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Developing Time Series Data on

the Size and Scope of the UK

Business Angel Market.

May 2008

Colin M Mason

Richard T Harrison

URN 08/1152

Colin M Mason Richard T Harrison

Hunter Centre for Entrepreneurship Queen’s University Management School
University of Strathclyde Queens University Belfast
Glasgow G1 1XH Belfast BT7 1NN
Scotland Northern Ireland

Tel: 0141 548 4259 Tel: 028 9097 3621

0141 548 3482 028 9097 5025
Fax: 0141 553 7602 Fax : 028 9097 5156
Email: E-mail:

Executive Summary 1

Author biographies 6

1 Introduction 8

2 The UK business angel market: an overview of previous 15


3 Developing a time-series dataset to measure business angel 30

activity in the UK: definitional issues

4 Data sources for measuring the investment activity of business 34

angels: a critical review

5 Recommendations 60

References 67

Appendix 1. Questionnaire used by BANs to report on the 73

investments that they had facilitated.


This Report was commissioned to identify the importance of business angel

investment in the UK, summarise previous approaches to mapping the scale and scope
of the business angel market, identify new approaches to measuring business angel
activity and assess the implications for policy.

A business angel is defined as an individual acting alone or in a formal or informal

syndicate who invests their own money directly in an unquoted business in which
there is no family connection, and who, after making the investment, takes an active
involvement in the business (as an advisor or board member, for example) directly or
via a co-investor.

There is an important distinction between a business angel per se (‘pure’ business

angel investment) who is, generally, commercially motivated and driven by
expectations that there will be a financial return on the investment (although some
angel investors do on occasion trade-off commercial returns for other social or
altruistic motivations). These meritocratic investors are distinguished from informal
investors, a broader category that includes business angels but also includes investors
motivated by primarily non-commercial motives (particularly family connections),
described as ‘love money’ or affinity investing. While both are important, only ‘pure’
business angel money is potentially available outside family and personal connections
and is the primary focus of public policy interest.

Business angel investment is important to the development of an entrepreneurial

economy. However, in the absence of directories of business angel investors their
invisibility makes difficult the development of accurate estimates of the scale of the
business angel investment market and the identification of trends in that market.
Based on a detailed review of previous research on business angels in the UK and
internationally, the report concludes that research-based knowledge of the business
angel market is ad hoc:

i. it is cross-sectional rather than longitudinal, and as such offers no evidence

on establishing trends in investment activity with any degree of robustness
or reliability;
ii. it is often based on small-scale samples, which creates problems of
generalisability to provide estimates of overall market activity levels;
iii. these samples are more often than not samples of convenience, raising
issues of the extent to which extrapolation can be undertaken when the
representativeness of the sample is unknown;
iv. research is characterised by different definitions of business angel activity,
raising the problem that comparative analysis is not based on a like-with-
like comparison;
v. international comparisons are problematic;
vi. as a result policy decisions are based on partial information.


1. In view of the importance of business angel investment in supporting an

entrepreneurial economy, the Enterprise Directorate should develop
improved time series data on business angel investment activity.

2. Data collection should be based on a consistent rigorous definition of

business angels. The Report defines a business angel as an investor who:
invests their own money, makes their own investment decisions1, is driven
largely by commercial considerations (although some investors may trade
off part of the commercial return for non-financial considerations), is not
making within-family investments, and has a hands-on involvement with
the investee company either themselves or through a co-investor. Separate
data collection and analysis is appropriate to scope out the non-‘pure’
informal investment activity in the UK to provide an overall assessment of
the availability of risk capital.

3. Identifying business angels and the amounts they report to have available
for investment is extremely problematic. Accordingly, the focus of data
collection should be on investment activity – the investments made by
business angels – rather than on the investors themselves. Data should be
collected on both the activities of business angel investors and on the
companies in which the investments are made.

4. The business angel investment market is evolving and the Report notes in
particular the emergence of business angel syndicates as a key part of this
market. Given the increasing significance of angel groups and syndicates,
therefore, the Enterprise Directorate should instigate a regular (annual or
twice a year) survey of angel groups and syndicates to collect information
on their investment activity. As similar information is being collected in
the US and is to be collected in Canada, there is scope for developing
international comparisons in investment levels and trends.

5. Data collection on the business angel market can build on data that already
exists, working with existing data sources so that they can be used to
generate estimates of business angel investment activity. The Report
recommends action on five fronts:

a. Seek changes to the questions in GEM (Global Entrepreneurship

Monitor) about informal investment to include questions about the
investments themselves

b. Encourage BBAA (British Business Angel Association) to increase the

range of data collection from members: while to some extent this
represents the ‘tip of the iceberg’ in terms of market coverage, there is

This includes investors making decisions through a syndicate or upon the recommendation of a lead
investor (or “archangel”) but excludes collective investments through Venture Capital Trusts.

potential to capture data not otherwise available from other sources
(for example, on valuations, deal structures, co-investment activity).

c. Undertake administrative changes to the process in of 88(2) forms by

Companies House to address the limitations of this as a source of data
on market activity. These changes would include: enforcing the
requirement to file; ensuring the completeness of records; requiring the
disclosure of both loan and equity investments; speeding up the
timescale for filing; classifying the investors to identify ‘insiders’ and
‘outsiders’ and ‘connected’ and ‘unconnected’ investors; and timely
publication of a list of 88(2) filings.

d. Undertake a one-off survey of business angels to identify the

proportion that are members of business angel networks, the
proportion of their investments that are made through these networks,
and the extent to which such investments are distinctive from those
made without using such networks. With this information it would be
possible to extrapolate from data on investment activity through
networks (as reported by BBAA, for example) to generate overall
‘headline’ market estimates.

e. Undertake a one-off survey to estimate the total share of business angel

investment activity that is accounted for by EIS (Enterprise Investment
Scheme) and use this information to scale up EIS investment statistics
to provide overall market estimates. This would require surveys of
both business angel investors and EIS investors.

f. While efforts to improve the utility of GEM, EIS and BBAA statistics
could generate much improved information on business angel activity
at relatively little cost, each of these data sources has limitations that
preclude using them in isolation. Accordingly, a multi-method
approach to generating consistent reliable time-series data on the
business angel market is recommended. In addition to improving the
utility of the 88(2) date, we recommend that consideration is given to:

i. Pressing the GEM research coordinators to change the

questions they ask about informal investment;
ii. Collecting more comprehensive data through BBAA on their
members’ investment activity;
iii. Scoping a project, based on an appropriate sample, to asses the
overlap between EIS and ‘pure’ business angel investment (this
could also provide information on business angel network
membership to permit scaling up of BBAA data).

6. Data collection on the business angel market can also be based on new
data collection, going beyond existing data sources, to develop a more
accurate, consistent and comprehensive estimate of angel investment
trends. The Report recommends that the Enterprise Directorate invests in
a company survey modelled on the Canadian Financing Data Initiative
(CFDI). This is methodologically rigorous in its approach and can

generate estimates of both the stock and the flow of business angel
investments on an annual basis, and could build on existing surveys (such
as the Annual Small Business Survey) to minimise the otherwise high set-
up costs.

7. With a CFDI-type survey at the core of a data collection strategy,

reinforced by modifications to GEM, BBAA, EIS and 88(2) sources as
discussed above, there would be a strong basis for collecting consistent
and robust time series data on the UK business angel market. This would
give the UK the best statistical information on business angel activity and
would provide policy makers with and effective ‘instrument dial’ for
monitoring the early stage risk capital market and providing the basis for
evidence-led intervention in the market. Given the diversity of data
sources available and to be developed, and the importance of adopting a
multi-method approach to market estimation and tracking, the Enterprise
Directorate should commission and publish an Annual Report on the UK
business angel market.


Colin Mason

Colin Mason is Professor of Entrepreneurship and Head of Department in the Hunter Centre
for Entrepreneurship ( at the University of Strathclyde in
Glasgow. He was previously a Professor of Economic Geography in the Department of
Geography at the University of Southampton. His research is concerned with
entrepreneurship and venture capital, particularly in the context of regional development. He
has published extensively on topics such as the new firm formation process, the geography of
new firm formation and growth, the impact of small business policy, and venture capital in
both the academic and practitioner-oriented literature. Over the past twenty years his main
research, undertaken jointly with Professor Richard Harrison (Queen’s University of Belfast),
has been concerned with the availability of venture capital for entrepreneurial businesses -
they are recognised as leading academic authorities on the informal venture capital market.

He has been closely involved with government and private sector initiatives to promote
informal venture capital in the UK, including undertaking several consultancy projects for the
Department of Trade and Industry, Small Business Service and Scottish Enterprise, compiling
an annual guide to sources of business angel capital and investment activity report on behalf
of the British Venture Capital Association, and undertaking research on behalf of the National
Business Angel Network. He is an honorary member of the British Business Angel
Association (BBAA). Professor Mason was a member of the Governor of the Bank of
England’s small business finance forum and the Treasury’s Enterprise Panel which examined
the role that business incubators might play in stimulating technology-based businesses in the
UK. He has also advised the Australian Government and various Finnish and Argentinean
organisations on strategies to increase the supply of informal venture capital and has been a
consultant to the OECD and the European Union on issues associated with innovation and
venture capital.

He serves on the editorial boards of six entrepreneurship/small business journals and is

founder and co-editor of Venture Capital: An International Journal of Entrepreneurial
Finance (Routledge). He teaches courses on New Venture Creation and Entrepreneurship and
Regional Development and has also lectured on raising venture capital on several MBA
courses in the UK and abroad. In addition, he teaches on a Masters Degree in Industrial
Economics with Particular Emphasis on Small and Medium Sized Enterprises at the
Universidad Nacional General Sarmiento and Universidad Nacional de Mar del Plata,
Argentina and has also taught at universities in Canada and Australia. He has also been
involved in several workshops for entrepreneurs on how to raise finance and participated in
the Fit4Finance Programme that was run by Hertfordshire Business Link throughout the
South East and Eastern regions of England from 2002-6.

Richard Harrison

Richard Harrison took up the position of Professor of Management and Director of Research
at Queen’s University Management School at Queen’s University Belfast in January 2006
(, and assumed the role of Director and Head of School in

September 2006. He was previously Dixons Professor of Entrepreneurship and Innovation,
and Director of the Centre for Entrepreneurship Research, at the University of Edinburgh
Management School, and has held professorships in entrepreneurship, strategy and executive
development at the Universities of Aberdeen and Ulster. Professor Harrison’s primary
research over the past twenty years has been in the area of venture capital and business angel
finance and encompasses three sets of studies. First, analyses of the operation of early stage
venture capital markets (both business angel markets and formal venture capital markets) and
their role in stimulating and supporting business development (and hence economic
development). Second, policy analysis and advice directed at the more effective mobilisation
of early stage risk capital, including assessment of public sector/state interventions in the
supply of capital at local, regional, national and international level. Third, international
studies of the emergence and development of risk capital markets in emerging economies –
much of this research is currently focused on East Asia (China, Malaysia, Singapore, Taiwan)
and concentrates on the analysis of (a) the internationalisation of the venture capital industry
and (b) the governance and regulatory issues in the development of an indigenous venture
capital industry in emerging economies.

He is founding co-editor with Colin Mason of Venture Capital: An International Journal of

Entrepreneurial Finance (Routledge) – now in volume 10, this is the only refereed academic
journal that specialises in the publication of research and policy papers on all aspects of
venture capital and entrepreneurial finance, including business angel finance.

Professor Harrison’s teaching at Masters level (full time and executive MBA programmes)
has focussed on a range of Entrepreneurship and New Venture Creation courses, with the
emphasis on developing both knowledge of the entrepreneurial process and the application of
the principles of entrepreneurship in practice in start-up and corporate contexts. Much of this
teaching is focused on opportunity identification and exploitation. Additional teaching lies in
the area of Business Strategy for Entrepreneurial Ventures and Leadership Theory and
Practice, and courses have been run for participants from major financial institutions and
small business owners in a wide range of sectors, including the education sector. He has also
contributed widely to MBA and doctoral education programmes in the US, Argentina and

Professor Harrison has served as adviser/consultant/speaker on venture capital, business

angels and financing innovation to, inter alia, UK Department of Trade and Industry (Small
and Medium Enterprise Policy Directorate; Innovation Unit; Small Business Service);
Scottish Financial Enterprise/Scottish Enterprise; Welsh Development Agency; British
Venture Capital Association; European Union DG XIII (EIMS Financing Innovation
workshops); European Seed Capital Fund Network (Liege workshop); Forbairt (Ireland);
Enterprise Ireland; Fraunhofer Institut, Karlsruhe (Germany); Six Countries Inter-
Governmental Programme; OECD; EURADA; European Business Angel Network; Swedish
Forum for SME Research; LINC(Local Investment Network Company) (UK); LINC
Scotland, CONNECT (Denmark), CONNECT (Sweden), and to advisors, policy makers and
local development interests on venture capital and informal venture capital (including advice
on the funding of technology based businesses and the role of technology rating services in
particular) in the UK, Ireland, USA and Europe. He has undertaken research on behalf of the
National Business Angel Network and is an honorary member of the British Business Angel
Association (BBAA). He has recently undertaken two major reviews of the early stage risk
capital market in Scotland for Scottish Enterprise (see <http://www.scottish-> for the most recent), and
prepared the background paper making the case for the Scottish Investment Fund (renamed
the Scottish Venture Fund), recently launched by Scottish Enterprise (see
<> for details of the Harrison/Peters report).
He was an invited participant in an Industry Canada experts roundtable on improving
statistical information on the informal venture capital market in Canada (2002), and was an

ad hoc member of the Finnish delegation to a US-Finland roundtable on developing the
venture capital market in Finland (2004) as part of his association with the Emerging
Business Research Centre at Tampere University of Technology and University of Tampere.
He is also a member of the International Advisory Board of the CIRCLE (Centre for
Innovation, Research and Competence in the Learning Economy) interdisciplinary research
project at Lund University, Sweden. He has recently been appointed to the International
Advisory Group for the Management of Rapid SME Growth 2006-2010 research project at
McGill University Montreal and Helsinki School of Economics.


A simple definition of a business angel is an individual, acting alone or in a formal or

informal syndicate, who invests their own money directly in an unquoted business in
which there is no family connection and who, after making the investment, takes an
active involvement in the business, for example, as an advisor or member of the board
of directors. There is an inference that such individuals are likely to have a high net
worth in order to have sufficient disposable wealth to make such high risk

Business angels make up what is often termed the informal venture capital market.
This contrasts with the formal, or institutional, venture capital market which
comprises professional investors – venture capital firms – who invest ‘other peoples’
money’, typically raised from banks, insurance companies and pension funds, but also
non-financial companies, wealthy families and charitable trusts. Their investment
activity is recorded and reported by their national venture capital association (e.g. the
British Venture Capital Association).2

Some researchers include investments by family (‘love money’) and friends (affinity
money) as part of informal venture capital. However, business angel investment is
conceptually distinct from investment by family and friends. Angel investment is
primarily commercially oriented3 – in terms of both the expectations of the investor
for capital gains and other financial returns and the terms and conditions governing
the investment - whereas love money is not. Thus, an angel investment can potentially
be made in any business whereas ‘love money’ is restricted to situations in which
there is a family or friendship connection between the investor and the business
owner. The Global Entrepreneurship Monitor (GEM) project has suggested that
family investment is more significant than disinterested or unconnected business
angel investment – in the UK; for example, around 12% of reported informal

There is a tendency to assume that national venture capital statistics are an accurate measure of
investment activity in the formal venture capital market and therefore to use them uncritically.
However, a study of the membership Swedish Venture Capital Association challenged its
representativeness – and hence the accuracy of its statistics - noting that it includes some firms that are
not proper venture capital investors and excludes some important investors. The effect is to understate
the amount of early stage investments (Karaömerlioglu and Jacobsson, 2000).
However, this does not preclude non-commercial motivations. Both Wetzel (1981) and Sullivan
(1994) have noted that some angels invest for less than fully commercial reasons, for example because
the product/service has social benefits, to support particular types of entrepreneur, or to support their
local community, and are willing to trade-off some financial return against these altruistic
considerations. Nevertheless, these investments remain distinct from those made by family and

investment is sourced from business angels, the remainder coming from family and

However, for the purposes of this report the terms business angels and informal
venture capital will be used synonymously to refer to this ‘pure’ angel investment.

1.1 Role of Business Angels

Business angels play a critical role in the creation of an entrepreneurial climate for
three reasons.

First, they invest largely in those areas in which institutional venture capital investors
are reluctant, or unable, to invest. Because business angels do not incur the transaction
costs of venture capital firms they are able to make smaller investments, well below
the minimum deal sizes considered by venture capital firms. Investments by business
angels are also relatively more concentrated at the seed and start-up stages, whereas
venture capital firms tend to provide finance for growth and development. This is best
illustrated by Freear and Wetzel (1990) in their study of the sources of finance used
by new technology-based firms in New England in the 1980s. They found that while
business angels invest across the full range of business development stages, they “are
the primary source of funds when the size of deal is under $1million” and “provide
more rounds of seed and start-up capital than venture capital funds.” For larger
amounts and later stages venture capital firms dominated. Replication of this study in
the 1990s confirmed these relationships (Freear et al, 1997; 1998).

