The network increasing awareness of angel investor benefits
Minerva Business Angels are part of the University of Warwick Science Park Ltd and initially started as an informal network in 1994. In 2010 we formed our first investment group and from there we have grown into the UK’s largest traditional angel network. We operate out of 10 centres with groups together with (1) Birmingham (a collaboration between Minerva Aston and Birmingham universities), (2) Black Country growth hub, (3) Sci-Tech Darebusy Science Park (Chester), (4) Gloucester, (5) Loughborough University, (6) John Moores University (Liverpool),(7) London (with Warwick Business School), (8) Nottingham (a collaboration between the universities of Nottingham and Nottingham Trent) and (9) Warwick Innovation Centre and an associate member (10) Wroxall. Minerva has supported over 90 companies leverage £63mn in investment since 2010.
One of our greats challenges is the regional imbalance in investment activity and the accompanying risk of a loss of talent, jobs and entrepreneurs as they seek funding down South. Given the relatively low investment activity in our SMEs compared to the South East, we have a pool of latent talent in the Midlands and North of potential investors get to be fully engaged. It is an important capital not only in financial terms but as an experience base that more than ever, we need to engage with to support our local entrepreneurs.
We have in the UK a unique and important tax incentive, the Enterprise Investment scheme, that has been a great asset in helping investment in early-stage companies. However, the distribution of investment validates the level of challenge we face in seeking to balance the UK’s economy.
HMRC tells us under their Enterprise Investment scheme, and Seed Enterprise Investment scheme £2.1bn was invested in what can be considered start-ups and scale-ups. This is 6,240 companies who use the support yet 67% of this money was invested in companies based in London or the South East
The British Business Bank tells us in their report in their The UK Business Angel Market: –
“The so-called golden triangle between London- Cambridge-Oxford is where most UK angels are located and where they tend to invest. Over half (57%) of angels are based in London and the South East, with the majority (80%) of London based angels making at least one investment in London. But angels elsewhere are also attracted to investing in London with 63% of non-London based investors making at least one London based investment.”
Through the British Business Banks, we have seen many initiatives seeking to address this disparity, for example, the Northern Power House and the Midlands Engine Investment Fund both of which has helped. However, sadly we seem to lack the culture enjoyed in the South of active investing in our entrepreneurs and these young high growth companies to the same level. As we move North property is historically perceived as the principal investment tool for those with any spare capital and the term High Net Worth investor (self-certification requirement for angel investors) is a term frequently misunderstood.
Yet Angel money is invariably good soft finance being patient and generally philanthropic in nature (its risky nature is well understood). However, frequently not realised is the value (if not greater) the investors experience and connections bring. While investors can fall into two camps “passive” – the request no involvement or “active” – they want to support the business, they both can prove the steady hand on the tiler and a lifeboat at times of trouble. All too frequently inexperienced entrepreneurs can be bedevilled by bad advice, easily influenced by “big” credential and exploited. It can be somewhat of a lottery in finding the right advisors, or appropriate board member. Angels, with skin in the game, an altruistic attitude can fill these gaps. Their interest is typically based on having relevant experience and the right interpersonal chemistry seems to be a good starting point. As always exceptions do apply, and an advisor/board member needs to be chosen carefully.
The importance of this relationship has been noted by Oxford Economics[iii] who estimated the economic impact on the UK of firms using venture capital or business angel finance or both for 15,000 angel-backed businesses over five years to 2015 helped contributed £4.5bn to GDP and created 69,700 full-time equivalent jobs in the UK economy.
From a Science Park perspective acting as an enabler to an angel network not only helps support those interested in raising finance but provides a talent pool for those young companies seeking guidance. A more extensive network helps with those larger raises for scale-ups and can be popular with Venture Capitalist as both a validation mechanism and the knowledge experienced support is on hand. For the entrepreneur, it can be an independent voice in the wilderness and provide invaluable guidance at critical junctures of development.
Increasing the awareness (and culture shift) for both potential investor and entrepreneur of the benefits of angel activity (e.g. tax advantage, giving something back, helping a company grow, mentoring, the connectivity and a return for all parties) outside the South East remains the largest challenge to the growth of this sector.
Author: Alex Toft, Head, Minerva Business Angels, University of Warwick Science Park