For many years now, business angels have played a key role in funding seed and early-stage companies to help them reach their potential. Most of these investments are highly private in nature, but their economic impact is keenly felt – creating new jobs across the UK and exciting innovations which solve widespread problems. Yet what does the landscape for angel investing look like, exactly, in 2021? What kinds of opportunities and returns do they engage in, and what lies ahead for the world of angel investing? In this industry report, our investment team here at Bure Valley Group offers answers to some of these key questions.
Angel investors in 2021: an overview
The precise number of angel investors is difficult to come by. Yet the UKBAA (UK Business Angels Association) – the recognised body for angel investors – claims to work with over 15,000 angel investors in addition to crowdfunding platforms, financial advisers and VCTs. The precise definition of an angel investor is also somewhat nebulous, but loosely refers to an individual who has considerable wealth (“high net worth”) and who promises funding to early-stage businesses in exchange for an equity stake.
Most angel investors tend to be in their 50s and upwards, possessing considerable experience in business and finance sourcing. They typically meet the criteria outlined by the FCA (Financial Conduct Authority) to self-identify as a “sophisticated investor”, which include:
- Directing a company with at least £1m turnover.
- Prior experience with investing in unlisted companies (e.g. not on the London Stock Exchange, or LSE).
- Part of a business angel syndicate or angel investor club (like us at Bure Valley Group!).
- Background working professionally in venture capital, private equity or finance provision.
Similarly in the USA, angel investors must meet the Securities and Exchange Commission’s (SEC’s) definition of “accredited investors”, which involves having a net worth of at least $1m and an income of $200,000 ($300,000 if married). They make very high-risk investments and, here in the UK, lead the way in Europe for supporting early-stage businesses (although still quite far behind those in the USA).
Lack of diversity has continued to be an issue in the angel investor community. A 2019 survey noted an increase in female angels over recent years, but remained low with only 13% stating as female (up from 9% in 2014). This compares poorly with the USA profile, where 29.5% of angel inventors are women in 2018. In the UK, 70.5% report as White British whilst Black and Asian groups are underrepresented compared to the UK working age population, at 0.6% and 6.3% respectively. More work clearly needs to be done to improve this picture, especially since inclusion is proven to improve performance via the “diversity dividend”. Greater diversity brings more perspectives and experiences to the table, helping to drive better decision-making.
There is a distinct lack of data on angel deals due to their private nature. However, studies by PwC, the British Business Bank and UKBAA provide some key insights into the kinds of deals they make, the results these produce and the activity going on – both prior to, and during, the outbreak of COVID-19. One notable trend has been the continuous year-on-year growth of UK equity finance in the private sector between 2011 and 2019. In this last year, equity investment into smaller companies reached £8.4bn; a 24% increase on 2018, and more than double that recorded in 2016.
More recently, the picture has been less rosy – especially since the pandemic. In the months leading up to the Small Business Equity Tracker 2020 report, investment at the seed stage fell by 1% to £823m – halting the previous annual growth since 2011. The outbreak of COVID-19 also appears to have had a negative impact, with deals falling in volume by 15% in Q1 2020 since the previous quarter. The complete scale is likely to be much bigger, however, given the damage caused by the 2008 Financial Crisis to seed stage investing. Hopefully, with the UK economy starting to recover and reopen in summer 2021 this picture will start to turn around.
Two other trends are worthy of note. The first is the geographical concentration of angel investor deals. London still dominates the market for private equity, with London-based businesses comprising 48% of total equity deals and 66% of the total equity investment in 2018. More deals appear to slowly be moving to other regions, however, as the government tries to level up the UK economy. In 2019, for instance, 19% of equity deals in the Midlands were supported by the Midlands Engine Investment Fund (MEIF) whilst the Northern Powerhouse Investment Fund (NPIF) supported 16% of deals in the North.
The second trend concerns the sectors and industries that angel investors tend to focus their attention on. In recent years, tech has continued to be the most popular. 47% of private equity investment went to tech companies in 2020. The previous year, equity investment into tech went up by 27% at £4bn – the biggest ever on record. £2.5bn went to software companies, £1.8bn to fintech and £880m to AI (artificial intelligence) businesses.
If you are interested in expanding your portfolio into these kinds of exciting spheres of investing, then we invite you to get in touch with us here at Bure Valley and to consider joining our exclusive investor network:
+44 160 334 0827