It therefore follows that the informal venture capital market is the largest external
source of early stage risk capital, substantially dwarfing the institutional venture
capital market.4 Robert Gaston’s estimate for the 1980s was that business angels in
the USA were providing capital to over 40 times the number of firms receiving
institutional venture capital, and that the amount of capital they invested almost
exceeded all other sources of external equity capital for new and growing businesses
combined (Gaston, 1989a). A ‘back of the envelope’ estimate for the UK in the late
1990s suggested that the informal venture capital market provided almost twice as
much early stage finance as the formal venture capital market (Mason and Harrison,
2000a). Recent research in Scotland, tracking all identifiable investment deals over
the past five years, has demonstrated that business angel investment significantly
outweighs institutional venture capital investment (Harrison and Don, 2004; 2006).
Indeed, business angels are often the only source of external seed, start-up or growth
finance available once businesses have exhausted personal and family sources and
sources of ‘soft’ money (e.g. PYBT, government schemes such as Proof of Concept
and University Challenge) funds.

Second, business angels are much more geographically dispersed than venture capital
funds, which are overwhelmingly located in just a small number of major financial
However, as noted earlier, recent evidence from the Global Entrepreneurship Monitor (GEM), which
is discussed in detail later, notes that capital supplied by family members substantially exceeded the
amounts raised by business angels.

technology centres and concentrate their investments in a relatively small number of
locations (Mason, 2007).5 In the case of the UK, BVCA statistics for 2006 reveal that
London and the South East attracted 42% of all venture capital investments and 60%
of the amount invested. Early stage investments are equally geographically
concentrated, with London, the South East and the East of England attracting 49% of
such investments and 54% of the amount invested by value. This is in marked contrast
to business angels which, Gaston (1989b) has suggested, “live everywhere”.
However, since most business angels are current or former entrepreneurs they are
likely to be most common in regions with a thriving entrepreneurial climate. The only
analysis of the geography of business angel investing has been undertaken in Sweden
where Avdeitchikova and Landström (2005) show that both investments (52%) and
the amounts invested (77%) are disproportionately concentrated in metropolitan
regions (which has 51% of the total population). However, this is a less
geographically concentrated distribution than is the case for institutional venture
capital fund investments. Furthermore, business angels tend to invest locally, making
the majority of their investments in firms located within 50-100 miles of where they
live (Harrison et al, 2003). This is largely a reflection of the superior information
available on investment opportunities close to home and the ‘hands on’ nature of their
investments. So, from a regional development perspective the informal venture capital
investment process helps to retain and recirculate wealth within the region that it was
generated, counteracting the effect of most investment mechanisms which act as a
conduit through which personal savings flow out of regions to the nation’s financial
centres for investment in core regions and abroad.6

Third, informal venture capital is ‘smart money’. Business angels are typically ‘hands
on’ investors who seek to contribute their experience, knowledge and contacts to the
benefit of their investee businesses. The opportunity to become involved is a major
reason for becoming a business angel. The analogy is with being a grandparent –
being a business angel enables an entrepreneurial individual to become involved with
and contribute to the start-up and growth of a new business but without the 24-7
involvement of the entrepreneur (or parent). It is also a way in which investors can
reduce agency-related sources of risk (the availability of information to one party in a
relationship – in this case the business owner – that is not available to the other) and
increase the prospects that the business will be successful. Since most business angels
have an entrepreneurial background this involvement can also be expected to benefit
the businesses in which angels invest – although to date research has failed to identify
a positive relationship between involvement and business success despite the
reporting of such benefits (or the perception of benefits) by owners (and investors) in
successive surveys.7

See Mason and Harrison (2002c) for an analysis of the regional distribution of venture capital
investments in the UK.
For example, see Martin and Minns (1995) for a regional perspective on the effect on pension fund
flows and Mason and Harrison (1989) who show that the flows of investment generated by the
Business Expansion Scheme favoured the ‘south’ over the ‘north’ – this example demonstrates the
impact of the institutionalisation of what was intended to be a development of the informal investment
market, as it is the pooling of funds (the imposition of an intermediary between the investor and the
investee business) that is associated with this regional concentration in investment flows: it is likely
that direct investments in BES-eligible businesses were less subject to this north/south leakage.
See the paper by Macht (2006), presented at the 2006 ISBE conference for a review of the literature
on the post-investment impact of business angels on their investee companies.

1.2 Measurement Issues

Given the importance of a thriving informal venture capital market for the creation
and maintenance of an entrepreneurial economy it is important that Government is
able to measure the number of business angels and the level of their investment
activity. Measurement is important to monitor any decline in the number of business
angels, drop in their investment activity or change in the nature of their investments,
any or all of which could threaten the ability of businesses to access finance for start-
up and growth. Measurement is also required in order to assess the impact of
government interventions and other changes in the external environment on informal
venture capital investment activity. Equally, any evidence for an increase in the
number and investment activity of business angel investors has implications for the
development of additional market interventions to increase the supply of capital.

However, measuring the number of business angels and their investment activity on
either a cross-sectional (static) or time-series basis is extremely problematic. There
are two main problems: identification and definition.


First, as William E Wetzel Jr observed in his pioneering research on business angels,

the total population of business angels “is unknown and probably unknowable”
(Wetzel, 1983: 26) on account of their invisibility and desire for anonymity and the
undocumented nature of their investing. From a practical standpoint this means that,
unlike the institutional venture capital market, there are no lists or directories of
business angels. The consequence has been that research on business angels has had
to identify business angels through a variety of imperfect sources with no way in
which to test for the ‘representativeness’ of the samples that have been generated.
Indeed, many studies have been based on ‘samples of convenience’, such as angels
who are members of business angel networks, or arising from snowball sampling
methods8, both of which are likely to generate biased samples, not least because they
will under-estimate the number of angels who are ‘lone wolves’, acting alone on their
own initiative, or are one-time or infrequent opportunistic investors9. Furthermore, the
difficulty of finding business angels has meant that most samples are small, which
adds to the representativeness problem and makes it problematic to extrapolate from
sample results to derive population estimates of activity with any degree of


Second, there is definitional ambiguity. In order to gain a robust and accurate

understanding of the size and temporal dynamics of the business angel market, data
collection protocols will have to address the issue of how to differentiate between
what we refer to here as ‘pure’ business angel investment and the wider informal
investment market. There are four dimensions to this issue.

In this approach, a small number of angels are identified and they are asked to identify other angels
that they know in order to expand the sample.
Previous research (e.g. Mason and Harrison, 1992) has suggested that these investor types will be
common in a random sample of angel investors.

• First, the term ‘informal investment’ is increasingly used, notably by GEM, to
describe non-institutional risk capital investments in unquoted businesses. As
noted above, this includes investments made by family, friends and business
angels, with business angel investment being the smallest category. However,
business angels have to be seen as conceptually distinct from ‘love money’
invested by family and friends. Angel investment is primarily commercially
oriented (subject to the caveat that there is a sub-category of socially
motivated investment) whereas love money is not. Moreover, an angel
investment can potentially be made in any business whereas love money is
restricted to situations in which there is a family or friendship connection
between the investor and the business owner. Adding to the definitional
confusion is the fact that whereas a clear distinction can be made between
family members and others, the definition of a friend is much more
problematic: surveys of ‘pure’ business angels have consistently identified
social, as well as business, networks as sources used to identify potential
investment opportunities. A further confusion is that the same individual can
be a source of both angel finance and love money.

• The population of business angels is not fixed or static. Rather, being a

business angel is a transitory state. A ‘virgin’ angel is someone who is looking
to make their first investment – but as the experience of business angel
networks in the 1990s attests, many of these individuals never make any
investments. Another problematic category are individuals who have made
one or more investments but are not currently looking to make new
investments, either because they have no further liquidity (but may become
active investors again once they realise proceedings from a successful exit
event) or because they have invested and have withdrawn from the market on
the basis that this activity is ‘not for them’10. Counting either category of
individual as a business angels risks exaggerating the total number of active
angels in the market and hence the investment capital potentially available. A
final category is latent investors – individuals who would not describe
themselves as active investors but who will invest opportunistically if suitable
deals ‘pop up’. The implication is that approaches which use the business
angel population as a source of information on investment trends (i.e. supply
side measurement) must address the issue of how to identify these various
components of the angel population in order to generate reliable estimates of
the availability of finance from business angels. In practice it may be
conceptually clearer to focus on actual business angel investment flows rather
than the amount of capital that business angels say they have available for

• The angel market is evolving, notably with the creation of angel syndicates
and other angel groups. These groups operate in two ways. First, they may act
as formal or informal syndicates in which each member of the syndicate takes
an active role in the investment opportunity identification, screening and
investment processes. Typically such syndicates will be relatively small.
One example of a successful entrepreneur who exited from his business, initially set out to be a
business angel investor and ceased to consider further activity after two unsuccessful investments
convinced him this was not something he could undertake successfully is given in Mason and Harrison

Second, they may operate on the basis of a small group of active investors
offering passive members of group the opportunity to invest in deals that they
are offered but had no role in identifying, evaluating or negotiating and will
not play any hands on role in the investee businesses. This second group might
be considered to have broken some aspects in the conventional definition of a
business angel. Nevertheless, as the members are investing their own money
on a deal-by-deal basis and making a basic investment decision (yes or no)
they can still be considered to be business angels. Rather more problematic are
those angels groups that operate on the basis of pooling their investment funds
and devolving the investment decisions to the syndicate leaders. This model is
much more common in the USA than in the UK, where such investments are
not eligible for tax relief under the Enterprise Investment Scheme. The reality
of angel investing is therefore that it operates on a spectrum, occupied at one
end by the solo investor who makes his or her own investment decision to
invest directly, and at the other end by investors who are part of angel
syndicates who simply say ‘yes’ or ‘no’ to the investment opportunities that
they are offered and play no direct hands-on role in the investee company. The
hands-off investor who invests in a pooled fund, and delegates the decision on
which investments to make, would not be considered to be a business angel on
the basis on the definition adopted here.

• There is a final definitional issue which has become important in economies

such as the UK. Since the introduction in 1981 of the Business Start-up
Scheme, and the later replacement of this with the Business Expansion
Scheme and the Enterprise Investment Scheme (EIS) (discussed below), and
the introduction of Venture Capital Trusts (VCTs), there have been tax-
efficient vehicles designed to encourage and leverage private capital into
unquoted businesses with a view to closing the equity gap. However, while
schemes such as EIS allow for direct investments by individual investors and
business angel syndicates (to make their investments tax efficient), there is a
problem with pooled investments under EIS and through VCTs, where
individuals commit investment, to take advantage of the tax breaks available,
to fund managers, who make the investment decisions and undertake the post-
investment monitoring. This divorces the investor from the investment
decision-making process, and would not qualify as business angel investment
as we define it here. It is a moot point as to whether the introduction of pooled
EIS funds and VCTs has diverted investment funds that would otherwise have
come to the market as business angel investment.11 While much EIS
investment in particular will meet our definition of business angel investment,
some will not, and most VCT investment will not meet this definition. Given
that EIS investments are captured and reported by Inland Revenue one key
question is the extent to which it is a useful approximation for overall business
angel investment activity?12
The extension of VCTs to allow investment into AIM-quoted companies takes this investment
channel beyond the business angel market and make it impossible in any case to rely on VCT data as a
trend indicator in the business angel market.
It also raises the issue of the extent to which the development of a time series should be based on
capturing data on the investment activity of a specific group of actors in the market (‘business angels’)
or on scoping out the commitment of investment to a specific set of circumstances (defined variously
as start-up/new ventures, equity gap issues, technology ventures etc).

The Project

The project specification defines the objective as being to lay the foundations upon
which a robust time series dataset can be developed to measure business angel
activity in the UK. The ability to measure and monitor changes is seen as being
beneficial both to government in developing policy to increase access to finance by
small businesses, and to stakeholders and finance providers. The specification sets out
four key elements in the study:

• Establishing criteria that will define which informal investment activity will be
classified as business angel activity;

• Reviewing data sources currently available on the business angel market;

• Developing a methodology to collect robust time series data on the size and
scope of the UK business angel market;

• Address data collection issues.

In Section 2, as background, we provide a comprehensive overview of studies that

have examined the UK business angel market, noting in particular the approaches
used in these studies to identify and define business angels. Section 3 offers a
definition of business angels and their investments. Section 4 reviews the research
literature to provide a critical assessment of data sources that have been used in the
UK and elsewhere to identify business angels and measure their investment activity.
Based on this review, Section 5 makes recommendations on the most appropriate
approach to develop a robust time series data on:

• The number of active business angels in the UK;

• The characteristics of business angels;
• The number, size, sector and characteristics of their investments.


2.1 Introduction

The UK business angel market has been the subject of research for nearly 20 years.
This section provides a review of our current knowledge of business angels and the
operation of the informal venture capital market. The review is in three sections. It
begins with a summary of the first ever study of business angels in the UK by Mason
and Harrison (1994) that was conducted between 1989 and 1991. Second, it identifies
subsequent in-depth studies that sought to extend the Mason and Harrison study.
Third, it examines studies that have sought to examine specific aspects of the
investment process. We pay particular attention in this review to the approaches used
in these studies to identify and define business angels.

2.2 Mason & Harrison (1994): ESRC Small Business Research Initiative Study

The first ever study of business angels in the UK was undertaken by Mason and
Harrison between 1989 and 1991 as part of the ESRC’s Small Business Research
Initiative. At that time awareness of business angels in the UK was extremely low.
However, a report by the Advisory Committee on Science and Technology, a Cabinet
Office committee on barriers to the growth of entrepreneurial businesses which was
published mid-way through the research, did emphasise the importance of business
angels, arguing that “an active informal venture capital market is a pre-requisite for a
vigorous enterprise economy” (ACOST, 1990: 41). Mason and Harrison’s study was
hugely influenced by US studies, notably Wetzel’s pioneering study of business
angels in New England (Wetzel, 1981; 1983; 1986a; 1986b) and the subsequent
studies funded by the US Small Business Administration’s Office for Advocacy,
notably Arum Research Associates (1987), Gaston and Bell (1986; 1988)13 and Haar
et al (1988).14 Its aim, following Wetzel (1986a: 132), was simply to put “some
boundaries on our ignorance”, its approach to identifying business angels was based
on the approach used by Wetzel and the questionnaire was modelled on the one used
in the US SBA studies, in part to facilitate UK-US comparisons.

The study had five objectives: (i) to identify the characteristics of UK business angels
and compare them with their US counterparts; (ii) to document their investment
activity; (iii) to identify the characteristics of their investment portfolios; (iv) to
examine their involvement with the companies in which they invest; and (v) to
identify their motivations and factors which they take into account when evaluating
investment opportunities. Following the approach of US studies, questionnaires were
sent to individuals on selected mailing lists which appeared to target individuals with
the characteristics of business angels (business owners, high net worth individuals).
This generated 47 completed questionnaires from over 4000 questionnaires. A further
12 questionnaires were completed by subscribers to Venture Capital Report, a

This research is accessible as Gaston (1989b)
Visits in the late 1980s and early 1990s by Harrison to the SBA and by Mason and Harrison to
Wetzel and his colleagues at the University of New Hampshire gave them access to the reports and
survey instruments and an understanding of the methodological issues involved in finding business

subscription-only magazine containing information on businesses seeking finance,
one response came from questionnaires sent to individuals who placed adverts in the
Financial Times seeking investment opportunities in unquoted companies, and 13
came from investors who were either known to the researchers or referred to them by
a third party. This gave a total of 86 responses.

The key findings were as follows:

(i) Personal characteristics

• UK business angels are predominately male (99%), predominantly in the 45-

65 year age group.
• They are experienced entrepreneurs, two-thirds having started at least one
business, and 70% of these being serial entrepreneurs. Half of the
entrepreneurs were cashed-out.
• The occupational classification is dominated by business-owners, self-
employed and consultants (a description often used by entrepreneurs who had
sold their business).
• Relatively high incomes and net worth but not as rich as might have been
expected (only 16% were millionaires).

(ii) Investment activity

• High rejection rate – invest in only 8% of all opportunities that they consider.
• Median amount invested is relatively small (£22,000 at 1990 prices).
• Only a small proportion of their wealth is committed to such investments
(typically under 10%).
• There is considerable diversity amongst investors in the number of deals
considered and investments made.
• Most angels are infrequent investors and nearly one-third reported making no
investments in the three years prior to the survey (Nb. all respondents self-
defined themselves as ‘business angels’).
• Information on investment opportunities largely comes from business
associates and friends and the investor’s own search – these were also the
‘best’ sources in the sense of being most likely to receive investment. Formal
sources (e.g. accountants, lawyers, bankers) provide relatively few referrals
and have low conversion rates.
• Most angels (70%) cannot find sufficient investment opportunities and have
funds available to make more investments.

(iii) Investment characteristics

• Investments are concentrated in start-up and early stage businesses.

• Investments occur in all industry sectors but there is a strong bias to
technology businesses (self-defined) (33% of the total).
• The average size of individual investments is £10,000 – only 12% of
investments exceed £50,000 (of course, deal sizes were often larger because
some angels invested with others).
• Provide a mix of equity and loan finance.

• Around one-third of investments involve other angels – however, the majority
of investors invest on their own.
• Most investments involve a minority equity stake in the investee business.
• The majority of business angels are ‘hands on’, although only a minority join
the board. However, nearly one-third are passive, merely receiving
shareholder information and attending shareholder meetings.
• Investments tend to be local, with two-thirds in businesses located within 100
miles of the investor’s home or office.

(iii) Investment motivations

• Business angels are motivated primarily by financial considerations, notably

the opportunity for high capital appreciation. However, non-financial
considerations also play an important role, notably to participate in the
entrepreneurial process.

(iv) Investment appraisal

• The key factors which angels take into account are the management team and
the growth potential of the market.
• The vast majority of angels rely on their own evaluation, either exclusively or
supplemented by outside advice.

