In October 2011, my predecessor as policy chairman at the City of London Corporation, Stuart Fraser, launched Angels in the City in partnership with London Business Angels, an initiative to support enterprise and increase investment into small and growing scalable businesses in the City fringes.
Many of our constituents in the City are well placed to become business angels. They have the capital to invest, substantial financial acumen and, critically, business insight. For potential angels there are challenges as well as the considerable opportunities. The initiative seeks to address those challenges and help angels capitalise on the opportunities.
Aside from the wider societal impact, the major opportunity for angel investors is the potential return on investment. Research by NESTA in 2009 suggested that UK angel investments delivered an overall IRR of 22%. Of course, this has to be balanced against those deals, which do not return their stake money.
The UK government is looking to encourage angel investment with several incentives. The Seed Enterprise Investment Scheme (SEIS) came into effect in April 2012, providing income tax relief of 50% for individuals prepared to invest up to £100,000 per annum in businesses trading for less than two years. And the Enterprise Investment Scheme (EIS) now enables investors to invest up to £1m per annum (previously £500,000) in SMEs, which are now themselves permitted to take on annual investment of up to £5m under the scheme.
Syndicated deals
The UK government has also launched a £50m Angel CoFund, operated by Capital for Enterprise and aimed at SMEs in deprived areas in England, which includes those bordering the City, the focus of Angels in the City. The Angel CoFund offers angel syndicates the opportunity to attract up to £1m of additional finance alongside angel-syndicated deals in early stage businesses.
And what of the challenges facing prospective angel investors? Firstly, there is a lack of awareness of the many tax breaks and incentives for angel investing. The second challenge is how potential angels translate their undoubted financial and business skills, skills they often deploy day-to-day on multi-million pound deals and other corporate undertakings, into being effective and active investors in innovative early stage businesses.
Potential angels often struggle to identify early-stage businesses with the potential to deliver significant returns. They can be unsure of what to look for in such businesses and how they ensure the right processes and checks are in place to turn potential into returns of 10 times investment. Inevitably, potential angels are time-poor. For them to bring their financial capacity to the angel investment arena, the process needs to be made simple and effective. We can arrange bespoke sessions at potential angels’ premises for them and any interested colleagues.
Angels in the City helps potential angel investors from the Square Mile address these challenges and make the most of the opportunities. The programme, delivered in partnership with London Business Angels, provides information to potential angel investors and supplements this with targeted capacity-building support to prepare potential angels for their first angel investments. We facilitate pitching events, which bring together potential angels and early stage businesses seeking investment.
London Business Angels has more than 30 years’ experience of working with the angel community. Through Angels in the City we aim to attract 125 new angel investors from the City by March 2013, and ultimately be generating £10m of investment per annum in around 40 businesses, creating some 200 jobs each year.
Mark Boleat is policy chairman at the City of London Corporation. He is chairman of Claim Witness Solutions (UK), Quant Capital Partners and UK Social Data Services
This article first appeared in Corporate Financier, magazine of the
ICAEW Corporate Finance Faculty
in July/August 2012.
