‘Angel Investing comes into its own in 2011’ - 27th January 2011
120 members of the angel and early stage investment community gathered together in the City of London this week to review the implications of the current financial climate for investing in innovation in the wake of severe challenges to the economy and new government measures to address finance for business growth. The Workshop held on 26th January was organised by the Investoo Business Angels the UK trade body for angel and early stage investing and held at the offices of London law firm Travers Smith.
Anthony Clarke, Chair of IBA and MD of Angel Capital Group, in his introductory speech, spoke of the evolution of angel investing which he felt was finally coming into its own as the main source of finance for growth potential start-ups and early stage businesses, attracting a much more significant level of interest both from Government and from those in the private sector with the capacity to invest into this asset class and with a new entrepreneurial group of Super Angel investors emerging. “IBA welcomes the proposed new measures to support a new Angel co-investment Fund as a key means to leverage new investor groups and significantly increase the level of equity finance into the market place for early stage and start-ups” he said. “With such measures in place and a greater awareness of the opportunities offered for investors, we have the capability to achieve comparable levels of angel finance as in the US market, where over 22bn dollars are raised annually to invest in this space”.
Ian Stewart, Chief Economist at Deloitte Research, reviewed the latest economic data and the likely prospects for 2011 for investors and businesses against the backdrop of a further dip in GDP announced this week. Ian concluded that the overall picture is not so gloomy, with evidence that the private sector is seeking to expand and invest in new products and with a greater appetite for risk. However, he concluded that whilst there is a continuing recovery, it will be erratic and choppy and there will be a wide variation between SMEs sectors with those focused on consumer products most at risk, whilst technology and manufacturing are showing strong resilience.
Simon Walker, CEO of BVCA, looked at the prospects for VC investing in innovating early stage businesses in 2011. He believed steadfastly that the future of British employment is in new companies and noted that whilst lip service had generally been paid by government to the importance of investing in innovating start-up companies, there is evident enthusiasm within the coalition government for expanding the venture sector - be it through angels or venture capitalists. “This means that early stage and angel investment community now has a real chance to make its voice heard along the corridors of power and a genuine opportunity to play a significant role in the future of the British economy”, he said. “We believe that the government has a role to play in promoting venture capital and angel investing to the entrepreneur, facilitating a process whereby early-stage investing is encouraged not by tax incentives alone, but by reaching out to every entrepreneur or small business manager and educating them on the benefits of venture capital and angel investing and presenting them as a genuine alternative to bank financing.”
Ken Cooper from Capital for Enterprise Ltd presented the details of the new proposed Business Angel Co-investment Fund of £100m which is the subject of a bid to the new £1.4bn Regional Growth Fund, set up to provide new injections of funding to support job creation in areas hit by public sector cuts. “The proposed co-Investment fund recognises that Business Angels are the most significant source of early stage capital in the sub £1m market source of early stage venture and aims to leverage this potential, he said. “The Fund would aim to act as a ‘big business angel’ sharing the risk with private investors, investing as partner alongside angel networks and syndicates and with a view to leveraging at least £2 angel investment alongside each £1 put in by the Fund”. CfEl will manage the Co-investment Fund if the bid to RGF is successful and will set up an Investment committee to review all deals that meet requirements, on the basis that the main due diligence and investment documentation has been carried out by the relevant network/syndicate based on specific guidance and requirement to be established by CfEL.
With the government due shortly to announce the results of its negotiations with the Banks, including a new annual target for increased lending to small businesses, Stephen Pegge of Lloyds TSB Commercial and representing the British Banking Association Business Finance Taskforce, announced the new measures being launched for 2011. “These initiatives are designed to address the challenges faced by the banks as legacy of the financial crisis over the past two years. We intend to significantly increase access to bank finance, improve overall knowledge and understanding between banks and SMEs and address the lack of confidence among SMEs in relation to bank lending” said Stephen Pegge. Mentoring was identified as a key measure to address the need for improved advice and guidance with a new network of mentors being set up across the UK of experienced individuals with banking and financial experience to deliver free coaching and advice to SMEs on how to plan their finances and maximise their opportunities from bank lending.
Andrew Cave of the Federation of Small Businesses, welcomed these announcements of new financial measures. “The recession has led to a behavioural shift in the way small businesses access finance and the severe lack of confidence in bank finance has lead to an increasing number of small and micro businesses seeking other sources of finance including angel finance. Andrew said. “However, there remains a low level of knowledge among the entrepreneurial community on how to access angel investment with only 2% of their membership seeking equity finance”. The FSB especially welcomed the opportunity to work alongside the IBA to increase awareness and understanding of how to access angle investment.
The changing landscape of Angel investing and the emergence of new “Super Angel Groups” with high level entrepreneurial experience and bringing significant financial capacity into the early stage market place was a key topic at the workshop. Sean Seton-Rogers, from PROfounders Capital described how they had brought together a group of players as Brent Hoberman of Lastminute.com and Michael Birch of Bebo, to develop a new model of investing in high growth potential technology businesses where they could bring significant market and business experience to considerably accelerate the competitiveness and scale of these businesses. “We saw a gap in the market for high growth potential technology businesses, and we wanted to take the best of Silicon Valley and bring this experience to the UK early stage investment market” Sean stated. Sherry Coutu, from Cambridge Angels was also able to report back from the Seed Summit held that morning at the new Silicon Roundabout Tech Hub. “There is a new critical mass of entrepreneurial people now emerging in the UK and across Europe with considerable investment capacity into innovative start-up companies. This community is also ready to share deals and leverage their mutual investment potential and invest together to share their entrepreneurial know-how and international market access” said Sherry. Sean Seton-Rogers added, “We don’t need to compare ourselves with Silicon Valley. The UK, and especially London, has become the epicentre of technology and global creativity and many key entrepreneurial investors have gravitated toward these opportunities.”Achieving exits remains one of the most significant challenges in the current climate and vital for the growth and vitality of the angel and early stage VC investment market. Marcus Stuttard, Head of AIM at the London Stock Exchange presented the trends in AIM listings in 2010 and how angel led investments could increase their potential for IPO in 2011. “There is a need for greater awareness among early stage investors of how to plan and achieve AIM listing, as a real option for their angel portfolio businesses”, he emphasised and felt that closer links should be forged between the IPO and angel markets as two vital poles of the finance ladder. Experienced angel investors, Neil Blackley from Ingenious Media and Steve Berry from Waterbridge Capital presented their views of the pros and cons of achieving exits through IPO, trade sales and acquisitions. A successful exit is achieved by everything yo do from day one of your investment and draw on experience of other team members/non execs in relation to IP O or trade sale. It’s important to negotiate an exit from a position of strength when seeking to exit and creating a dynamic tension between a number of potential buyers can also be an effective way to ensure that a successful outcome is achieved.
Anthony Clarke concluded from the conference that IBA as the UK trade body has a vital role to play to bring together all these different models from angel networks to new super angel groups to leverage the power of angel investing for early stage businesses and to maximise the opportunity to grow the market for angel investing in the UK.
The Investoo Business Angels is the only trade association dedicated to promoting angel investing and supporting early stage investment in the UK. Each year private investors account for between £800 million and £1 billion of early stage investment in the UK; angel investors represent the single largest source of early stage capital in the country and are crucial to the growth of early stage businesses.
IBA works to create an eco-system to promote and support the early stage investment market, providing a forum for angel investment networks, early stage VCs and professional intermediaries to integrate and share good practice on new developments and trends in early stage investing, and develop new services and tools to support the investment process.
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