Comparison with US business angels (Harrison and Mason, 1992a) reveals few
differences in demographics, although those in the UK tend to be older. However,
there are significant contrasts in the operation of the market. In comparison to US
investors, those in the UK
• have more investment opportunities brought to their attention, seriously
consider more opportunities but invest in a smaller proportion.
• are more likely to invest independently.
• are less likely to be approached by entrepreneurs seeking finance.

All of this suggests that the informal venture capital market in the UK may be
operating less efficiently than its counterpart in the USA, particularly with respect to
information flows on information opportunities. Landström (1993) added evidence on
business angels in Sweden to enable a three-way comparison which suggested that
Swedish investors operated in ways that are closer to the US than the UK – for
example, the ratio of opportunities considered to investments made, investment
activity, time spent in evaluation and syndication. However, it is unclear the extent to
which differences between these studies in the identification of business angels
contributes to this variation.

In parallel, Mason and Harrison also undertook a survey of investors registered with
LINC, a federation of local business angel networks (or business introduction services
as they were originally known). Usable responses were obtained from 53 current and
previous members. LINC investors were distinctive from the respondents to the ESRC
survey in three respects: they were younger; they had higher incomes and lower net
worth, and made larger investments (Mason and Harrison, 1996a). This raised the
possibility that business angels who join business angel networks may be distinctive.

The Mason and Harrison study has stimulated further research. Subsequent studies
have been of two types. The first type are further large, comprehensive studies of the
UK informal venture capital market which have sought to extend, qualify or challenge
the profile of the UK informal venture capital market presented by Mason and
Harrison (1994). However, the profile of business angels presented by Mason and
Harrison (1994) has proved to be remarkably robust. The second type is a set of
studies that have sought to add detail to the broad-brush profile of business angels
presented by Mason and Harrison (1994) and subsequent researchers. This has mostly
involved a shift away from what has come to be termed the ‘ABC’ studies of investor
characteristics and investment activity in favour of in-depth studies of particular
investor types and specific aspects of the investment process.

One implication from this research is the difficulty of identifying business angel
investors, and the significant resource costs incurred in trying to build up a sufficient
sample for analysis and extrapolation. Accordingly, as in this and other subsequent
studies, market estimates, even in cross-sectional terms, are hard to come by, and the
logistics of the research preclude easy elaboration of the survey approach into the
basis for time series analysis.

2.3 Beyond the initial Mason and Harrison study

The first major study of the UK informal venture capital market following Mason and
Harrison’s (1994) pioneering exploratory study was research undertaken by Patrick
Coveney at the University of Oxford for a PhD which was repackaged as a ‘how to’
book for businesses seeking to raise finance (Coveney and Moore, 1998). However,
the key findings had been published some time earlier as Stevenson and Coveney
(1994; 1996). The key contribution was to document the heterogeneity of business
angels by developing a six-fold categorisation:

• Virgin angels – individuals with funds available looking to make their first
investment but have yet to find a suitable proposal.
• Latent angels – rich individuals who have made angel investments but not in
the past three years, principally because of the lack of suitable investment
• Wealth maximizing angels – rich individuals who invest in several businesses
for financial gain.
• Entrepreneurial angels – very rich, very entrepreneurial individuals who back
a number of businesses for both the fun of it and as a better option than the
stock market.
• Income seeking angels – less affluent individuals who invest some funds in a
business to generate an income or even a job for themselves.
• Corporate angels – companies which make regular and large angel-type
investments, often for majority stakes.

For each group the study sought to identify the funds available for investment,
demographic and financial characteristics, investment criteria and, where relevant,
barriers to investment.

The study was based on a sample of nearly 500 investors and 467 investments
(involving over 200 investors) – a much larger sample than used by Mason and
Harrison15 and achieved by working in collaboration with Venture Capital Report, a
monthly investment opportunity magazine with a subscriber base of over 700 who
paid a subscription, at that time, of £350 per annum. Over 90% of respondents were
either VCR subscribers or had made enquiries about subscribing. It might be expected
that the requirement to pay a significant subscription would have biased the
subscribers to the largest and most active investors.

The most significant difference from the Mason and Harrison study was that Coveney
found a much higher level of investment activity, which is not surprising in view of
the sample frame used. Investors invested more frequently, made much bigger
investments (median investment of £40,000 per investment) and had bigger
investment portfolios. The proportion of passive investors was also lower. However,
these differences are likely to have arisen on account of the approach taken to identify
business angels which is likely to have favoured more active and bigger investors, and
the inclusion of corporate investors (9% of all respondents) which will also have
biased investment amounts upwards (see Mason and Harrison, 1997 for a full
critique). Other findings, such as the inability of angels to find sufficient investment
opportunities, friends, family and business associates being the main referral sources,
and the dominance of investments in start-up and early stage businesses are all
consistent with those reported by Mason and Harrison (1994).

The second major study in the wake of Mason and Harrison was by Mark von
Osnabrugge, another Oxford University PhD student. This was a more theoretically-
based study. The emphasis was to compare the investment approaches of business
angels and venture capital funds: the focus was therefore on the investment process
rather than the size and scope of the informal venture capital market. Major issues
examined included the following: deal flow, screening, investment criteria, due
diligence, contracting, and post-investment monitoring and control. The research was
based on 262 questionnaire responses from business angels and venture capital fund
managers and 40 personal interviews. Findings were published in academic papers
(e.g. Van Osnabrugge, 1998; 2000) and integrated into a book which reviewed the
entire investment process (Van Osnabrugge and Robinson, 2000).

Mason and Harrison have undertaken two further significant studies. The first of these
was based on funding from the DTI to undertake a follow-up of their ESRC study
which investigated other aspects of the informal venture capital market that remained
shrouded in mystery. So here again the study was not particularly interested in issues
associated with the size and scope of the market. The methodology involved
questionnaires being distributed by 19 business angel networks to their investors: 127
usable responses were obtained, mostly from this source.16 This research led to the
publication of three papers. Mason and Harrison (1999) provided a critical review of
the impact government intervention to stimulate the informal venture capital market,
looking specifically at the use of tax incentives (EIS, roll-over relief and VCTs) and
business angel networks. They concluded that policy was too supply oriented and
needed to address deficiencies on the demand side. In conjunction with evidence from
However, the size of the questionnaire, and hence the detail in the data collected, was much smaller.
Some questionnaires were also sent to business angels who had been identified through informal
contacts and recommendations.

a later study (Mason and Harrison, 2002a) this led them to argue that policy needed to
address the issue of ‘investment readiness’ (Mason and Harrison, 2001; 2004a). The
second paper from this research (Mason and Harrison, 2002b) provided the first ever
evidence on the returns achieved by business angels, their time to exit and method of
exit.17 A related paper found that investing in technology businesses generated an
almost identical returns profile to that of investments in non-technology businesses
(Mason and Harrison, 2004b).

Their second study was based on a survey of investors registered with BANs that
were part of NBAN (Mason and Harrison, 2002a). This supported the clear picture of
business angels being self-made high net worth individuals (62% were millionaires;
71% were or had been business owners), motivated largely by financial considerations
but also from the satisfaction of being involved in the entrepreneurial process,
typically allocating between 5 and 10% of their total investment portfolio to angel
investments. It confirmed their earlier study that the tax regime was the main macro-
level influence on their willingness to make angel investments. In this study 38% of
investors had used the EIS. Over 90% of respondents were looking to make further
investments – no doubt this was a reason why they were members of BANs. The
study therefore probed the barriers which prevent business angels from making as
many investments as they would like – investment preferences (linked to
industry/market knowledge, and location) and the quality of investment opportunities
were both influential. However, investors did indicate that they relaxed their
investment criteria in certain circumstances – notably if the management team had
high credibility, if the investment amount was small, if the business was close to
home and if the opportunity had been referred by a trusted source. The failure to
successfully negotiate investments, typically because of differences of opinion on
price and size of shareholding, was also identified as a relatively frequent occurrence.

A fifth significant contribution is a study of business angels in Scotland by Paul et al

(2003). Scotland has a long tradition of business angel activity. Following research by
KPMG (1992) the stimulation of the business angel market was identified as a key
focus for policy intervention in the Scottish Business Birth Rate strategy. This
resulted in the establishment of LINC Scotland in 1992 which, under its Chief
Executive, David Grahame, is one of the most respected and innovative business
angel networks in the world. Scotland is also distinctive in terms its number of
business angel syndicates. The KPMG study was based on interviews with 38
business angels who had made 89 investments in the previous four years involving an
investment of some £4.4m, with an average of £50,000 (skewed by five investments
each of over £250,000). These investments were predominantly in seed, start-up and
early stage businesses. Investments were made primarily for capital gain rather than
income, the investment instruments was overwhelmingly straightforward equity and
transaction costs were kept low by not costing time and in most cases keeping
documentation to a minimum. Some 80% of investments were less than £50,000.
Investors expected to be personally involved in their investee companies. The
investors were predominantly aged 40-55 and were either cashed out or disengaged
entrepreneurs or experienced managers who had retired or taken redundancy. The vast

An earlier, unpublished version of this research seems likely to have influenced government policy,
the evidence on holding period prompting government to reduce its capital gains taper from 10 years to
four years and evidence on the size of shareholding prompting the abolition of a minimum qualifying
equity share (Mason and Harrison, 2002b).

majority of investments were within 50 miles of their home or work. Investments
were typically sourced through personal networks. Consistent with other research,
investors could not find sufficient investment opportunities. Based on its survey
evidence the study estimated that the size of the informal venture capital market in
Scotland, in terms of both money available for investment and amounts already
invested, was around £25m.

The Paul et al (2003) study was based on a questionnaire survey of current and
previous LINC Scotland investors and members of one angel syndicate. This
generated 140 usable responses, including both virgin angels and those who had made
one or more investments. For the most part the profile of angels and their investment
activity reinforced the picture presented in earlier studies. Scottish angels are
predominantly male and aged over 50. However, in contrast to other studies, only a
minority had a SME background. They were motivated by capital gain, with interest
and fun as subsidiary reasons. The entrepreneur/management team was their key
investment criterion. The sample included 30% who were looking to make their first
investment and, at the other extreme, 14% who had made more than five investments.
This skewed distribution also emerges in terms of the amount invested, with 45%
investing less than £50,000 and 6% investing over £500,000. Half invested as part of
a syndicate. Echoing a constant theme in the literature, most investors were
constrained from investing more by the lack of investment opportunities. There was
no attempt to estimate the size of the market.

Finally, it is important to highlight two somewhat obscure studies from the ‘grey’
literature which sought to profile the angel market in the UK. The first was a
summary of a study of 50 business angels (and 47 intermediaries) undertaken on
behalf of the National Westminster Bank Technology Unit (Innovation Partnership,
1993). This study pointed to the diversity of angel types and involvement in the
market (in terms of amount invested, frequency of investment, size of investment and
amount available for investment). Age (average age of 50), motivation (capital gain)
and background (52% former entrepreneurs) confirmed other studies. It also
confirmed that angels tended to find deals through their personal contacts. In terms of
investment criteria the report confirmed that investing close to home was an important
consideration for a majority of investors – however, this was influenced by the size of
the investment, about of involvement required and ease of travel (“how far can I
travel in an hour”). With this caveat, most investors would consider any investment
opportunity on its merits: only a minority had clear investment criteria – and found it
easier to express these in terms of what they would not invest it. Most investors
wanted to play a hands-on role in their investee businesses. The typical investment
was £20,000-£50,000 but the range extended from £5,000 to £500,000. Finally, the
study noted the difficulty of getting angels to say how much money they had available
for future investments. The potential amounts available for investment are subject to
fluctuation, depending on an individual’s liquidity, the opportunity itself and the state
of their other investments.

The Investor Pulse (2003) survey, which was undertaken by C2 Ventures, was based
on a web based questionnaire that the angel investment community was invited to
complete. A key deficiency is that the report does not indicate the actual number of
responses. However, the survey broadly confirmed the picture of business angels in

the UK that had been emerging over the ten years since publication of Mason and
Harrison’s initial study.

• Predominantly a business ownership and management background.

• Range of investment experience from ‘yet to invest’ to more than five years of
angel investment experience.
• Motivations dominated by financial considerations but ‘fun’ is an important
subsidiary reason.
• The majority (60%) prefer to invest on their own.
• Emphasis on investing in start-up and pre-revenue businesses.
• Key factors considered at the initial screen: clear financials; scaleable business
model with a clear marketing and sales plan; ‘must have’ (rather than ‘nice to
have’) product/service; clear exit and realistic valuation; understanding that it
is the team that gets the funding, not the plan.
• Two-thirds of transactions in the period 2000-2002 were for less than £50,000
(average of £27,500), but a small proportion of investments were in excess of

2.4 Adding Detail to the Operation of the Market

In addition to these large scale studies have been a number of more narrowly focussed
enquiries. These have been of two types. First, there have been some studies which
have examined specific types of business angels. Second, there have been several
studies on specific stages in the investment process.

2.4.1 Studies of specific types of business angel

There are four studies in this category.

Anderson (1998) studied high income workers in the City of London on behalf of
LINC for his MBA dissertation at London Business School. It found that only 40%
had invested in unquoted companies, with lack of information, lack of time and lack
of trusted advice being barriers to investment.

Kelly and Hay have published two studies which have examined active business
angels. Their first study reported on what they termed ‘serial investors’ – their sample
comprised eight investors who they interviewed in detail and who had made an
average of five investments. The sample split into two groups: those who always
invested on their own and those who invested as part of a syndicate. The key
conclusion of the study was that such investors typically make investments in
industries, markets and technologies where they have some familiarity and know the
entrepreneur, or have the deal referred by an individual who has this knowledge.
However, angels in syndicates had a greater scope for investing in unfamiliar
situations or where they did not know the entrepreneur because they were able to
leverage of the knowledge of their co-investors (Kelly and Hay, 1996).

Their second study involved an investigation of the most active business angels, what
they termed ‘deal-makers’, and others have called ‘super angels’, to examine their
sources of information on investment opportunities. They concluded that these angels

(defined as having completed six or more investments) rely less on publicly available
sources of information and more on their own private sources from an extensive base
of contacts developed as a result of building up their own portfolios (Kelly and Hay,

Harrison and Mason (2007) have provided the first-ever profile of women business
angels in the UK. There are some differences in characteristics and background but
the numbers are too small to test for statistical significance. Women appear to be
slightly more likely to invest in women-owned businesses, but this is not because they
factor gender into their investment decision. Indeed, the findings tentatively suggest
that gender is not a major issue in determining the supply of business angel finance,
and that the informal venture capital market is not differentiated along gender lines.
However, further investigation of this topic would be worthwhile in view of the
tentative nature of these conclusions.

2.4.2 Studies of specific stages in the investment process

(i) The personal portfolio allocation decision

Mason and Harrison (2000b) have explored in a very preliminary fashion the factors
which influence how much of their wealth business angels will allocate to investments
in unquoted businesses. One of the key distinguishing features of informal venture
capital is that it is discretionary: business angels are investing their own money and
so, unlike venture capital funds which have raised money for the purpose of investing,
business angels do not have to invest. Based on responses from 56 investors attending
a LINC Scotland conference18, Mason and Harrison show first of all that money
which is not invested in unquoted businesses would instead be invested primarily in
the stock market, property and interest-bearing cash accounts. Respondents were
presented with a list of potential influences that were thought to potentially influence
their willingness to invest (e.g. tax environment, economic conditions, stock market
conditions). The evidence indicated that business angels were particularly sensitive to
tax – the availability of tax relief on their investments was the most important factor
encouraging them to invest, with lower capital gains tax being the second most
positive factor, while higher rates of capital gains tax was the top factor which would
discourage investment. Lower tax on dividend payments was the third most
significant factor encouraging investment while higher tax on dividends was the
second most important factor to discourage investment. By contrast, economic
conditions are much less influential on the willingness to invest, although by no
means insignificant. Stock market conditions have the least influence on investment
activity. These conclusions are supported by evidence from two other studies, one of
which is the Mason and Harrison DTI study (discussed earlier) (Mason and Harrison,
1999; Mason and Harrison, 2002a).

Although profiling the respondents was not an objective of the study it is worth noting that they
conformed to the highly skewed distribution that had been identified in previous studies. At one
extreme, 26% of investors had not made any investments in the previous two years and 28% had made
one or two investments whereas at the other extreme 24% had made more than five investments. The
amounts invested ranged from less than £50,000 (19% of respondents who had made investments) to
£250,000 and over (32%).

(ii) Investment decision-making criteria

The landmark studies by Mason and Harrison (1994), Coveney and Moore (1997) and
van Osnabrugge and Robinson (2000) all examined the criteria used by business
angels in making investment decisions. However, this evidence was generalised and
retrospective. Specifically, it ignored the different stages in the investment process
and the scope for different criteria to assume greater or lesser importance as the
investment process proceeded. Subsequent studies have probed the investment
decision-making process in much more detail.

