Angel Investment more important than ever

 

The UK continues to enjoy a vibrant start up business culture

According to Companies House a record 650,000 new businesses were created in 20161. The data on the failure rate of start-up businesses varies but a recent report suggests that across Europe 60% of companies will not survive past 5 years2. A key factor that can determine the sustainability and eventual success of young and innovative companies is the availability of risk capital at an early stage.

The early (or seed) stage of development is generally the most difficult time for companies to access external finance. Traditional banks, fund managers and even venture capital firms will typically not lend to or invest in early stage businesses as the risks are considered too great and the average transaction size too small to meet the criteria of these institutions. For many companies, investment provided by high net worth individuals (angels) and grant funding are the only sources of external finance open to them at this stage.

Angel investors, who often have extensive business experience, constitute the most significant source of risk capital at the seed and early stage of company formation. In addition to cash, angel investors may also play a key role in providing strategic advice, credibility with funders and operational support for early stage businesses.

In the UK the generous tax breaks for angel investors in the form of the Enterprise Investment Scheme (EIS) and the more recent Seed Enterprise Investment Scheme (SEIS) have underpinned the vitality of the provision of early stage risk capital. The EIS was launched in 1993 to “recognise that unquoted trading companies can often face considerable difficulties in realising relatively small amounts of share capital3.” Since that time 26,000 companies have raised £15.9 billion through EIS4.

Oxford Innovation set up Oxford Investment Opportunity Investment Network (OION) in 1994 as one of the UK’s first angel networks to support this early stage investment activity. Since then our angel investors have invested in over 250 companies for a total amount of close to £40 million. In addition OION has established the OION SEIS/EIS fund in conjunction with investment managers Innvotec which invests alongside our angel investors.

Venturefest, like OION, celebrates the critical role of the angel investor in supporting entrepreneurs and innovators thereby contributing to the success of Oxfordshire’s economy. OION are therefore delighted to support Venturefest Oxford, particularly in running the Pitching for success event.

 

1Centre for Entrepreneurs (CFE)’s analysis of the latest Companies House data.

2The UK 5-year survival rate for businesses born in 2010 and still active in 2015 was 41.4%. from ONS Statistical bulletin: Business demography, UK: 2015

3Michael Portillo, then Chief Secretary to the Treasury

4HMRC Key Statistics – April 2017: Enterprise Investment Scheme & Seed Enterprise Investment Scheme