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The UK Business Angel Market 2020 - british-business-bank.co.uk - UK Business Angels ...
The UK Business
Angel Market 2020

british-business-bank.co.uk
The UK Business Angel Market 2020 - british-business-bank.co.uk - UK Business Angels ...
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         2
Foreword                                                                                               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                                                                                      3
Uk 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                                                                                             4
Executive 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                                                                                          5
Introduction                                                                                            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                                                                                                                   6
Introduction                                                                                                             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                                                                                                                                         7
Introduction                                                                                                           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                                                                                       8
Sizing 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                                                                                                    9
A 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                                                                                            10
Chapter 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                                                                                                                12
1. 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                                                                                                                        13
1. 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                                                                                                                             14
1. 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                                                                                                                         15
1. 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                                                                                                               16
1. 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                                                                                         17
1. 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                                                                                                 18
Chapter 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 to
2. 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                                                                                                               21
2. 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                                                                          23
2. 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                                                                                                                   24
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