Mason and Harrison (1996b) undertook a case study of deals rejected by a private
investment syndicate. This revealed that the decision-making process involves two
stages: an initial review and a more detailed appraisal for those opportunities that
passed the initial screening stage. Three factors dominated as reasons for rejection:
characteristics of the management team, marketing and market-related considerations,
and financial considerations. Most opportunities were rejected for just one or two
reasons – although deals rejected at the initial review stage were more likely to be
rejected on the basis of the culmination of several deficiencies rather than a single

Mason and Rogers (1997) undertook a study in real time of the factors that business
angels take into account in their initial screening of investment opportunities – the
stage at which most investment proposals are rejected.19 This particular study was
based on the reactions of 10 business angels to a particular investment proposal that
appeared in Venture Capital Report. The larger unpublished study reported on the
reactions of 19 business angels to three investment proposals, providing a total of 30
decisions (Mason and Rogers, 1996). Investors’ responses were taped, transcribed,
coded and subjected to content analysis. The findings indicated that investors placed
the most attention on market and financial considerations and the
entrepreneur/management team. The study also highlighted several distinctive
features in the approach of investors to the initial screen:

• Investor fit: the first response of investors was to ask themselves whether this
opportunity was a good fit with their personal investment criteria – in
particular, did they know anything about the industry or market, how much
money were they looking for, where is it located and was their scope to make
a contribution?
• Investor preconceptions: the previous experiences and preconceptions of
investors influence their attitude to the opportunity – this was particularly
influential when considering their view of the market.
• Focus: investors placed a strong emphasis on the need for businesses to have a
clear market and business focus.
• Investor attitude: the approach of investors at the initial screening of an
investment opportunity was to look for reasons to reject it. They were
suspicious and cynical and looking to be convinced.

The research in this study was used to make the video “You Are The Product” (1997) which has been
successfully used as a means of interactively teaching entrepreneurs how to become ‘investment ready’
by giving them an insight into what business angels look for when they read a business plan or
investment proposal.

Subsequent analysis of this data by Harrison et al (1997) interpreted the business
angel’s reaction to investment proposals in a ‘swift trust’ framework, identifying
some of the key inter-personal dynamics involved in the investment process.

Mason and Harrison (2003a) adopted a similar real time methodology to capture the
reactions of business angels to a presentation by an entrepreneur seeking finance. This
highlighted the importance of presentation in shaping investor attitudes and how a
poor presentation will quickly turn potential investors off.

Finally, Mason and Stark (2004) adopted the approach used by Mason and Rogers but
with the difference that the same investment proposals were shown to business angels,
venture capitalists and bankers in order to reveal differences in their approaches to
investment evaluation. Bankers were shown to have a very different approach to that
of business angels and venture capitalists, placing much greater emphasis on the
financial aspects of the proposal to the exclusion of most other issues. Venture
capitalists place equal emphasis on market and financial issues while business angels
give greatest emphasis to the entrepreneur and investor fit.

(iii) Negotiation and Contracting

The first evidence on how investments were negotiated and structured was provided
by Mason and Harrison (1996c) in a study based on a telephone survey of 31
investors and 28 entrepreneurs involved in investments that had been made through
LINC. The majority (71%) of investors had made only one or two investments. Key
findings were as follows:

• Only a minority of investors (38%) and entrepreneurs (44%) identified any

issues that were difficult to negotiate – the most difficult issues were the size
of the investor’s shareholding and related issues of ratchet clauses and pricing.
• The approach of investors to valuation was very imprecise, with the actual
valuation reached by processes that were variously described as ‘arbitrary’,
‘informal’ or ‘negotiated’.
• Over three-quarters of entrepreneurs sought professional advice, mainly from
lawyers, in the negotiation process. The costs were fairly modest. In contrast
only just over one-third of investors used professional advisers, again mainly
lawyers to draw up or review the investment agreement.
• The decision time was relatively short, in most cases extending over less than
three months.
• In only 70% of investments was a formal investment agreement drawn up.
• Two-thirds of investors and entrepreneurs agreed that the investment
agreement was equally favourable to both sides; 20% of investors and 15% of
entrepreneurs felt that it favoured the entrepreneur while 12% of investors and
18% of entrepreneurs felt that it favoured the investor – in other words, most
entrepreneurs did not feel that the process of raising finance from business
angels was exploitative.
• Only 40% of investments involved straight equity, with a further 29%
involving only loans. However, equity dominated in those deals that involved
both equity and loan finance.

• The investor or investors took a minority position in 56% of the investments
and a 50% stake in 19% of investments.
• Most of the equity investments were in ordinary shares – only 16% involved
complex instruments (e.g. preference shares).

LINC sponsored a follow-up survey of investments made in the period 1994-96 using
the same survey instrument (Lengyel and Gulliford, 1997).

A much more detailed investigation of business angel contracts was undertaken by

Peter Kelly for his PhD at London Business School which attracted responses from
106 business angels who had largely been contracted through business angel networks
(Kelly and Hay, 2003). Compared with previous studies these investors would appear
to be unusually active, with an average of eight investments each. The study found
that, contrary to previous studies business angels draw up contracts as a matter of
course. They want to spell out quite clearly the rights, roles and responsibilities of
management and investors. Five non-negotiable items are identified:

• Veto rights over acquisitions/divestures;

• Prior approval for strategic plans and budgets;
• Restrictions of management’s ability to issue share options;
• Non-compete contracts required from entrepreneurs upon termination of
employment in the venture;
• Restrictions on the ability to raise additional debt or equity finance.

These non-negotiable give investors a say in material decisions that could impact the
nature of the business and the level of their equity holding. There are also a number of
contractual provisions to which investors attach relatively low importance and so may
be considered to be negotiable:

• Forced exit provisions;

• Investor approval required for senior personnel hiring/firing decisions;
• The need for investors to countersign bank cheques;
• Management ratchet provisions;
• The specification of a dispute resolution mechanism in writing up front.

These items were included in fewer than 40% of the contracts studied. Less
experienced angels include a wider array of protective contractual safeguards. But
with experience angels become more focused on elements that can impact their
financial returns. Finally, Kelly and Hay (2003) observe that ‘important to include’ is
not the same as ‘willingness to invoke’, and suggest that angels prefer to use their
relationship with the entrepreneur to manage setbacks and problems rather than using
the contract to invoke their rights.

(iv) The post-investment relationship

The landmark studies discussed earlier provided some evidence on the ‘smart’ aspect
of business angel investing. However, this aspect of angel investing has not been
explored in much detail by UK scholars. Based on a survey of investors who had
raised finance from either venture capital funds or business angels, Harrison and

Mason (1992b) presented evidence on the roles identified by the entrepreneurs as
played by business angels and their assessment of how helpful these contributions
were. This highlighted ‘serving as a sounding board to the management team’,
‘monitoring financial performance’ and ‘assistance with short term crisis/problems’ as
the most valued contributions. Mason and Harrison’s study of deals that had been
facilitated through LINC (1996c) looked in more detail at the post-investment
experience. It confirmed that the norm was for investors to become involved, and
would typically join the board. Their time input varied from at least a day a week to
less than a day a month.20 Their contributions were also varied and best summarised
as passing on their business experience. However, only half of the entrepreneurs
regarded the angel’s contribution as being helpful (31%) or extremely helpful (19%).
Nevertheless, nearly half of the investors (47%) and a majority of entrepreneurs
(56%) considered the relationship to be productive and majority of both investors and
entrepreneurs regarded it as consensual. The Lengyel and Gulliford (1997) study
provides updated information on these issues.

Kelly’s PhD study also explored the motivations of angels in becoming involved with
their investee businesses. The typical anticipated involvement by the angels in his
study was 16 hours per month (8 hours face-to-face and 8 hours phone calls and
reading reports) and 40% of investors were employed in the business in some
capacity. Kelly concluded that rather than being a means of defending their interests
(i.e. for protection) business angels get involved in response to specific needs of their
investee businesses. He further notes that involvement is greatest at the early stages,
where the business’s need for experience is greatest (Kelly and Hay, 2003).

(v) Harvest

Mason and Harrison’s (2002b) study of exits was based on data on 128 investments.
Returns were highly skewed: 47% of exits involved a total (34%) or partial loss, or
broke even in nominal terms, while 23% generated an IRR in excess of 50%. Trade
sales were the main exit route and were used both for successful exits and some that
only broke even. IPOs accounted for only a small proportion of successful exits. Exits
from ‘living dead’ investments were mainly through sales to other shareholders and
new third party shareholders. The median holding period was four years – but this
varied by investment performance. The median holding period for investments that
generated a good or exceptional return was four years, rising to six years for
investments that generated low positive returns and just two years for loss-making and
break-even investments. The most successful investments shared few common
characteristics. A separate analysis of the returns from technology and non-
technology investments found no differences in the returns profiles (Mason and
Harrison, 2004b). Mason and Harrison’s (1996c) earlier study of LINC deals had
noted that some angels take returns in the form of directors’ fees and, less commonly,
consultancy fees.

2.5 Market Based Estimates

Mason and Harrison’s NBAN study found that on average angels commit six days a month on each
investment (Mason and Harrison, 2002a).

The research summarised to date has focused on the identification of business angel
investors, and has collected data on their investment behaviour, demographics and
attitudes and intentions. Studies that explicitly attempt to measure the scale of the
market as a whole are far fewer in number. One of the few such studies is the risk
capital market analysis undertaken in Scotland, which has profiled all identifiable
equity investment in the unquoted business sector between 2000 and 2005 (Harrison
and Don 2004; 2006). These reports presents the first comprehensive account and
analysis of the early stage risk capital market in Scotland, and indeed anywhere in the
UK, and with the exception of research in Sweden there are no identifiable similar
analyses elsewhere. The analysis is based on a unique specially created database
which records actual investments made in businesses in Scotland and identifies the
investors making those investments (the methodological implications of this research
are discussed in Section 4 below).
The key findings of the initial report are as follows. Over the four years (2000-2003
inclusive) there has been a total of £673m of identifiable risk capital investment in
581 new and young Scottish companies. The early stage equity risk capital market in
Scotland is very much larger than previously estimated – for example, figures from
the British Venture Capital Association suggest that over these four years there was a
total of £119m invested in start-up and early stage businesses in Scotland. There is, in
other words, a large and dynamic early stage risk capital market in Scotland which
channels investment capital from a wide range of institutional and other investors into
start-up and growing companies, and this market is significantly larger than previous
estimates have suggested. In 2003, the Scottish Risk Capital Survey identified £121m
of new investment in Scottish businesses; in the same year the BVCA recorded only
£7m in early stage investment and a total (including management buy out and buy in
investments, which are excluded from this Survey) of £109m. Institutional venture
capital investors dominate the market – in total over the four years they have invested
£527m in Scotland. Much of this investment is not recorded in other market statistics
(such as the BVCA data), either because the institutions are not members of BVCA or
are overseas-based.

Business angel investors play an important role in the market – over the four years
they have invested £115m in Scottish businesses, equivalent to 27% of all risk capital
investment, excluding the three largest transactions – this is a very important segment
of the overall risk capital market and plays a crucial role in helping develop an
entrepreneurial economy in Scotland. In 2002 and 2003, business angel investment
(£44m) in Scotland was more than twice the level of early stage investment recorded
by BVCA members (£19m). Co-investment by business angels and venture capital
investors in the same deal has been noted as a feature of well-developed risk capital
markets, particularly in the US. This Survey shows that this has occurred in around
11% of investments, but this proportion has fallen from 15% to 6% in 2003 (when
most of the co-investments recorded were follow-on investments). Currently, it
appears that the business angel and institutional segments of the risk capital market in
Scotland are operating largely independently of one another – in part this reflects
different investment preferences and exit expectations (business angel investors are,
for the most part, making smaller investments and are less likely to press for early exit
and returns). Hybrid investors, combining financial returns with policy objectives –
are a small but important segment of the market. Some 90% of the activity of this
investor group is accounted for by recent Scottish Enterprise activities (the Co-
Investment Fund and Business Growth Fund). Although only contributing some £15m

to the risk capital market, they have been represented in 44% of all investments
recorded in 2003. The Harrison and Don reports conclude that these recent Scottish
Enterprise initiatives have made a particular contribution to the funding of smaller
investments and younger companies, and this contribution has been most significant
in a difficult funding environment. The relatively buoyant Scottish risk capital market
in 2003 (by comparison with the national UK situation) is in part attributable to the
catalytic and confidence building impact of these initiatives.

The Scottish research concludes that there is more risk capital being invested in
Scottish early stage businesses than previously estimated. The difficulties in raising
capital reported by many companies and their advisors may, therefore, not be a
function of the shortage of risk capital available in the market but a function of either
a problem in mobilising and making visible the risk capital which is available or a
lack of ‘investment readiness’ in the businesses seeking finance.

2.6 Summary

This section has reviewed both the published and unpublished research on the UK’s
informal venture capital market. Indeed, the UK, along with the USA, Canada and
Sweden, have attracted the majority of research. Wetzel’s initial studies and the SBA-
sponsored studies in the 1980s and Sohl’s work over the past fifteen years have
contributed to a detailed understanding of business angel investing in the USA;
Riding’s initial research in Ottawa and subsequent national studies have done the
same for Canada (e.g. Short and Riding, 1989; Riding et al, 1993), while Landström is
now building on his initial Swedish study (Landström, 2003) by directing new studies
by PhD students (Månsson and Landström, 2006; Avdeitchikova and Landström,
2005). There have also been one-off studies of angel activity in a variety of other
countries, notably Finland (Lumme et al, 1998), Norway (Reitan and Sørheim, 2001),
Germany (Brettell, 2003; Stedler and Peters, 2003), Australia (Hindle and Wenban,
1999), New Zealand (Infometrics Ltd, 2004), Japan (Tashiro, 1999) and Singapore
(Hindle and Lee, 2002). Mason (2006a) provides a review of the international
literature on informal venture capital.

What is clear from both the UK and international studies is that the vast majority of
the research has had a ‘micro’ focus, profiling business angels, documenting their
investment activity, examining various aspects of the investment process and,
especially in the UK, assessing the impacts of various forms of policy intervention,
notably tax incentives and business angel networks. This emphasis on studying the
process has largely avoided the need to consider methodologies and sampling frames
that would generate representative samples of business angels. Indeed, as this review
makes clear, most UK studies have relied heavily on business angel networks as a
means of identifying business angels, despite concerns about possible bias. The
consequence of this accumulation of a series of micro-studies using questionnaire
surveys of samples, sometimes quite small, focused on specific aspects of angel
profiles and the investment process, and which have relied to a greater or lesser extent
on samples of convenience (notably members of business angels networks), is that
there has been very limited understanding of the development of the market in terms
of scale and scope over the past 15 years. In other countries – mostly lacking business
angel networks, at least until recently – researchers have had to use more imaginative
approaches to identify angels. As a consequence these studies are of greater use when

we come to consider how a robust time series dataset can be developed to measure
business angel activity in the UK (section 4).

In the two decades since business angels have been recognised as a focus of research
and policy attention definitional issues have become more problematic. There are at
least two reasons for this. The maturing of the informal venture capital market has
provided more ways in which investors can make investments in unquoted companies,
notably through various forms of angel groups, syndicates and networks, blurring the
distinctiveness of angel investing. Research has added further confusion. Recent
Nordic research, unlike earlier UK typologies (e.g. Coveney and Moore, 1998), has
identified several different types of investor, some of whom deviate from the
conventional definition. For example, Sørheim and Landström (2001) propose a four-
fold categorisation based on the level of investment activity and investment
competence (measured by entrepreneurial experience):
• Lotto investors: low investment activity and low competence in business start-
• Traders: high investment activity but low competence in business start-up;
• Analytical: low investment activity but high competence in business start-up;
• Business angels: high investment activity and high competence in business

Avdeitchikova (2006) has also proposed a four-fold classification based around two
dimensions – investment level and involvement:
• Micro investors: low on both dimensions;
• Fund managers: high on investment activity but low on involvement;
• Mentors: low on investment activity but high on involvement;
• Business angels: high on both dimensions.

Infometrics Ltd (2004), which undertook a government-commissioned study of

business angels in New Zealand, suggested that angels are differentiated on two
dimensions – motivation (guardian, professional, operational expertise, financial
return) and activity (dabblers vs. active)

GEM has contributed further definitional imprecision by reporting on what it terms

“informal investment” – as we have shown above, this is a ‘chaotic’ category which
includes all forms of direct investment in unquoted companies and therefore includes
investments in businesses of both family and non-family members.

The aim in this section is to bring some greater clarity to definitional and
measurement issues. This is an essential preliminary step before we can go on in the
next section to consider data sets.

There are four features that are fundamental to business angels and their investments
and distinguish this form of investing from institutional venture capital.

• First, angels are investing their own money. Because of this, they are
able to make rapid investment decisions without the need to undertake

extensive evaluation or third-party due diligence. No one has ever challenged
this feature of angel investing, although it does occasionally arise as an issue,
notably when an angel syndicate changes from investing the money of its
members to investing other peoples’ money (e.g. Knighton, 1996) or sets up a
side-car fund to which non –syndicate members can invest and which invests
alongside syndicate members.
• Second, business angels are investing in unquoted companies as
opposed to businesses that are quoted on a stock market.
• Third, angels are making direct investments. This was originally
intended to convey the point that no intermediary was involved. However,
with the emergence of angel syndicates this attribute is no longer always
present. Instead, the sense of this aspect should be that business angels are
making their own investment decisions. Even if the opportunity is presented to
an investor, as in many syndicates, the angel still has to make a decision
whether or not to invest. Conversely, situations in which an individual
invested in pooled investment vehicle and the allocation of this money to
specific investments was made by a manager (even if the investee companies
were unquoted) – such as a Venture Capital Trust - would be regarded as retail
(or collective) investing rather than angel investing.21 22
• Finally, angel investing primarily involves seeking commercial returns.
US research has established that ‘typical’ business angels may be motivated in
part by non-financial considerations and may even be willing to trade-off such
considerations against financial return (Wetzel, 1981; Sullivan, 1994),
suggesting that ‘socially-motivated’ investors can be accommodated within
the conventional business angel definition as long as they perceive their
financial support for a business to be an investment rather than charity and that
they make their own investment decision. In view of the current interest
amongst policy-makers and practitioners in the funding and sustainability of
social enterprises it would be useful to separately identify angel investments in
which social considerations are given equal or greater weight than financial

A further feature of the standard definition of a business angel is that they are hands-
on investors. This conflicts with empirical evidence that a significant minority of
angels take a passive role in investments. It is important to distinguish between
investors and investments. Investors, who are passive in some deals, typically because
there are co-investors present, and hands-on in other deals, should certainly be
regarded as business angels. However, it might be questionable whether an investor
who is passive in every investment can be defined as a business angel - yet many
members of angel syndicates will be in this position. Accordingly, this aspect might
be modified to say that “the investor, or a co-investor, will play a hands-on role”: the
definition of a business angel investor in this case will rely on the other characteristics
being met.

