook, the
average anticipated allocation of investable assets to Brexit 22 Combination e.g. new/follow-on/exits 4
angel investing for 2020/21 is slightly lower at 13% vs.
Valuations of opportunities/deals 19 Other 4
the 17% allocated in 2019/20 by our respondents.
Despite the uncertainty, most angels surveyed are Raising/securing funds/funding gap 17
Percentage of angels 0 10 20 30 40 50
generally confident about the future growth in value of
Tax uncertainty/Changes to taxation rules 14
their portfolio. 72% stated they were either somewhat
confident or very confident of revenue growth over the Quality/availability of talent 12
next 12 months. Perhaps even more encouragingly,
Not enough scale-up/next stage growth
close to half of angels are open to building their finance available for my portfolio
11
portfolio in the current climate/rest of 2020/21, while
Political uncertainty 11
only 12% said they intended to make no further
investments and a further 6% expected to seek exit Lack of resources/time to deal with
10
high number of investments
opportunities (figure 20).
Not enough propositions with high growth potential 9
Lack of co-investors 8
Percentage of angels 0 10 20 30 40 50
British Business Bank british-business-bank.co.uk 18Chapter 2. Investments 2017-2019 The annual average number of investments by our respondents increased yearly Average initial and follow-on investment sizes appear to have increased Most angels saw their investments perform the same or better vs. the previous year Software as a Service, and Healthcare/Digital Health/ MedTech attracted the most angel investors Angels most commonly invest due to the quality of the entrepreneurial team
2. Investments 2017-2019 The UK Business Angel Market 2020
2. Investments
2017-2019 2.1. Volume of investments 2.2. Value of investments Figure 22
Proportion of investments in 2018/19 tax year,
The annual average number of investments by Average initial and follow-on investment sizes by value (a)
This section looks at the volume and
our respondents increased yearly appear to have increased Source: The UK Business Angel Market survey 2019
value of investments made by our
In 2018/19, the mean number of new investments our The majority of our angels matched (39%) or increased
respondents during the tax years 2016/17 sample of angels made was 3.8 while the mean number (37%) the value of their investments in 2018/19 vs. £0 to2. Investments 2017-2019 The UK Business Angel Market 2020
2.3. Performance and exits Figure 23 Figure 24
Performance of current portfolio against Historical performance comparisons (a)
Most angels saw their investments perform the expectations (a) Source: The UK Business Angel Market survey 2019 (n=304)
same or better vs. the previous year Source: The UK Business Angel Market survey 2019 (n=500)
2018/19 vs. 2017/18
Against a backdrop of heightened political and
21 19 9 52 20
economic uncertainty during 2018 and 2019, two in five
angels surveyed said their investments were meeting or 2018/19 vs 2016/17
exceeding their expectations in terms of business/ 36
Percentage of angels 21 13 39 27
financial performance while only one in five said they who reported:
were underperforming (figure 23). In 2018/19 more
Too early to say
angels saw their investments perform the same (52%) Don't know Worse The same Better
Exceeding expectations
or better (20%) than in 2017/18 with only 9% seeing
(a) Excludes respondents who preferred not to say
them perform worse (figure 24). Things are more Meeting expectations
polarised when 2018/19 is compared to 2016/17, while Underperforming
34 9 against expectations
an increased number of angels saw their portfolio Figure 25
performing better than expectations (27%), an
(a) Excludes respondents who either didn't know or Turnover and employment growth in current portfolio, 2018/19 (a)
increased number also saw their portfolio performing preferred not to say
Source: The UK Business Angel Market survey 2019
worse (13%).
Turnover (n=303)
The majority of angels saw positive growth performance
across both turnover (78%) and employment (76%) 8 14 14 23 41
within the businesses in their existing portfolios in
2018/19. Two in five witnessed significant growth of Employment (n=289)
20%+ for both metrics. Only 8% had seen decreases in 6 18 13 24 39
turnover and 6% have seen decreases in employment
(figure 25). Percentage of angels reporting:
Negative growth No growth Low growth of up to 5% Modest growth of 5% to 20% Significant growth of more than 20%
(a) Excludes respondents who preferred not to say
British Business Bank british-business-bank.co.uk 212. Investments 2017-2019 The UK Business Angel Market 2020
Most of our respondents did not experience an exit Figure 26 Figure 27
during the 2018/19 tax year (70%). Of those who Figure 26: Investment exit multiples, 2018/19 Investment exit routes, 2018/19
reported an exit, 70% had at least one positive exit and
Source: The UK Business Angel Market survey 2019 (n=300) The UK Business Angel Market survey 2019 (n=300)
59% had at least one negative exit (eg a write off).
