Whether you call them business angels or providers of informal venture capital, individuals who are prepared to invest four-, five- or six-figure sums are an important source of long-term finance for start-ups and small companies.
Often these investors are friends, relatives or business acquaintances, but the process of searching them out, even if it is done with the assistance of a practising accountant, can still be a hit-or-miss affair.
Now a DTI-backed initiative has been launched to establish the new National Business Angels Network. It is the network’s aim to act as a catalyst to stimulate a dramatic increase in British business-angel activity over the next few years. And high on our list of priorities will be moves to encourage more active participation by professional firms, particularly accountants.
Professional firms will also be able to become associates of NBAN. This will mean that companies seeking funds must have a sensibly prepared business plan that has been vetted by a recognised professional NBAN associate before being accepted. Companies will not be able to register with NBAN direct but will have to come through the associates, who will also be able to retain a proportion of the registration fee.
The National Business Angels Network includes both the Corporation of London and the five major high street banks among its sponsors, together with the support of the DTI. We expect that the banks will also forward details of companies which they believe would benefit from business-angel investment.
As NBAN is non-profit making and non-partisan we will not be in competition with other business-angel organisations or advisers. So any professional firm registering either companies or individuals with NBAN need not worry about whether another adviser will try to take over the relationship with their clients.
Once businesses have been accepted by NBAN, succinct details are immediately placed on our interactive website and included in our print publication for six months.
The identity of the business is not initially revealed, but registered investors can use a password to access further information and request business plans from the associate who introduced the business. The business angels’ names remain confidential until they have made a decision to put them forward to the companies they are interested in.
We often look to the enterprise culture of the US for a lead, and while blind mimicry would be dangerous, I do believe we should attempt to emulate their level of business angel investment. Because angels are elusive and tend to value their anonymity highly, firm statistics are hard to come by. But even accepting what I regard as a relatively optimistic claim that there are 18,000 business angels in the UK, that is still, in proportion to our population, well under half the number in the US.
Business-angel activity in the UK has been held back in the past by a lack of understanding, allied to a certain amount of confusion and even suspicion. NBAN wants to create an open environment in which the movement can flourish, and a growing number of business angels and the growing companies that need them, can be brought together.
Normally business angels are prepared to commit sums from #10,000 to #50,000 per investment, but the amounts available can be much higher, particularly if the investors are prepared to form a syndicate. There are also many examples in which the involvement of a business angel, who invests time as well as money in the enterprise, can provide the additional credibility which enables more funds to be raised elsewhere.
Many of the recipient companies will also qualify under the EIS for income and capital gains tax relief, and the new Budget proposals for additional rollover and tapering relief on CGT should add to their attractiveness.
The returns reflect the high-risk nature of these investments. Recent research showed that one in five business-angel investments in the UK had an average annual return of 50% or more. On the other hand, one in three involved a total loss.
We believe that business angels can successfully supply a vital source of long-term equity finance for companies when undertaking expansion – particularly if the need is for amounts which are too small for consideration by conventional venture capital funds.
The formation of the NBAN makes it very simple for companies, investors and their advisers to plug into the business angel structure in the UK, and I very much hope the accountancy profession will become increasingly active in pursuing this option.
Michael Snyder is senior partner at Kingston Smith, and the first chairman of the National Business Angels Network
CONTACTING THE NBAN
Further information from: National Business Angels Network,
40-42 Cannon Street, London, EC4N 6JJ
or contact the information pack hotline by telephone: 0171 329 4141.
By email: firstname.lastname@example.org,
or on the Web: www.nationalbusangels.co.uk.
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