Mason and Harrison (1999a) found that only a minority of business angels had invested in VCTs
(11%) and even fewer regarded them as an alternative to conventional business angels investments.
Some investment groups which began as conventional angel syndicates have evolved, either to invest
money of non-syndicate members (e.g. Knighton, 1996) or, as in the recent case of the Braveheart
Investment Group, to include investment management activities.

The research that has been reviewed has highlighted a number of additional
definitional issues.

The first concerns investing in family businesses. A strong case can be made for
arguing that investments in businesses owned by family members should be excluded
on the grounds that they are conceptually distinctive from business angel investments.
This is not to deny the importance of the role of the family in funding entrepreneurial
ventures. Indeed, the availability of family funding is likely to be an important factor
in explaining several aspects of new firm formation, such as why some individuals are
able to start businesses while others do not, the ability of some businesses to
successfully negotiate the start-up process, and local and regional variations in new
business start-up and survival rates. It is axiomatic that access to finance from family
members is constrained by ties of blood and marriage, and so it is only available to
other family members. Accordingly, it does not constitute a market. If an entrepreneur
is unfortunate enough to come from an impoverished family then this source of
potential funding is closed-off to them. Moreover, investing in a family member’s
business is unlikely to be made for commercial reasons. Investment in businesses
owned by friends is rather more problematic. However, it would be inappropriate to
restrict the definition of business angel investments to those in which the investor and
entrepreneur are strangers since, according to Atkin and Eseri (1993), many angel
deals arise from chance encounters with friends and associates. Thus, the key criterion
for non-family investments is that they should have a commercial orientation.

A second issue concerns whether the focus should only be on ‘active’ angels.
Including ‘virgin’ angels (and latent angels in the Coveney classification discussed
earlier) has the potential to overestimate the population of angels and the amount of
funding available. Most of the research has identified a significant minority of ‘virgin’
angels who are actively looking to make their first investment. Since most of these
studies were based on membership of an angel network that typically requires
payment, this can be regarded as strong indicator that these individuals have a high
level of commitment to making investments. However, this assumption may be harder
to sustain when respondents are allowed to self-define themselves as angels. A similar
issue arises with latent angels. Is it the case of ‘once an angel, always an angel’? Do
angels genuinely withdraw from the market? Moreover, if angel investing involves a
lot of opportunism, as Atkin and Eseri (1993) suggest, is it possible to define angels
on the basis of intentionality? This leads to the conclusion that the main focus in the
collection of time series data should be on the identification of business angel
investments rather than on business angels per se. Nevertheless, assessment of
potential investment (from latent and virgin angels) also has important policy
implications, specifically arising from an understanding of the determinants of the
‘conversion’ of these into active investors who increase the supply of entrepreneurial
risk capital in the market.

A third, and related, issue concerns amounts of money available for investment.
Several of the studies reviewed earlier have asked investors to report how much
money they have available to make further investments. However, the consensus is
that these numbers need to be treated with considerable scepticism. Many angels do
not allocate a fixed sum to this type of investing and make adjustments depending on
the number of suitable opportunities available. If an angel found a good investment
which exceeded the funds they had for investment then they may bring in a co-

investor (Mason and Rogers, 1997). The NatWest study noted that the financial
position of angels was fluid, not least on account of the follow-on financing needs of
their existing portfolio. Finally, investors may indicate an ‘in principle’ commitment
of funds to this investment activity but never actualise it, because of changes in
personal circumstances, changes in investment preferences, or difficulty in finding
investible deals.

A final important insight from the review of previous research is the skewed nature of
the business angel population. Some studies have referred to a ‘dual population’ -
Hindle and Wenban (1999) used the terms ‘cherub’ (a second order angel) and
‘seraphim’ (the highest order of angels) to denote the two distinct categories of angels
that they identified in Australia. This has two dimensions. First, the size distribution
of investments (whether by angel or per transaction) is positively skewed: there are
lots of small investments and small investors but relatively few large investments and
angels who have invested large amounts. However, aggregate distribution of amounts
invested is negatively skewed. The relatively small number of large investments and
major angels make a disproportionate contribution to total investment activity.
Second, the frequency of investing is also positively skewed. Most angels have made
relatively few investments (less than five) but there is a minority of much more active
investors who have a disproportionate effect on overall market activity. Particular data
sources may be biased to particular ends of the distribution. In particular, business
angels who are members of business angel networks may be biased towards the left-
hand of the distribution – small and infrequent investors. Indeed, the debate between
Mason and Harrison and Stevenson and Coveney over their starkly contrasting
findings probably arose because their approaches to identifying business angels
involved over-sampling from the extremes of the distribution, with Mason and
Harrison (1994; 1997) over-sampling from the left hand of the distribution while
Stevenson and Coveney (1994; 1996) oversampled from the right hand tail because
they surveyed subscribers to a high cost investment opportunities magazine which it
was not cost effective for small, infrequent investors to purchase.

The implication is that diverse data sources should be used to identify business angels
in order to reduce the effect of the bias in any individual source (Mason and Harrison,
1997). In particular, it is important to avoid under-recording ‘super-angels’ as this will
cause an under-estimate in the value of business angel investments. Unfortunately, the
research suggests that such investors are least likely to join business angel networks;
however, they may join business angel syndicates, at least as a mechanism for making
some of their investments, suggesting this will be an important element in any
approach to data collection.

A final definitional issue concerns the emergence of ‘super-angels’ who have used
their own or family wealth to fund investment vehicles. While some of these
investment vehicles are making similar sorts of investments to those made by angel
syndicates, and should therefore be included as angel investments, others operate like
private equity funds, making substantial investments in later stage deals and publicly-
quoted companies.


4.1 Introduction

This section reviews a variety of approaches that either have been used to derive
estimates of business angel investment activity, either in the UK or elsewhere, or may
have the potential to do so. These studies are organised under the following headings:
• ‘Playing with numbers’ – simple estimates based on extrapolation from
existing data;
• Approaches which identify investors;
• Approaches which identify investors through the companies that have raised
finance from business angels;
• A hybrid approach which provides both supply and demand side estimates;
• Investment oriented approaches – based on monitoring investments made
through BANs – the only part of the market that is visible;
• Enterprise Investment Scheme – measuring investment activity of investors
who make use of a tax incentive which is designed to encourage investments
by private individuals in unquoted companies;
• Angel syndicates – the emergence of organised angel investors who are
becoming increasingly significant in the market.

4.2 Playing with numbers

This section summarises two studies which sought to draw on existing fragments of
information to provide broad-brush, back-of-the-envelope estimates of the size of the
informal venture capital market and set it against the scale of investing undertaken by
the professional venture capital industry.

(i) Wetzel (1987)

Wetzel (1987) performed some simple arithmetic on a variety of fragments of data on

high income families and the financing of businesses to suggest the scale of the
informal venture capital pool in the USA.

Looked at from the supply side, “if the average net worth of millionaires is between
$1 million and $2 million, then, excluding borrowed funds, the total wealth controlled
by the one million or more US millionaires is between $1 trillion and $2 trillion. If the
average millionaire commits 10% of his or her net worth to venture investing, the
total informal venture capital pool is between $100 and $200 billion. If only one-
fourth of US millionaires have any interest in venture investing, the pool of informal
venture capital controlled by these 250,000 individuals lies in the $25 to $50 billion
range, about twice the capital managed by professional venture investors” (p 305).

From a demand side perspective, “it appears that each year over 100,000 individual
investors finance between 20,000 and 50,000 firms for a dollar investment totalling $5
billion and $10 billion. The typical firm financed by angels raises about $250,000
from three or more investors. The typical investor provides between $25,000 and
$50,000 per firm, about half in the form of equity and half in near-equity (loans and
loan guarantees). During 1985 professional venture investors financed about 2,500
firms for a total of about $2.5 billion, an average of about $1 million per firm” (p

(ii) Mason and Harrison (2000)

The starting point for Mason and Harrison (2000) was the 5,651 investors registered
with the 48 business angel networks listed in 1999-2000. It was assumed that
everyone who registers with a BAN is a bona fide business angel. Double-counting –
investors registered with more than one BAN – was offset by survey evidence that
business angels are registered with an average of 1.4 BANs. This figure (5,651 ÷ 1.4)
was multiplied by the inverse of the proportion of business angels who were estimated
to be members of a BAN. Because this proportion was not known it had to be a
guesstimate. The resulting estimate of the number of business angels ranged from
20,000 to 40,000 to 80,000 depending whether 20%, 10% or 5% of business angels
were registered with a BAN. The same extrapolation was used to estimate the annual
amount invested by business angels. This figure (£20,000) was derived from an
annual survey of investments made through BANs. This gave an estimate ranging
from £500 million to £1 billion to £2 billion. These estimates are crucially sensitive to
the scaling factor. They also assume that angels registered with BAN invest on the
same frequency as those who are not members and invest similar amounts. It also
assumes that there are no regional variations in either the proportion of angels who
register with BANs, their investment frequency or size of investment. These estimates
suggest that business angels make three times as many investments in start-up and
early stage businesses than venture capital funds.

(iii) Assessment

These estimates served a useful purpose at the time that they were published when
there was a need to provide a numerical estimate of the scale of the informal venture
capital market in order to highlight its significance to somewhat sceptical policy-
makers and to challenge the entrenched position of the professional venture capital
industry. However, the figures are very broad-brush and are unable to generate the
precision required for a time-series analysis. They also depend on certain critical
assumptions. Moreover, the decline in the number of local and regional BANs in the
UK would make it much harder to reproduce this methodology now. So, despite the
low cost (pencil and envelope!) this is not an approach that would seem to be
worthwhile pursuing.

4.3 Supply-side approaches - Identifying business angels

There have been several attempts to generate estimates of the size of the informal
venture capital market based on identifying a sample of investors and using evidence
on their investment activity to derive an estimate for the entire population.

(i) Mailing list approaches

By far the most common approach to the identification of business angels has been
through the use of various mailing lists whose membership was thought to
approximate to the profile of business angels. This includes mailing lists that are
purchased from list brokers, memberships of associations and contacts of various
types of intermediaries and gatekeepers.

Wetzel (1981) pioneered this approach, using the following lists: high income
investors, Presidents of major New England companies, college alumni from top New
England professional schools; New England CPAs, attorneys and bank CEOs;
participants in the 1980 White House Conference on small business; subscribers to
Inc Magazine; owners of Mercedes Benz cars; and gatekeepers of various
professional associations for small businesses, bankers and securities dealers. Postma
and Sullivan (1990) used a similar approach, mailing questionnaires to accountants,
attorneys, brokers, health care professionals, top management of local businesses,
commercial bankers and members of entrepreneurship networking groups. Mason and
Harrison (1994) used the following mailing lists: contacts of an investment syndicate;
owner managers of SMEs, high income groups, investors in junior market stocks.
Freear et al (1994) used a real estate transfer database to identify high net worth
individuals in New England. Reitan and Sørheim (2000) used members of the national
share investment association, contacts of a private consulting firm specialising in
capital raising and investor forums to identify business angels in Norway. Riding et al
(1993) relied largely on contacts of intermediary organisations such as Boards of
Trade, Chambers of Commerce and Regional Development Associations to identify
angel investors in Canada. Lumme et al (1998) relied, in part, on science park
managers and venture capital fund managers to identify business angels in Finland.

However, the general consensus is that such lists are ineffective in identifying
business angels, generating extremely low response rates. Moreover, there is no way
of differentiating between non-respondents who are business angels from those who
are not. Using mailing lists is also tautological – the selection of mailing lists is
informed by a view of what business angels look like (e.g. high net worth,
entrepreneurs, etc) but the responses are then used to provide a profile of business
angels (high net worth, entrepreneurs, etc). Respondents to surveys based on mailing
lists may therefore not be representative of the business angel population – but since
the population in unknown and probably unknowable (Wetzel, 1981) it is impossible
to be sure. All of this suggests that mailing lists are not a suitable way forward to
generate time-series information on business angel investment activity.

Personal contact and snowball methods have proved much more effective in terms of
response rates, but have built-in biases. As noted earlier, UK researchers have
responded to the problems with mailing lists by surveying investors who are members
of business angel networks. The number of BANs that were created in the UK in the
1990s gave UK researchers a large ‘sample of convenience’ with which to access
angels, and meant that they had less need to continue to use mailing lists. Researchers
in other countries, where BANs were less numerous and more recently developed,
could not rely to the same extent as UK researchers on BAN investors – although
studies in Canada (Riding et al, 1993), Germany (Stadler and Peters, 2001), New
Zealand (Infometrics Ltd, 2004) and Sweden (Månsson and Landström, 2006) have
all included investors registered with BANs as one of their mailing lists. However, as

we discuss below, there are concerns about the representativeness of investors who
are members of BANs.

(ii) A capture-recapture approach

Leading Canadian scholar Allan Riding and one of his students developed a very
novel approach, never since replicated, to estimate the population of business angels
in one Canadian city-region (Riding and Short, 1987). They recognised that the
problem of identifying the number of business angels in a geographic region is very
similar to the problem encountered by biologists in estimating the number of a
particular species. The capture-recapture approach is a well-known technique to
estimate the size of biological populations without the need to resort to a census.

The first step in this approach was to generate a list of business angels using referrals
from an initial group of investors (and other knowledgeable actors). This process led
to the identification of 50 individuals in Ottawa, the majority of whom were referred
by other business angels. The second step was to identify the number of times that
each individual had been proposed by other business angels. This indicated that
several investors have high social visibility in the community. Given this, applying
formal population ecology models to the data (capture-recapture techniques) could be
used to estimate the total number of business angels in Ottawa.23 According to the
model there were an estimated 87 active business angels in Ottawa, with a standard
deviation of 13. This is about 5% of the total population in the city-region with the
same characteristics as active business angels. Extrapolation of angel investment
activity amongst those angels that had been identified, suggests that there is a pool of
$4-6 million Cdn. over the next two years.

For all its ingenuity, this approach has two limitations. First, it most appropriate
within relatively small, tightly knit and well-defined geographical areas (e.g. a city-
region). It is not an appropriate approach for developing a national estimate of
business angel activity. Ottawa is a coherent spatial unit with a population of under 1
million when the study was undertaken and it is well networked. This suggests that
while RDAs might be too large for this approach to work, it could be applied at the
city or sub-regional scale. However, small area estimates could then be aggregated to
generate a national estimate. So, for example, undertaking the capture-recapture
approach in the Glasgow, Edinburgh, Dundee, Aberdeen and Inverness areas might,
when aggregated, give a reasonable estimate for the population of business angels in
Scotland. Adding this to the estimates generated by similar approaches in the English
regions, Wales and Northern Ireland would give a national estimate. However, this
requires considerable effort in identifying an initial group of business angels in each
area – as much effort as required for some of the other approaches. Moreover, the
returns from this effort may be relatively insubstantial: Riding’s study began with an
The best fit model was the one based on the interaction of the sample generated by entrepreneurs and
that generated by local business professionals. The model was as follows:
log mijk = µ1(i) + µ2(j) + µ3(k) + µ23(jk)
mijk is the maximum likelihood estimate of the expected cell count in cell ijk
µ1(i) µ2(j) and µ3(k) are the main effects of the first, second and third samples respectively
µ23(jk) is the interaction term reflecting the two-factor effect between the first and second samples.

initial identification of 50 individuals yielded a total estimate of 84 investors. Finally,
the margin of statistical error is too large for an annual time series – year on year
variations would have to be large to be regarded as statistically significant. The
second limitation is it only provides an estimate of the number of business angels in
an area. However, further extensive survey work is needed to generate information on
the level of investment activity.

(iii) Panel Study

Panel surveys, which involve the construction of a sample of individuals who provide
information on a regular basis, are a well-established means of developing time-series
data on economic phenomena. BAND, the German national business angel network,
has established an angel panel in collaboration with a national business newspaper in
which angels are asked on a quarterly basis about their investment sentiment. Clearly
it would be quite feasible to add questions on their deal flow, deals done and exits
made in the previous quarter (or whatever time period is used). The critical issue is
how to recruit members of the panel to ensure that it is ‘representative’ of what is an
invisible population. What is clear from previous research on business angels is that
members of the panel need to be identified from a variety of sources. This might the

• members of angel syndicates;

• investors registered with business angel networks;
• angels identified from high net worth mailing lists;
• entrepreneur-angels.

The key challenges for this approach are:

• the construction of a panel which is representative (the problem of

identifying angel investors in the first place and of extrapolating from the
panel to the market as a whole);
• the initial set up costs (although once the panel is established this is a
relatively low cost way of collecting information);
• the need to refresh and maintain the panel (not least to capture the
effects of variations in angel participation in the market in response to
personal variations in liquidity and aptitude for investment).

In the absence of angel population data this approach is better suited to an assessment
of general trends and relative shifts rather than provision of market scale estimates.