Whilst only 28% of angels experienced an exit in Written off 30 Trade sale 32
2018/19, two in five anticipated an exit in the next
12 months.2. Investments 2017-2019 The UK Business Angel Market 2020
2.4. Sectors Figure 28 Figure 30
Sectoral split of investments (Top 10), 2018/19 Inclusion of enabling/deep tech by angels who invest in the top 5 sectors, 2018/19
Software as a Service, Healthcare, Source: The UK Business Angel Market survey 2019 (n=353) Source: The UK Business Angel Market survey 2019
Digital Health and MedTech attracted the
Percentage of angels
most angel investors who have invested
Healthcare, Digital Health & MedTech (n=119) 69
Angels invested in a wide range of sectors across Software as a Service 38 Software as a Service (n=132) 67
service and manufacturing industries during 2018/19. Healthcare, Digital Health and MedTech 34
Financial Technology ('fintech') (n=92) 64
Software as a Service, Healthcare, Digital Health Bio Tech, Life Sciences and Pharmaceuticals 31
and MedTech and Bio Tech, Life Sciences and E-commerce (n=77) 60
Financial Technology (FinTech) 26
Pharmaceuticals all received funding from over 30% E-commerce 22 Bio Tech, Life Sciences & Pharmaceuticals (n=108) 59
of our sample with FinTech unsurprisingly close Digital Media and Content 21
behind receiving funding from just over a quarter of Percentage of angels who have
Energy, Environment and Clean Tech 20 invested in each sector 0 20 40 60 80
our angels (figure 28).
Manufacturing, Materials and Engineering Technologies 18
These sectors are some of the most talked about Security and Cyber Security 16
sectors in equity investment, not only in the UK but Electronics and Hardware 15
worldwide. Furthermore, over half of the angels
surveyed have investments which include enabling/
deep technologies, and this is more prevalent Figure 29
amongst those who invest in the top investment Angels who have made investments which include
sectors (figures 29 & 30). enabling/deep tech, 2018/19
Source: The UK Business Angel Market survey 2019 (n=350)
2
7
Percentage of angels
who reported:
37 53
Yes
No
Don't know
Prefer not to say
Percentages may not total 100 due to rounding
British Business Bank british-business-bank.co.uk 232. Investments 2017-2019 The UK Business Angel Market 2020
Even for those angels who reported investing in female
2.5. Decision making Figure 31
or mixed founder teams, over half cited a very limited Importance of factors influencing investments
Angels most commonly invest due to the to no quality deal flow from female founders, with a
Source: The UK Business Angel Market survey 2019 (n=508)
quality of the entrepreneurial team lack of female founders in their investment sector being
cited as the main driver for this. This is despite the fact The entrepreneurial team has the relevant skills and experience
The number one factor when angels are deciding that for investments that have female founders or 111 6 91
whether to invest in a company remains the quality of mixed teams, there is generally a broad coverage
the entrepreneurial team and their skills and across different sectors, with Software as a Service The potential impact of the investment e.g. societal, environmental, impact on local economy
experience in particular. 91% of our respondents said and Healthcare/Digital Health/MedTech investment
this was very important while a further 6% said this was 1 8 14 21 37 19
slightly more common.
quite important (figure 31).
Performance doesn’t appear to be the barrier to The gender mix of the entrepreneurial team
Over half of angels also place importance on the investing in female or mixed founder teams. Seven in
1 36 19 24 15 5
potential impact, be it societal, environmental or local, ten angels reported female or mixed founded teams
of their investments when seeking opportunities, but are performing at least the same or better than their
only one in five put an emphasis on the gender mix of Percentage of angels who reported:
all male founded team investments.
the entrepreneurial team. This latter finding appears to Don't know/prefer not to say Not at all important Not really important Neither Quite important Very important
be quite impactful as angel investments are dominated
by male-founded teams and there is a well-
documented correlation between gender of angels and
the gender profile of the founders in which they invest.
British Business Bank british-business-bank.co.uk 24You can also read
