Angel investors play a key role in the UK economy. They provide important mentorship, guidance and financial “lifeblood” to startups – helping with driving innovation and employment.
In this guide, we provide an updated overview of the UK’s angel investor landscape in 2023. We cover key considerations, opportunities, trends and resources to help you navigate these with greater confidence and insight over the years ahead.
The UK angel investor landscape in 2023
Despite economic challenges brought up by Brexit, COVID-19 and the Russian invasion of Ukraine – disrupting supply chains and driving higher inflation across the world – the UK’s angel investor market continues to grow and thrive.
Since angel investments tend to be private in nature, it is more challenging to collate data from conventional sources (e.g. compared to public investments). However, there is some useful data from the British Business Bank, the UK Business Angels Association (UKBAA) and other trusted sources which can shed light on the landscape in 2023.
The UKBAA works with over 15,000 angel investors and has conducted some insightful surveys. The average angel investor is male, white, lives in London and is 52 years old. They tend to have 8+ years of investment experience behind them.
The typical investment holding period for an angel is 6 years. They like to use the EIS and SEIS schemes for tax-efficient investing. An angel might spend 1-2 days a week on a new business they have recently invested in.
The median investment is £25,000, with follow-on investment averaging at £7,500. Overall, such investments make a big impact on the wider economy.
One study suggests that angel-supported businesses show a total a turnover of over £9bn, contributed £4.5bn to GDP and created 69,700 full-time equivalent jobs.
Recent trends in angel investing
Many angels reported a difficult year in 2022, especially in the last six months of the year. Some noticed a tightening of capital availability and a broader nervousness among investors. Others saw reasons to be cautiously optimistic – e.g. noting opportunities in the carbon reduction space.
The Russian invasion of Ukraine loomed high in the minds of many angels (and other investors) in 2022. The geopolitical situation had undoubtedly led to skyrocketing inflation, rising interest rates and dwindling energy supplies – all with knock on effects to the UK’s startup sector.
Many small businesses struggled with disrupted global supply chains, tightening liquidity and falling valuations. However, many angels saw the Russian invasion as having a worse impact on public markets – making angel investing less disrupted (even more attractive) by comparison.
However, the tightening conditions in 2022 certainly helped to highlight which startups were truly resilient, continuing to grow and maintain their trajectory to profitability. Yet we should not assume that the economy was all bad.
The UK (narrowly) avoided a recession and many angels thought that the downturn was soon due to turn a corner. The Inflation Reduction Act, passed in the US in August, arguably even provided some buoyancy to certain angel investments (e.g. the carbon reduction sector).
Angel investing: looking ahead
A strong argument can be made the UK is becoming an even friendlier place for angel investors. The SEIS scheme recently expanded in April 2023, allowing angels to invest more than double compared to what they could before (£200,000, up from £100,000 per tax year).
Startups may also be more inclined to turn to angel investment, especially now that interest rates are higher (making it harder to get business loans).
Investment into private UK companies increased from £11.3bn in 2020 to £22.7bn in 2021. There are good reasons to assume that the picture is still positive, with UK business investment up by 4.8% in Quarter 4 (Oct to Dec) 2022 – 13.2% above Q4 in the previous year.
A range of geopolitical, technological and economic factors continue to shape the UK’s startup landscape in 2023. These will need to be carefully considered by angels in the years ahead.
The Russian invasion of Ukraine arguably places greater urgency on Western countries’ need for energy independence and security. If dictators and aggressive powers can effectively threaten to “turn the taps off” (e.g. oil and gas) and drive up prices for food, petrol and other goods in Western households, this is sure recipe for instability.
This geopolitical incentive for greater UK energy independence, in a way, links nicely with its own drive to decarbonise and reach “net zero”. Options for the UK government include North Sea reserves, shale gas extraction and renewables. Angel investors, take note!
On the technology front, generative AI (artificial intelligence) has taken the world by storm. Likely, it will disrupt most – if not all – sectors of the economy in the years ahead. BT, for instance, is planning to lay off 40% of its staff by 2030, replacing them with AI.
As smaller, more nimble ventures, many UK startups are arguably in a better position to adapt to AI and pivot their business models compared to large players with huge workforces to protect. However, startups will likely need to integrate AI – or build upon it – to stay competitive and wield it to their advantage.
Finally, let’s turn to some economics. High inflation could remain a challenge to the UK economy for much of 2023, possibly into 2024. The days of near-zero interest rates also appear to be long gone, returning to the over-2% norm which has defined most of the Bank of England’s 314-year history.
Globalisation is certainly not over in 2023, but it is changing. Whilst global supply chains in goods continue to be disrupted, there is still a huge acceleration of cross-border flows in knowledge and know-how, such as IP and data, and flows of services.
Conclusion
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