(iv) Global Entrepreneurship Monitor (GEM)

GEM is an international research programme involving scholars from 41 countries. It

is best known for identifying levels of entrepreneurial activity in each of the countries
involved in the programme. This is based on asking respondents in a telephone survey
whether they are in the process of starting a business or have started a business within
the previous 42 months. GEM also asks whether respondents whether they have
invested in someone else’s firm in the previous three years (excluding buying publicly
traded shares and mutual funds), and if so, how much did they invest and what was

the relationship with the business owner. Sample sizes were at least 2000 in each
country, surveys were administered by professional market research companies and
conducted by telephone and samples were weighted to be representative of the adult
population. The UK sample in 2005 was 32,500 adults. However, the 2005 report did
not discuss informal investment (Harding et al, 2006).

Several studies have used GEM in an effort to gain a better understanding of informal
venture capital investing. Bygrave et al (2003) examined informal investing in 18
GEM countries for which there was data for more than 40 investors. The prevalence
ranged from under 2% to over 6% (in USA and New Zealand), with an average of
3.4%. The UK rate was 2.8%. The analysis provided some information on the
characteristics of informal investors and the amount invested. But crucially, some
48% of investors invested in a relative’s business, 29% in a friend or neighbour’s
business, 11% in a work colleague’s business and 8% in a stranger’s business. While
it is clear that the 48% are engaged in non-angel, family-driven, investment, some of
the investment in a friend’s or neighbour’s business or in a work colleague’s business
may qualify as business angel investment as we have defined it. The inability to
unequivocally separate out these two conceptually discrete categories of investment
makes this data source a very imperfect basis for estimating market trends.

Bygrave and Reynolds (2004) made a separate analysis of informal investing in the
USA from 1998-2003. The prevalence of informal investing was 5%, and the annual
amount invested was $108 billion, almost 1% of GDP. More than 50% of informal
investing goes to a relative’s business, 29% to a friend or neighbour’s business, 6% to
a work colleague’s business and 9% to a stranger’s business. The analysis suggested
that informal investors are more likely to be younger, higher income, better educated,
male and an entrepreneur.

Maula et al (2005) studied informal investors in Finland, pooling three years of GEM
data for the years 2000 to 2002. The prevalence rate of informal investors was 2.9%.
Half of the investments were in the businesses of close family or other relatives. The
analysis concluded that the greatest influences on the propensity to invest were
personal familiarity with entrepreneurs, status as an owner-manager, perceived skills
of starting a business and gender. The key distinction in this study was to separately
distinguish investments in businesses owned by close family from other investments.
They found that the predicated determinants of investing provided a better
explanation for investing in firms owned by other than close family members. One of
the advantages of this approach is the pooling of data over, in this case, three years.
This offers the ability to run more robust sophisticated analyses using pooled cross-
sectional data. While this is not suitable as a basis for developing a regular time
series analysis, it does offer a possible framework for a longer ‘comparative statics’
approach based either on a rolling three-year analysis or comparison of successive
three-year estimates to provide an indication of longer term shifts in the level of
business angel investing.

Thompson et al (2006) sought to build on the Finnish study to examine informal

investing in the UK. However, they introduced a third category of investor – those
investors who defined themselves as business angels (only 20% of all investors). The
analysis largely confirmed the Finnish findings in terms of propensity to invest. Self-

defined business angels emerged as more rationally-motivated and entrepreneurially-

Wong and Ho (2007) have also used GEM to examine informal investing in
Singapore. They note that 42% of investments are in businesses started by family
members. The remainder are dominated by investments in businesses started by
friends and neighbours: only 2% of investors have provided finance to entrepreneurs
with whom they are not personally acquainted. Their analysis of the factors which
influence informal investing highlights the importance of personal familiarity with the

GEM, as presently constituted has a number of limitations and deficiencies which

reduces its potential use as the basis for a consistent, robust time-series for data on
business angel investment activity. First, most of the data refers to the investor rather
than the investments made. Second, GEM covers both ‘pure’ business angel
investment and affinity investment in the businesses of family and friends – while this
provides information on the total flow of capital from individuals into this market, it
is not clear-cut is providing a picture of the pure business angel market per se.
Moreover, investors can have dual status – they can make investments in the
businesses of close family investors as well as in businesses owned by non-family
members. However, GEM allocates investors to a binary category based on their most
recent investment. Third, given the rarity of business angels even a comparatively
large sample size, such as UK GEM, still contains relatively few angels. This has
implications for the sample errors of estimates of changes in the scale of the market
over time, with year-on-year changes in investment activity having to be fairly large
to register as statistically significant.24

It is possible, in principle, to modify the questions which GEM asks in order to focus
on the investment rather than the investor, and to be more precise in identifying the
nature of the investment. The initial screening question would remain, but then a
series of questions about each investment made would need to be asked, as follows:

• Have you invested in someone else’s business in the past N years, excluding
the purchase of shares in publicly listed businesses and mutual funds?[same
as the current question]

If Yes:

• How many investments have you made?

• For each of these investments please provide the following information:

- Relationship with the business owner [include response prompts]
- Amount initially invested
- Any amounts invested subsequently
- Industry sector[or type of business activity]
- Stage of business development [include response prompts]

The application of rare event econometric techniques may go some way to addressing this particular

- Have you also invested any of your time in helping this business – of
so, approximately how many hours per month? [Supplementary
question – was this work paid or unpaid?]
- Was this investment made – at least in part - with the expectation of
generating a financial return at some time in the future (rather than
being for purely altruistic reasons?

Responses to these questions would enable the identification of investments which

meet the definition of business angel deals. However, given that GEM is a
consortium it may be difficult to obtain agreement for these changes to be made.
Accordingly, the BERR/Enterprise Directorate and RDAs, as major sponsors of GEM
in the UK may need to use their leverage to modify the survey instrument for the UK
to incorporate these questions.

(v) Enterprise Directorate Household Survey

The Enterprise Directorate Household Survey, like GEM, is a general survey of the
population undertaken by telephone on a biennial basis since 2001. It is mainly
concerned with business start-up issues. The main themes are as follows:

• What proportion of adults are currently considering going into business,

already running a business or self-employed or are not considering starting a
• How are peoples’ attitudes to entrepreneurship, key influences and levels of
enterprise activity changing over time?
• What types of enterprise activity are people involved in?
• How does enterprise activity and attitudes vary across regions by different
demographic groups?
• Why do people start their own businesses?
• What are the main reasons for people not considering starting a business?

There are also three questions on the respondent’s investment (if any) in somebody
else’s business – information is collected on the relationship between the investor and
the person receiving the funding, the mechanism by which the investment was made,
and the amount invested. The 2005 survey was conducted by telephone, with the
selection of respondents made on a random basis and the sample was fully
representative of all households in England. The target was 6000 achieved telephone
interviews with adults aged 16-64.

This dataset shares the same sorts of limitations as GEM. Although the questionnaire
allows respondents to be multi-coded in terms of their relationship with the business
owner only the total number of investments and the total amount invested in the last
year are requested, so there is no way of gauging the relative significance of
investments in businesses owned by close family members, other relatives,
friends/neighbours, work colleagues and strangers. The proposed reworking of the
questions that was suggested for GEM (see above) to focus on investments made
would also be appropriate here – although for the 5% of respondents (in 2005) who
have made five or more investments, this would significantly extend the length of the
interview. Sample size is also a concern: 6% of respondents – or 360 individuals -
said that they had, at some point in their lives, personally invested in someone else’s

business. However, 46% of these investors invested in a business of a close family
member or relative. The proportion investing over £50,000 in the past year was just
4%. Thus, this survey is likely to identify an extremely small number of individuals
making genuine business angel-type investments in the previous year. Extrapolation
from this to a market estimate would be a fraught exercise.

(vi) Swedish population survey

Avdeitchikova and Landström (2005) have also undertaken a random population

survey in an effort to identify business angels in Sweden. A market research company
was contracted to undertake the initial screening survey of more than 24,000
individuals to identify those who had made non-collateral investments in unquoted
companies not owned by family members the past five years. From this survey 861
business angels were identified, 3.6% of the total. These individuals were asked if
they would agree to a further interview by the researchers: 548 agreed, and 433 were
successfully contacted. What is interesting is that 124 of these individuals did not
meet the definition of a business angel, suggesting flaws in the initial screening
survey. A total of 277 angels were interviewed, with information obtained on their
investment history, personal background and three most recent investments. This
information was used to extrapolate to the full population, making an adjustment (124
÷ 433) to allow for those respondents who on closer examination were not angels.
Extrapolation was made on the basis of the median, rather than the mean, value of

This was a one-off survey, with no time series information and would be expensive to
replicate on a regular basis.

4.4 Identifying business angels through companies that have raised angel

From an international perspective the most popular approach for identifying business
angel investment activity has been through the companies that they have invested in.
This was the approach used in the US Small Business Administration (SBA) studies
of the 1980s and variants of this approach have also been adopted by Canadian
researchers. Researchers in Scotland have recently identified information from
Companies House that identifies external shareholders.

(i) US SBA studies

The US SBA funded three regional studies in the mid-1980s to identify the scale of
informal venture capital markets: (i) mid-Atlantic, South Central and Southeast states
(Gaston and Bell, 1986), (ii) urban areas contiguous to the eastern Great Lakes
(Arum, 1987) and (iii) all regions not covered in the previous studies (Gaston and
Bell, 1988). Uniformity of design, procedures and key results permitted merger of
these three surveys into a single database of informal investment in the USA which
was used by Gaston (1989b) to profile the US informal venture capital market.

Data gathering and estimation procedures are described in Gaston and Bell (1988) and
Gaston (1989a).

The procedure for gathering data involved two stages. First, a representative sample
of 240,000 businesses with less than 500 employees was selected from the Dun &
Bradstreet company database file. These businesses were asked if they had any
informal investors and if so, to provide their contact details. Second, questionnaires
were sent directly to the 2,900 individuals who had been identified in this way: 551
were completed and returned, of which 435 were usable. These questionnaires
provide information on both investors and businesses receiving informal investment.

The procedure for estimating the stock of investors was to multiply the total number
of firms in the USA by the proportion that were identified as having informal
investors, adjusting to take account of the average number of investors per firm,
multiple investments made by investors and the average holding period. All of these
measures were derived from the questionnaires completed by investors.

This estimated figure for the stock of investors was multiplied by the average annual
investment rate of investors to derive an estimate of annual investment activity. This
figure was multiplied by the average size of equity investment to calculate the annual
dollar level of investments.

The process was replicated to estimate the value of loans and loan guarantees
provided by investors.

There are two main criticisms of this approach. First, it requires a huge upfront
investment in the firm survey to generate a relatively small number of usable
responses from angels. This reflects a combination of the rarity of informal investing
and low response rates. In the case of the eastern Great Lakes region study, 40,000
firms were randomly selected (out of 470,000 small businesses). This led to the
identification of 200 firms which had investors. This produced 68 responses, 55 of
which were usable, after extensive chasing, involving up to 4 telephone calls per
investor (Arum, 1987b). Second, the component statistics that are used to calculate
the national estimate of informal investment activity are all based on estimates.
Moreover, the approach used does not permit the measurement of statistical
confidence limits. Gaston’s (1989b) response is to test his estimate for plausibility
against other information.

Given the costs and logistics involved, this approach is best suited to the development
of cross-sectional estimates of the market scale, but would be more difficult to justify
for the construction of a robust time series dataset on the market. However, given that
this approach has not been repeated in the USA it might be inferred that it has been
judged to have been ineffective in generating sufficiently useful estimates,
particularly when the substantial costs are taken into account. This in itself might be
sufficient to conclude against adopting this approach, even though it would appear to
satisfy the project requirements in terms of generating information on investors, firms
attracting finance and an estimate of total investment activity.

(ii) Farrell: new company incorporations survey in Atlantic Canada

In a report undertaken on behalf of the Atlantic Canada Opportunities Agency

(ACOA) Ellen Farrell of Saint Mary’s University in Halifax, Nova Scotia sought to
identify informal investors amongst those individuals who are closely associated with

newly incorporated companies - entrepreneur, a director, agent, lawyer or investor
(Farrell, 1998). Her approach was to sample from the more than 35,000 new company
incorporations in Atlantic Canada25 in the period 1992 to 1997 and to make contact
with the individuals involved. However, she was only able to interview 328
individuals of the 1408 incorporations sampled. Reasons for this high attrition rate
were as follows: unable to find a phone number (45%), disconnected phone line (7%),
no response (9%), call back never fulfilled (28%) and reached but refused (11%). Of
the 328 interviewed, 95 (20%) had invested their own money in a new or expanding
business that was largely operated and managed by someone else. These individuals
provided information on themselves and their investments. One in ten new
incorporations had an informal investor. From all of this information Farrell was able
to make an estimate of informal investment activity in Atlantic Canada.

Farrell extended this approach for her PhD which was undertaken at University of
Nottingham by making contact with a further 1101 principals from a further sample of
newly incorporated companies in Atlantic Canada (Farrell and Howarth, 2003). This
sample contained 141 informal investors (12%) divided almost equally between
novice and habitual investors. These investors were grouped into three categories:

• Those who had made just one investment which was in a family firm (33);
• Those who had made both family and arms length investments (16);
• Those who had only invested at arms length (92).

The fact that 12% of company directors had made investments in other businesses in
what is an economically lagging region serves to underline the importance of this
source of finance, particularly in such regions where institutional sources of finance
are rare (Mason 2007).

However, as a basis for developing a time series analysis of the UK market this
• Is time consuming, and thus better suited to generating point estimates
rather than cross-sectional data;
• Is more applicable at regional rather than national scale, where the
labour required to identify and follow up a sufficient number of respondents
for reliability purposes would be inordinately expensive.

(iii) Exempt investors under Alberta’s Securities Legislation

In Alberta (Canada) Securities Legislation (which is a Provincial responsibility)

allows small capital raising issues to be exempt from prospectus and ongoing
disclosure requirements. Robinson and Cottrell (2007) have used these exempt market
filings to identify various types of ‘informal’ investors:

• Family, friends and business associates;

• Offering Memorandum and Short Form Offering Prospectus – which covers
individuals with small pools of capital for investing in early stage businesses
on an ad hoc basis (which the authors call ‘opportunity-based investing’);

This comprises the provinces of Newfoundland, Nova Scotia, New Brunswick and Prince Edward
Island. It is the most under-developed and economically depressed region of Canada.

• Accredited investors – which covers wealthy individuals who are able to make
informed investment decisions and able to absorb an investment loss and meet
minimum income and asset tests (such investors would meet the typical
definition of a business angel).

The UK has a self-certification scheme whereby potential investors are allowed to

self-certify themselves as either high net worth individuals or sophisticated investors,
without having to go through an authorised intermediary. This enables such
individuals to opt-out of financial securities legislation which restricts the ability of
‘unauthorised persons’ (including business owners) to promote particular investments
or to encourage individuals to engage in investment activity unless it has been
approved by an authorised person such as an accountant or stockbroker. The high net
worth criterion of earnings of at least £100,000 a year or net assets of at least
£250,000 (excluding principal residence and pension) are as before. Individuals can
self-certify as sophisticated investors if they meet one of the following conditions: a
member of a network or syndicate of business angels for at least six months; have
made more than one investment in unlisted companies in the previous two years;
working, or have worked in the previous two years in a professional capacity in the
private equity sector or in the provision for finance for small and medium sized
enterprises; or is currently, or has been in the previous two years, a director of a
company with an annual turnover of at least £1 million. Accordingly, firms can now
promote to individuals that they ‘reasonably believe’ are self-certified as high net
worth or sophisticated investors, confident that they are operating within the law (HM
Treasury, 2004). This raises the question of who holds the information on HNW and
sophisticated investors and whether it can be used as the basis for generating
information on the investment activity of business angels.

(iv) Companies House data (88(2) forms)

All incorporated companies in the UK are obliged to file details of investments

received, where such investment results in the issue of shares. The data captured on
shareholder details and changes in these by Companies House is potentially the most
comprehensive source of relevant data collected as part of an existing administrative
procedure and has been used successfully in Scotland as the basis for research into the
risk capital market over a five year period (Harrison and Don, 2004; 2006). The data
typically available from this source includes: the date/time period for the allotment of
shares; the class of shares (ordinary, preference etc); the number of shares; nominal
value of each share; amount (if any) paid on or due on each share; names and
addresses of allottees, including class of shares allotted and number allotted.
Companies are obliged to make returns on form 88(2) within one month of allotment
of shares, suggesting that this potentially represents a timely source of information on
investment. Not all payment for shares need be in cash, so there is a limitation on the
ability of this source to provide a complete indication of the volume of investment:
however, experience in the Scotland experience suggests that this is a minor
restriction on the utility of this data source.

The UK is fortunate that company law imposes clear and detailed obligations of
disclosure on incorporated companies, reinforced in some cases by fines and other
penalties. In spite of these advantages, a number of material problems nevertheless
stand in the way of creating completely accurate data.

 While all incorporated companies are under a legal obligation to file
details of investments received with Companies House (on form 88(2)) the
obligation refers only to the issue of shares. It is common practice to
divide an investment between an equity instrument (details of which may
be found on the Companies House file) and one or more debt instruments
(which may not). The latter will be invisible to an outside observer, but
may sometimes represent 95% or more of a deal.

 While companies are obliged to file share issue details at Companies

House, this obligation is not rigidly enforced. Filing at Companies House
does not of itself validate a share issue (the definitive record being the
Company’s books). Hence filings are often delayed by many months, are
occasionally obviously incorrectly completed, and are frequently
duplicated. Pages are sometimes left out, or not processed correctly by
Companies House staff, and sometimes there are no filings at all. There
appears to be no effective administrative or legal penalty either for failure
to file an 88(2) or for error in filing, despite the requirement to file within
one month. It is therefore sometimes necessary to fill in details by
deduction, or by trusting information from a market source. Both
extrapolations are obviously prone to error.

