Around half of angel investors reported a negative impact from COVID-19 on their investments, according to the British Business Bank UK Business Angels Market Report 2020. Yet, despite this adversity, most angels continued to invest, with around 57% investing between April and July 2020.
Jenny Tooth OBE, CEO of the UK Business Angels Association, says it was a very challenging time. "For the angel and early-stage investment community, particularly in the early stage of the pandemic, a lot of angels withdrew temporarily from the market, quite concerned about their investment portfolio."
Those angels that remained changed their approach to their current and future portfolios due to the pandemic. If an SME had already secured angel or early-stage investment, angels usually focused on them, bringing forward funding rounds and putting in work to try and keep the businesses going.
"Angels were incredibly important to SMEs at that time. They stepped up to the plate – both in hands-on support and more money," says Tooth. "It was the investors who were often saying: let's try and bring our funding round forward, how can we keep going, how can we achieve the milestones we'd planned."
However, if you were looking for investment for the first time in the early-to-middle part of 2020, you would find it extremely tough to get funding. "Our research found that over 50% of [angel investors] said that the pandemic was affecting their investment approach in terms of the amount of money they would be willing to invest in the future," adds Tooth.
The typical dry spots within early-stage investing were even drier thanks to the pandemic. "If you were in the regions, there's already less available angel investment than there is in the Golden Triangle. If you're a woman, you have even bigger challenges. Many women already had challenges finding angel and early-stage investments. Those things were quite compounded during 2020," says Tooth.
Despite the challenges of the past year and a half, Tooth says now it's a relatively positive picture for those seeking early investment.
"As we move forward in 2021, we have seen a very strong level of angel and early-stage investment. And that's shown itself in the venture capital market too, but if you look at the angel market, there's been a strong appetite among investors to make new investments as well as helping to grow their existing investments," says Tooth
For any small business looking for angel and early-stage investment, there's definitely an appetite in 2021. The British Business Bank report found that 46% of angel investors planned to make new investments to their portfolio in the rest of 2020/21.
However, the lasting impact of 2020 is competition. Angels have become even more considerate than before, which means that businesses need to step up and make sure they provide assurances to secure investment.
"It's very competitive," says Tooth. "Angels have thought very strongly about what they want to invest. Tech has come through very strongly during the pandemic, and anything that can be offered remotely is still very important."
Flexibility and 'crisis-proofing' are vital. Products and services delivered both online and directly are more attractive.
Innovation remains critical as well, but COVID has also led many investors to put more significant consideration into the footprint of a business.
"Areas like impact and sustainability have also become crucial to investors. In a way, the global pandemic has made everyone think, and investors have thought I want to back businesses focusing on global challenges, societal issues. For example, healthcare has become very strong, fintech as well – especially fintech for good," says Tooth.
Sectors the pandemic has hit hard may struggle more than others to secure investment, but Tooth says it's not an automatic no. "Angels will be a little bit cautious on sectors like hospitality, food, catering and events for a while until they have been able to reestablish themselves," says Tooth.
If those businesses can show that they can survive, adapt and possibly bring something new to the market, they will have a greater chance of success.
It will undoubtedly take a while for investment to overtake pre-pandemic levels, but angel and early-stage investing is moving in the right direction.
"We have seen a growth in new people wanting to become early-stage investors during the pandemic and particularly during 2021, as people realise that it's an opportunity to help support entrepreneurs and to put their spare finance in the market," says Tooth.
That's the most encouraging opportunity, she says. Some businesses that have done well over the pandemic will now see the opportunity to invest in their local business economy.
"We all recognise as a community that small business is so important to economic recovery. It will take a while to be better than 2019, but we're on the right track."
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