Bure Valley Group is an investment introducer platform which links successful investors with exciting, innovative UK startups seeking funding. This content is for information purposes only and should not be taken as financial or investment advice.
Is angel investing on the rise in 2022? Last year, studies show that angel investing overtook crowdfunding as a funding source for unlisted UK startups. More than twice the amount of capital was injected into private UK companies compared to 2020, going up from £11.3bn to £22.7bn. Venture capital (VC) funds and private equity, naturally, continued to lead the way; participating in 51% of the 2,679 announced funding rounds.
What are the reasons for this rise in angel investing activity? What could it mean for angel investors, startups and the wider UK economy? Below, our investment team at Bure Valley Group offers some thoughts. We hope you find this content useful. To find out more about our EIS and other investment opportunities, visit our portfolio page here.
To enquire regarding our latest projects and funding (for investors and founders, respectively), you can reach us via:
+44 160 334 0827
2022 and the rise of angel investing
Although VCs and private equity retain their long-held position as the most active investor, all types increased their investment activity in 2021. Angel investors were particularly energetic, with 602 deals completed compared to 359 in the previous year. This follows a years-long trend that suggests a thriving startup scene in the UK.
In 2016/17, for instance, the UK Business Angels Association (UKBAA) reported in their survey with the British Business Bank that 41% of angel investors increased their investment levels. Almost two-thirds of angels committed capital to between 1-5 companies in that year.
Although this is very welcome news, there remains a significant regional disparity in the UK. Most angel investors (57%) are based in London and the South East, where 42% of deals are also made. The South West is the next largest hub of angels at 6%.
Nonetheless, the UK angel investment landscape is moving in a positive direction. Over 50% of angels report having at least 5 years’ experience, and over two-thirds had retained investments for at least 6 years.
Why is 2022 called the year of angel investing?
With inflation now standing at 9%, it is increasingly difficult for investors to generate meaningful real returns from mainstream investments (e.g. stocks and bonds). Cash, moreover, remains a surefire way to lose value – with the average regular savings accounts offering 0.64% interest. Fixed-rate deals may only get you as much as 1.75%.
Angel investing, by contrast, could offer a 30-40% return (even more) over 3-10 years if you pick the right startups. As increasing numbers of wealthier investors seek better real returns in the present environment, angel investing is likely to be an attractive option for those with an appetite for higher investment risk.
Evidence suggests that UK startup valuations are rising dramatically in the later funding stages. In 2020, pre-money valuations stood at £4.45m; yet by 2021, these had soared by 28% to £5.70m. The growth phase saw the most dramatic rise, from £48.0m to £73.9m.
Part of the reasons for growing valuations may be increasing investment from the US. Over £29.4bn was invested into Britain’s startups in 2021 (2x more than Germany and 3x more than France), with over 72% emanating from abroad. 37% of the capital invested into the UK’s tech sector came from US investors.
Implications & the road ahead
A big question on many angel investors’ minds is whether high startup valuations since 2021 might continue throughout 2022. Some argue that VCs have become increasingly involved at the earlier stage deals, pushing up valuations in the process.
This puts more pressure on angel investors to be more picky with their investments and to reserve money for later funding rounds. Another development from the Covid-19 pandemic is that more angel investors were prepared to invest in businesses when they had not met the founders in person. With lockdown now lifted, many expect to conduct more due diligence in face-to-face meetings (although online tools will likely still be used to improve productivity).
Several angel investors have also mentioned to us that they are looking forward to an increase in sustainable investment opportunities over the coming months. Many sectors – e.g. wellness and health tech – have also seen an encouraging rise in diversity since 2021, which we hope will continue. Areas highlighted for high potential growth in 2022-23 include crypto, heathtech, green tech and cloud computing.
Since more angel investors are entering the market, we thought we’d conclude with some ideas to help you as you build your portfolio. Firstly, try to glean wisdom from older, more experienced angel investors. They can help you to avoid costly mistakes they made earlier in their careers. Secondly, consider signing up to a professional investor network to watch other investors in action and to gain exposure to pre-vetted investment projects that you can learn from. Finally, take your time with your own due diligence and do plenty of research. Do not rush to invest your money, but wait for the right opportunity.
Interested in finding out more about the exciting startup projects we have on offer to investors here at Bure Valley Group? Get in touch today to start a conversation with our team and discuss some of the great investment memorandums we have available here:
+44 160 334 0827