 Company accounts are a more robust and reliable source of information,

but smaller companies are not required to make full disclosures, and
accounts can be filed up to 22 months after a transaction completes.
Companies House 88(2) data will also not cover disclosure of a deal
invested through a complex offshore company structure, which never
appeared as an 88(2) filing.

 Companies file at Companies House under their incorporated name.

Occasionally companies will operate under different brand names. Market
comment on deals usually quotes the latter. This means that a widely
publicised deal may be difficult or impossible to check. Companies also
change names, form complex groups, and transfer businesses between
themselves, making tracking more difficult.

 Even where a deal has been filed well and quickly the picture may be
confusing. Most deals involve multiple parties. It is often the case that
different parties to a deal report different total deal values, partly through
errors of recall, partly through differing treatment of tranches, debt,
convertibles and preference shares and partly through double counting of
investments. It is possible for several highly reliable sources to report
completely different data, all in good faith. On occasion parties will
misrepresent deals (up and down) deliberately in order to manipulate the
perceptions of customers, partners and competitors. Dealmakers are
equally prone to this practice, not least to move themselves up published
ranking tables of activity. This is a major issue in seeking to reconcile
88(2) data and other sources of market intelligence.

 It is sometimes difficult to distinguish accurately between founders and
business angels in Companies House filings, as it is in real life. An early
business angel investor may become actively involved for a year or two
and look like a founder to the outside world, but like an investor to the
original entrepreneurs. Specifically, while name and address details are
provided, 88(2) forms do not provide any indications as to the provenance
of the investor shareholders and their relationship to the business.
Additional and sometimes extensive work is required to classify investors,
identify ‘insiders’ (principals in the business) from ‘outsiders’ and separate
family investors (who may not of course, share surnames in common)
from non-connected investors.

 A small number of business angels and funds use offshore vehicles to

conceal their activities and/or manage their tax liabilities. While many of
these vehicles can be accurately attached to given individuals, some
cannot, muddying the distinction between angel and institutional

 Some institutions also use offshore vehicles and offshore incorporations

for the same reasons.

 Companies House does not publish a list of 88(2) filings. It is therefore

extremely difficult to spot a company raising money if no footprints
appear at all which lead to discovery of an 88(2). The only way to capture
all deals filed would be to commission a search of 88(2) filings on the
Companies House database, to identify the research targets. Considerable
further work would then be required to read and analyse the filings
revealed by the search. There are significant cost and manpower resource
implications arising from this administrative practice.

These considerations suggest that the use of 88(2) forms may be problematic as the
basis for a detailed robust time series analysis of the business angel market in the UK.
However, should no superior alternatives emerge then it would be worthwhile to
explore with staff in Companies House how and to what extent these limitations in the
data can be overcome. What, at least potentially, 88(2) data offers is evidence of the
actual flows of capital into businesses, scope for analysis of the form of that
investment (in terms of the class of shares, the split between cash and other
considerations offered for share acquisition) and company registration details that
permit linking with, for example, the FAME database for purposes of further analysis.

4.5 Hybrid approaches: Canada’s SME FDI initiative

In response to a Task Force on the future of the Canadian Financial Services Sector
(1998) which highlighted “a lack of consistent, comprehensive and impartial data on
SME financing” the Federal Government mandated the Department of Finance,
Industry Canada and Statistics Canada to gather data on SME financing and report
regularly to the House of Commons Industry Committee on the state of SME
financing in Canada.26 This is known as the SME Financing Data Initiative. It
The Mission Statement of what became known as the SME Financing Data Initiative “is to be a
world class, cutting edge program which builds a comprehensive knowledge base of timely and

comprises both a demand side survey and a supply side survey. The demand side
survey is a weighted sample of firms with up to 499 employees and less than $50m
Cdn in gross revenues (with certain sectors excluded – financing and leasing
companies, co-operatives, subsidiaries, not-for-profit organisations, government and
other public sector organisations). The sampling frame contains 1,285,620 businesses.
The supply side survey is a census of enterprises with assets of $5m Cdn or more in
selected financial and leasing industries, and venture capitalists. The surveys have
occurred on a bi-ennial basis since 2001 and have provided the basis for several
reports on SME financing (see
prf_pme.nsf/en/home ).

On the basis that many – although not all – business angels are business owners
questions were included in the 2003 demand side survey to ask if respondents had
made any informal investments. The responses have been analysed by Riding (2006).

Step 1: Respondents were first asked “whether, excluding publicly traded shares,
market funds or stock, did the majority owners of this business make any investments
in any other business at any time since 1990?” 10.8% of respondents responded in the
affirmative. These respondents were then asked (i) when they made these investments
and (ii) how much did they invest in these other businesses. With this information it
was possible to estimate the number of investments and the flow of finance for the
years 2001, 2000 and 1990-99.

Step 2: The stock of informal capital available was estimated by asking “how much
did the majority owners have available to invest in other businesses?” Taking the
proportion of business owners who had capital available and the average amount
available, and scaling up to the population of business owners gives an estimation of
the total stock of informal capital available.

Step 3: The next stage in the analysis is to separate out angel investments from these
figures which refer to informal investments in general. This was done with two further
questions on (i) whether the investments had been in businesses owned by family or
friends, and (ii) whether the investor had acted as an operator in the investee business.
Only 13.9% of all investments qualified as angel investments. Applying this ratio to
the estimates generated in stage 1 gives an annual flow of business angel finance from
business owners.

Step 4: The analysis has been based on a subset of business angels – namely business
angels who are business owners who fit the sampling frame. The final step in the
estimation procedure is to scale up the estimates from the population of business
owners to the general population. This requires an estimate of the proportion of
business angels who are business owners. The scaling factor used was 0.91 based on
evidence from a Canadian survey that 91% of business angels were business owners.

Based on this approach the estimated minimum flow of angel capital in Canada in
2001 was $3.5bn Cdn.

unbiased information on SME financing in Canada. This critical knowledge will help foster an
environment which supports the growth of Canadian SMEs by fuelling the public policy debate and
bringing clarity to the SME financing market. We do this in an environment of professionalism,
transparency and interdepartmental cooperation.”

The logic and rigour of this approach makes this a very appealing methodology.
Unlike other firm-based surveys it is able to calculate estimates for both the flow and
stock of angel capital. It utilizes an existing survey of SMEs. The final estimate is
sensitive to the estimate of the proportion of business angels who are business owners
– the estimate used in this study seems too high when compared with existing
research, but further research can refine this figure. Perhaps the main concern with
this approach is evidence from previous research that some angels are cashed-out
entrepreneurs who have sold their business and so are no longer business owners. The
original Mason and Harrison study noted a high proportion of business angels who
described themselves as self-employed, a category which included respondents who
described themselves as consultants. This seems likely to include cashed-out
entrepreneurs. It therefore becomes critical to know whether cashed-out business
owners who become business owners set up new companies as an umbrella for their
consulting, investment and other activities and whether such companies are included
in the sampling frame that is used in this approach. Nevertheless, it would seem well
worth assessing the feasibility of applying this approach in the UK. Specifically, in
order to reduce the survey requirements it might be possible to base this approach on
companies rather than SMEs.27

4.6 Investment-oriented approaches – business angel network data

Because the costs involved in identifying active investors is extremely high an

alternative approach is to explore sources of information on actual investments. But
here again we hit the problem that business angel investments are unreported and
undocumented. The only visible part of the market is deals made through business
angel networks. This data source has the advantage of accessibility, in that networks
are accessible and have membership records which can be used as a source of data or
for survey purposes. As such, they represent a relatively low cost mechanism for
collecting data, and have been used in this context in the past. However, there are also
several significant limitations. In particular, the coverage of the market is incomplete
– only a minority of business angels are members of networks, and there is no
knowledge as to the proportion of the total number of business angels that are
members of networks nor the proportion of total investment activity that is captured.

(i) Venture Capital Network (VCN) investor registration forms

Freear et al (1993) used the investor registration forms for the period 1985 to 1992 for
VCN, based in New England, one of the earliest established business angel networks
which sought to introduce investors and business angels using computer software. The
forms profiled investor characteristics and preferences, investments and the extent of
their involvement in their investee businesses. Simple analysis of this data was
effective in highlighting the declining pace of angel investment activity over this
period, one of economic decline.

The key requirement would be to know the proportion of business angels who also own companies
that conform to those in the sampling frame [p(B/A)]. This might be knowable from previous surveys
of angels. The proportion of angels, [p(A)], as a proportion of the number of businesses, [p(B)], could
then be estimated as the quotient of p(A/B) (proportion of business owners who are also angels, found
from the survey of companies) divided by p(B/A). (Allan Riding, personal communication 22nd March

(ii) Investments made through UK Business Angel Networks – BVCA/NBAN annual
reports on informal investment activity in the UK

Colin Mason has collected statistical information on investments made through BANs
on an annual basis from 1993-94 through to 2003, initially on behalf of the British
Venture Capital Association and then for the National Business Angel Network
(NBAN), and linked to the publication by these organisations of an annual directory
of BANs. Annual reports were published by BVCA and NBAN. Data collection
ceased after 2003 following the demise of NBAN.

The focus of the data collection was on the investment. Information was collected on
the following:

• Name of the company (kept confidential but used to check for double counting
– to avoid a deal being included in two years or if claimed by two different
• Location of the business (town/city and country).
• Nature of the activity – coded according to the standard industrial
• Stage of business development.
• Number of investors (only those registered with the network).
• Total amount invested by these investors and breakdown of individual
• Location of investor(s) (county).
• Any co-investors – type(s) (bank, venture capital fund, other angel(s) not
registered with the network, government, other) and amount invested.

Response rates by BANs were generally very high and the quality of the information
provided was good. This is because many BANs were remunerated by a success fee
so had a vested interest in tracking the outcomes of the introductions that they made.
Some BANs were also very involved in the investments as an honest broker. Missing
information was only a significant problem in two situations: breaking down amounts
invested when there were two or more investors, and knowledge about co-investors.

Mason (2006b) used this data to provide a detailed analysis of investment trends from
1993-94 to 2003. The main highlights were as follows:

• Increasing volume of activity on all indicators (investors, deals, amount) from

1993-4 to 1997-8;
• Increasing amounts invested from 1997-98 to 2001 but static trends in
investors and investments;
• Decline in number of investors and amount invested in 2001 and 2002 but
some recovery in 2003.

In terms of investment characteristics the main trends were as follows:

• Increase in the average size of investments up to 2001, then a decline;

• Increasing number of deals involving groups of angels and a dramatic decline
in solo investors;28
• A gradual shift to bigger deal sizes in parallel with a growth in smaller
individual investments;
• An increasing focus on technology investments in terms of their share of the
total number of investments.

Notwithstanding the tip-of-the-iceberg issue this analysis provided a unique and

valuable insight into business angel investment trends, at least for that segment of the
market represented by membership of business angel networks, was produced at very
low cost and because of the small numbers involved could be published with only a
short time delay. Its demise represents a significant loss.

(iii) British Business Angel Association (BBAA) statistics

The BBAA which replaced NBAN in 2004 currently collects investment statistics
from its members on a six monthly basis. However, the information which is collected
and reported is limited to the following:
• the total amount invested by investors who are part of the networks that are
members of BBAA;
• the total number of investors who are members of these networks.

This clearly falls far short of the annual reporting by Mason.

In view of the financial support which BBAA receives from government there is a
very strong case for suggesting that BBAA should significantly increase the range and
quality of information that it collects from its members on their investment activity (at
least to the level collected by Mason).

However, this source of statistics has three significant limitations. First, although the
quality of information on businesses that have raised finance is good, there is no
equivalent information on investors, although this could be obtained by requesting
BBAA to ask its member networks to survey their investors on a regular basis, or to
collect more detailed demographic and investment data when investors join a
network. Second, there are significantly fewer BANs now than there were in the
1990s (when the number peaked at 48) and fewer investors registered with BANs.
This may well reflect overall market trends as a result of the post-2000 investment
shake-out; equally, it may reflect a change in the structure of the market and its
organisation rather than a change in the level of activity in the market. Nevertheless,
the effect is to exacerbate the tip-of-the-iceberg phenomenon. Third, and related to the
previous point, the membership of the BBAA is much more diverse than in the 1990s,
including not only conventional BANs but also angel syndicates of various kinds.

(iv) Summary
It is not clear the extent to which this was simply a function of the changing nature of BANs from
around 2001, involving the decline of pure introduction networks and an increase in active BANs
which offered ‘packaged’ investments to investors

Given the availability of data from angel networks it would be worthwhile exploring
whether it can be used to generate an estimate of overall investment activity. A one-
off survey could be designed to identify what proportion of angels are members of
business angel networks and the proportion of their investments that are made through
these networks. It would also need to compare investments that are channelled
through networks with those that are not to assess how representative such
investments are. If such investments are demonstrated to be fairly representative, then
the extrapolation of investment data from can provide a valuable insight into angel
investment flows over time and at low cost. Notwithstanding these comments, the
visibility and accessibility of these networks suggests that they should be the locus of
regular systematic data collection as part of a multi-method approach to the challenge
of providing regular robust time series analysis.

4.7 Special Investment Situations – the Enterprise Investment Scheme29

The UK has two schemes which provide tax incentives to individuals to encourage the
supply of equity finance to smaller, unquoted companies. The Enterprise Investment
Scheme (EIS) was introduced in January 1994 and the Venture Capital Trust (VCT)
scheme was introduced in April 1995. The EIS provides tax relief for direct equity
investments in qualifying companies, whereas VCTs are professional fund
management companies that pool the investments of private individuals and make
investments in qualifying companies (which includes some OFEX- and AIM-listed
companies). As noted in the research review earlier, many business angel use the EIS
scheme to make investments, hence data on EIS investments could potentially be used
as a surrogate measure for business angel investment activity.

HMRC collect data on EIS and VCT investments using the EIS1 forms (available at for the following fields:

• CRN (from which the record can easily link to FAME for other variables);
• NAME – company name;
• GOR CODE – Government Office Region code;
• INCORP DATE – Incorporation date;
• PLC – is the company a PLC?
• AIM/OFEX – is the company listed on AIM or OFEX;
• No. of issues – number of EIS issues made;
• EIS total funds – total funds raised under EIS;
• Sum subscribers – total subscribers under EIS;
• Tax year E – first tax year in which the company received EIS funding;
• SIC – 4 digit – industrial activity of the business using standard industrial
classification (93% complete);
• FAME Incorporation – incorporation data from FAME database;
• TCN CODE – 4 digit (100% complete);
• STATUS – live, dissolved, liquidated, receivership;

The information in this section is based in part on discussions with HMRC staff.

• Dissolved date – where companies are dissolved, date recorded from FAME.

It is important to stress that this data relates to the company and so cannot provide
details of investor characteristics. Moreover, there may be a delay of up to three years
for the information on EIS investments to become available (although HMRC
estimates that some 90% of the data is available within two years), so there will be a
time lag in analysis. Consequently, EIS data is unlikely to provide a robust basis for
timely time series analysis. In the longer term, however, this restriction becomes less
important and this EIS data has the potential to offer reasonably consistent market
estimates (subject to some administrative considerations discussed below). However,
this is offset by the fact that EIS data are not subject to post-release and post-
collection revision: this is a strength of the data.

There is also unexploited potential for further detailed analysis of the data, linking
with Companies House FAME data in particular, to analyse such issues as the link
between EIS investment and prior and subsequent company performance. This offers
the possibility of detailed cross-sectional analyses which will be of value in deepening
our understanding of this investment activity. However, without an understanding of
the relationship between EIS investment and business angel investment the light this
throws on the operation of the business angel market per se is unclear.

There is much less reliable information on investment at the investor level from EIS
records. Data comes from self-assessment tax records, and may cover around 90% of
activity; the remainder is accounted for by direct claims through the investor’s local
tax office. It is currently not possible to link investor records with investee company
records.30 The self-assessment data are reasonably timely: claimants have either
invested during the tax year that the claim relates to or in the following six months.
Limited demographic data are available to support profiling of the investors, and
collection of this information would only be possible at what would be viewed as
disproportionate cost with respect to the potential benefits, and self-assessment data
are most suited for investigating the sources of reported income. However, this will
provide some indication of the relationship between income level, and source, and
investment activity, and location of investor (by postcode). Other demographic
indicators are not available from this source. And because it is not possible to link
investor location records with company location, it will not be possible to examine
inter-regional flows of investment capital, as performed in an earlier examination of
the Business Expansion Scheme, the predecessor of both the EIS and VCTs (Mason et
al, 1988; Mason and Harrison, 1989).

In addition to these considerations, there are a number of other concerns with using
EIS data as a means of monitoring business angel investment activity. First, as noted
earlier (Mason and Harrison, 1999), by no means all business angel investments are
made using EIS. However, there are no estimates for the proportion that this accounts
for, whether investments made using the EIS are different to those which do not use
EIS, nor the stability of this proportion over time. These issues could be addressed
through a benchmark survey of business angel investors to provide a basis for
extrapolating from EIS investment to the business angel market. Second, EIS
Recording national insurance numbers on the EIS1 form would provide such a link, although this
raises concerns about reducing the burden in the collection of data. It also has complications where
there are multiple investors, or collective investments, in any company.

includes investments that would not be considered as falling within the definition of
angel investments in terms of the type of business being invested in. However, given
that our concern in this Report is with business angel investing rather than with the
flow of finance into a set of businesses of some particular characteristics, this is
perhaps not a major concern. Third, EIS data are primarily company-based so it is
difficult using this information to identify and monitor investments in the market,
such as syndicate investment when all syndicate members make separate EIS claims
and are therefore counted separately. Fourth, and most important of all, EIS statistics
are a by-product of the existence of a particular government initiative to support small
businesses. It follows that the continuation and consistency of the dataset depend on
the continued existence of the EIS. Changes in how the scheme operates, notably in
terms of the amount of tax relief, the annual limit on the amount invested, and on how
much companies can raise, all of which have changed overt the years, creates
discontinuities because of their effects on the amounts that individuals will invest
under the scheme. Cessation of the scheme will terminate the dataset.

For all these reasons EIS investment statistics would not appear to represent the basis
for a robust time series on informal venture capital investment activity in the UK.
However, it may be appropriate to undertake a one-off survey to identify what
proportion of business angel activity is outwith the EIS and whether EIS investments
are distinctive from non-EIS investments31 in order to explore the potential for
extrapolation from the EIS statistics.

There may be scope for modifying the data collection procedures in a manner that
would allow for more detailed analyses of the EIS-segment of the market, for
example, in using the integration of the EIS and FAME datasets to examine issues in
the assessment of the performance of EIS-backed and non-backed ventures. At
present, EIS appears to offer better prospects for ad hoc detailed analyses than for a
consistent time series analysis. Additional data collection would help mitigate this: a
survey of business angels, identified through a variety of means, would establish, at
least for one point in time, the proportion of angel investors making investments
through EIS and the proportion of their investments so channelled; a survey of EIS
investors and investment (which would require substantial cooperation from HMRC
for a one-off analysis) would help establish the extent to which this investment meets
the definition of business angel investment.

VCT data offers a rather different challenge: as discussed in an earlier section, much
VCT investment is via pooled funds, breaching our definition of business angel
investment. Furthermore, VCT investments can also be made in certain types of AIM
companies, which offers advantages to investors seeking to diversify their portfolios
and gain exposure to a wider range of asset classes, and channels finance to
companies with the characteristics that the business angel market is believed to
support, but does not meet the definition of business angel investment.

4.8 Angel Syndicates

For example, it has been suggested that the 30% maximum shareholding and the requirement to
invest in ordinary shares will bias EIS investments in favour of smaller and earlier stage investments.

The angel market place is evolving from a largely invisible, atomistic market
dominated by individual and small ad hoc groups of investors who strive to keep a
low profile and rely on word-of-mouth for their investment opportunities, to a more
organised market place in which angel syndicates (sometimes termed ‘structured
angel groups’) are becoming increasingly significant. As a result, the angel market
place is in the process of being transformed from a ‘hobby’ activity to one that is now
increasingly professional in its operation, with published routines for accessing deals,
screening deals, undertaking due diligence, negotiating and investing.

There are currently estimated to be around 200 angel syndicates located throughout
the USA and growing evidence of specialisation by industry sector (e.g. health care
angel syndicates) and type of investor (e.g. women-only angel syndicates).32 A
national body to bring angel groups together for the purposes of transferring best
practice, lobbying and data collection was created in 2003 (Angel Capital
Association: The same trend is also clearly
evident in the UK although at an earlier stage, and it has not attracted the same degree
of attention from researchers or commentators. For example, in Scotland there are
currently 18 angel groups. The leading syndicates – for example, Archangels and
Braveheart - have high visibility, including their own web sites which list their
investments, and their investments are reported in the media. Archangels has been
operating for about ten years. Its web site lists 20 investments in which they have
invested over £30m. In 2002 it invested £1.5m in six new investments and £4.3m in
eight follow-on investments. Some of these investments were made as part of
syndicated deals involving other angel syndicates and venture capital funds.
Braveheart has been operating since 1997. It has 50 members. It has made 22
investments in 17 companies. To put the scale of their investment in some kind of
perspective, both Archangels and Braveheart now make more early stage investments
in Scotland than any single venture capital fund. Moreover, both syndicates
participate in Scottish Enterprise’s Co-investment Scheme, underlining their
‘institutional’ status33. Curiously, in England angel syndicates adopt a much lower

Angel syndicates emerged because individual angels found advantages of working

together, notably in terms of better deal flow, superior evaluation and due diligence of
investment opportunities, and the ability to make more and bigger investments, as
well as social attractions. They operate by aggregating the investment capacity of
individual high net worth individuals (HNWIs). Some groups are member-managed
while others are manager-led (Preston, 2004). Syndicates take various forms but the
most common generic type of model is as follows:
• Limited and selective membership of angels (typically 20-75 members) who
typically play an active role in the investment process.
• Meet regularly (e.g. for dinner) to hear ‘pitches’ by entrepreneurs seeking

Several of these angel groups have been profiled in the scholarly literature (May and Simmons,
2001; May, 2002; Cerullo and Sommer, 2002; Payne and Mccarty, 2002; May and O’Halloran, 2003).
Braveheart have recently announced the resumption of their intention to list on AIM to raise
additional capital: as a FSA registered investment house this development further moves them in the
direction of becoming an institutional investor; however, some elements of their operations for their
original members continue to meet the definition of business angel investment, reemphasising the
difficulty of maintaining a clear-cut definition of the business angel market.

• A syndicate manager supports members by organising meetings,
communications and manages logistics.
• The manager or a core group of members will screen the deal flow and select
the companies which are invited to pitch.
• Q&A session follows each pitch.
• Angels vote whether to pursue their interest in the business.
• If the vote is in favour a sub-group will be appointed to undertake the due
diligence and report back to the full membership.
• If the recommendation is positive, individual members make their own
decisions whether or not to invest (there is likely to be a minimum investment
threshold for each deal) and the syndicate will combine all of the member
dollars into a single investment. Alternatively, if the syndicate operates a
pooled fund a majority vote will decide whether or not to invest.
• An expectation that each member of the syndicate will make a certain number
of investments per year.

Some of the larger and longer established US syndicates have also established sidecar
funds – that is, committed sources of capital that invest alongside the angel group.
The investors in such funds are normally the syndicate members but may also include
other HNWIs or institutions. These funds give the syndicate additional capital to
invest in deals to avoid dilution, enables syndicate members to achieve greater
diversification by exposing them to more investments than they can make directly
through the syndicate, and is a means of attracting ‘right-minded’ investors who want
to participate in seed and early stage deals but cannot be active members of a
syndicate (e.g. because of lack of time).

The emergence of angel syndicates is of enormous significance for the development

and maintenance of an entrepreneurial economy. First, they reduce sources of
inefficiency in the angel market. The angel market has traditionally been characterised
by inefficiency on account of the fragmented and invisible nature of angels. There
was no mechanism for angels to receive a steady flow of investment opportunities.
They found their deals by chance. The entrepreneur’s search for angel finance was
equally a hit-or-miss affair. Investors and entrepreneurs both incurred high search
costs (Wetzel, 1987; Mason and Harrison, 1994). This encouraged many to drop out
of the market as either suppliers or seekers of finance. Angel syndicates, in contrast,
are generally visible and are therefore easier for entrepreneurs to approach.

A further source of inefficiency was that each investment made by an investor has
typically been a one-off that was screened, evaluated and negotiated separately.
However, because of the volume of investments that angel syndicates make they have
been able to develop efficient routines for handling investment enquiries, screening
opportunities and making investment agreements.

Second, they have stimulated the supply-side of the market. Syndicates offer
considerable attractions for HNWIs who want to invest in emerging companies,
particularly those who lack the time, referral sources, investment skills or the ability
to add value. However, many individuals who have the networks and skills to be able
to invest on their own are also attracted by the reduction in risk that arises from
investing as part of a syndicate, notably the ability to spread their investments more

widely and thereby achieve greater diversification, and access to group skills and
knowledge to evaluate investment opportunities and provide more effective post-
investment support. Other attractions of syndicates are that they enable individual
angels to invest in particular opportunities that they could never have invested in as
individuals, offer the opportunity to learn from more experienced investors and
provide opportunities for camaraderie and schmoozing with like-minded individuals.
Syndicates will also be attractive to individuals who want to be full-time angels. Thus,
angel syndicates are able to attract and mobilise funds that might otherwise have been
invested elsewhere (e.g. property, stock market, collecting), thereby increasing the
supply of early stage venture capital, and to invest it more efficiently and effectively.

Third, they are helping to fill the ‘new’ equity gap. Venture capital funds have
consistently raised their minimum size of investment and are increasingly abandoning
the early stage market (after briefly returning during the “dot-com bubble” of the late
1990s). Most funds have a minimum investment size of at least £500,000 and the
average early stage investment by UK venture capital funds in recent years has been
around £1m. This has resulted in the emergence of a new equity gap roughly the
£250,000 to £2m+ range which covers amounts that are too large for typical ‘3F’
money (founder, family, friends) but too small for most venture capital funds. Angel
syndicates are now increasingly the only source for this amount of venture capital in
this range.

Fourth, they have the ability to provide follow-on funding. One of the potential
problems of raising money from individual business angels is that they often lack the
financial capacity to provide follow-on funding. The consequence has been that the
entrepreneur is often forced to embark on a further search for finance. Moreover, in
the event that the need for additional finance is urgent then both the entrepreneur and
the angel will find themselves in a weak negotiating position with potential new
investors, resulting in a dilution in their investments and the imposition of harsh terms
and conditions. With the withdrawal of many venture capital funds from the small end
of the market individual angels and their investee businesses have increasingly been
faced with the problem of the absence of follow-on investors. However, because angel
syndicates have got greater financial firepower than individual angels or ad hoc angel
groups they are able to provide follow-on financing, making it more efficient for the
entrepreneur who avoids the need to start the search for finance anew each time a new
round of funding is required.

Fifth, their ability to add value to their investments is potentially much greater. The
range of business expertise that is found amongst angel syndicate members means that
in most circumstances they are able to identify an investor who can contribute much
greater value-added to investee businesses than would be possible from an individual
business angel, or even most early stage venture capital funds.

Finally, angel syndicates have greater credibility with venture capitalists. Venture
capital funds often have a negative view of business angels, seeing them as amateurs
whose involvement in the first funding round of an investment could complicate
subsequent funding rounds because of their tendency to over-price investments, use
complicated types of investment instruments and make over-elaborate investment
agreements (Harrison and Mason, 2000). Venture capitalists may therefore avoid
deals in which angels are involved because they perceive them to be too complicated
to do. However, because of the professionalism and quality of the membership of
angel syndicates venture capital funds hold them in much higher esteem. Accordingly,
the increasing prominence of angel syndicates should strengthen the complimentarity
between the angel market and venture capital funds, to the benefit of fast-growing
companies that raised their initial funding from angel syndicates but now need access
to the amounts of finance that venture capital funds can provide.

Angel syndicates are now emerging as such significant players in the provision of
start-up and early stage venture capital that it is essential that their investment activity
is documented. Just five syndicates are members of BVCA and so their investments
are included in the BVCA’s annual report on investment activity along with those of
professional venture capital funds investing institutional money. Some other angel
groups are members of BBAA and so their investments are included in the BBAA’s
statistics. However, it is important that angel syndicate investment activity is reported
separately and comprehensively.

In the USA Jeffrey Sohl at the University of New Hampshire has been collecting data
on US angel groups for some years. However, its value is diminished because much
of the data are collected in the form of percentages. Moreover, because of the way in
which the data are presented it is not clear what the response rates are (but it is
suspected to be low). Variability across surveys in which groups respond also creates
problems in analysing the data over time. The Angel Capital Educational Foundation,
in association with the Kauffman Foundation are also collecting information on
investments and group characteristics (e.g. number of members, investment
preferences, years in operation, organisation type, side car fund, management or
member-led, member fees) from their members. Allan Riding, with support from
Jeffrey Sohl and Colin Mason, will also start to gather investment data from Canada’s
angel syndicates in conjunction with Canada’s National Angel Organisation.

The same survey instrument – an improved version of the questionnaire used by Sohl
– could be used to survey angel syndicates in the UK, with the advantage of enabling
UK syndicate investment activity to be put into an international comparative context.
However, in the absence of an equivalent membership group to those which exist in
the USA and Canada the first challenge will be to create a list of angel syndicates.


Business angels play a critical role in supporting an entrepreneurial economy. They

are the largest external source of start-up finance after family and friends, their
investments fill the size, stage and sector gaps left by venture capital funds, and in
many regions are virtually the only source of risk capital. Business angels are often
responsible for providing the initial funding for young companies that achieve fast
growth. Indeed, many angel syndicates have the capability to do multiple rounds of
financing, sufficient to take the company to a trade sale or IPO without the need to
‘pass the baton’ to venture capital funds. As experienced business people, in many
cases as successful entrepreneurs, business angels also contribute valuable non-
financial assistance to the businesses in which they invest.34 Policy-makers therefore
need to be able to measure, monitor and, if appropriate, to respond to business angel
investment activity. However, the invisibility of business angels and their investment
activity is a major barrier to the development of information on business angel
investment activity and our knowledge-base is largely restricted to various ad hoc
studies, mainly conducted by academic researchers. These are largely cross-sectional
rather than longitudinal, small-scale, based on samples of convenience and
increasingly use inconsistent definitions of business angel activity. In view of the
emphasis of UK small business policy on removing financial barriers to growth there
is an urgent need to develop improved statistical information on business angel
investment activity. Without improved statistical information there is a risk of
inappropriate policy intervention.35 Our first recommendation is therefore that the
Enterprise Directorate should develop improved time-series data on business
angel investment activity.

The report has considered definitions of business angels. Two key issues have
emerged. First, there is a tendency, encouraged by GEM, to collapse business angel
investing into a bigger but less coherent category termed informal investments which
includes investments made in the businesses of family members. This is unhelpful and
should be resisted. Second, the definition of ‘business angels’ has become
increasingly fuzzy at the edges. However, the key features which distinguish business
angels from other types of ‘informal’ investors remain robust, namely:

• Investing their own money;

• Making their own investment decision;
• Commercial considerations dominate the investment decision (although some
investors may trade off part of the commercial return for non-financial
• Excludes within-family investments;
• Involves ‘hands-on’ involvement with the investee company (if not by the
investor then by a co-investor).
We noted earlier that academic research has failed to identify a positive link between the
contributions made by business angels to the businesses in which they invest and the performance of
these businesses. Nevertheless, there is both academic and anecdotal evidence that many entrepreneurs
do regard these contributions as valuable (Harrison and Mason, 1992; Mason and Harrison, 1996c).
For example, Mason and Harrison (2003b) have argued that the Regional Venture Capital Funds in
England, which were introduced on the basis of the view that there was a gap in the availability of risk
capital for amounts of under £250,000 may have been unnecessary because of the significant – but
unquantified - role of business angels and angel syndicates in making this type of investments.

Our second recommendation is therefore that data collection is based on this
rigorous definition of business angels. Separate data collection and analysis is
appropriate to scope out the non-‘pure’ informal investment activity in the UK,
to provide an overall assessment of the availability of investment capital in the

This report has critically reviewed various approaches in the UK and elsewhere to
identify and measure business angel investment activity. It is clear from this review
that attempting to identify business angels and the amounts that they have available
for investment is extremely problematic, and not terribly meaningful. Rather, it is
their actual investments that are significant. Thus, our third recommendation is
that the focus of data collection should be on investment activity – the investments
made by business angels - rather than on the investors themselves. As set out
below, this data collection should collect data on both the activities of business
angel investors and on the companies in which the investments are made.

We have highlighted the way in which the angel market place is evolving, noting in
particular, the emergence of angel syndicates which have emerged to fill the ‘gap’
between the amounts that entrepreneurs can raise using ‘3F’ and solo angel money
and the minimum amount that most venture capital funds will consider. This is a
hugely significant development. First, although the number of angel syndicate
investments is small compared to the numbers made by traditional angels investing on
their own or in small ad hoc groups they are significant in terms of amounts invested.
Second, there is anecdotal evidence from Scotland that angels increasingly prefer to
invest as part of a syndicate than as individuals. 36 Third, in some regions (such as
Scotland) angel syndicates are more significant than venture capital funds in terms of
investment activity. Fourth, angel syndicates increasingly have sufficient financial
resources to be able to provide multiple rounds of funding. Their investment activity
is now being recorded in the USA, both by the Angel Capital Alliance (the ‘trade
body’ for angel groups) and also by the Center for Venture Research at the University
of New Hampshire. Given this increasing significance of angel groups, our fourth
recommendation – and first action point - is therefore that the BERR/Enterprise
Directorate should instigate a regular (annual or twice-a-year) survey of angel
groups and syndicates to collect information on their investment activity using
the survey instrument developed by the Center for Venture Research to enable
international comparisons. As a preliminary step it will be necessary to generate a list
of angel groups and to keep it up to date.

In terms of other actions to develop time series data on business angel investment
activity our view is that the Enterprise Directorate has a choice. It could build on
data that already exists. This is a low cost option. The trade-off is that the data are
sub-optimal. Alternatively, it could undertake new data collection to develop a
more accurate picture of angel investment trends.

Building on what exists.

David Grahame, CEO of LINC Scotland, personal communication.

This strategy involves working with existing data sources so that they can be used to
generate estimates of business angel investment activity. We recommend action on
five fronts.

The first is to seek changes to the questions in GEM about informal investment by
including questions on the investments themselves. This will enable a much better
definition of angel and family investments. Above (page 35), we have provided some
indicative questions to be added to the GEM questionnaire to improve the utility of
the data from this source. The same changes could also be made to the Enterprise
Directorate household survey with similar benefits, although given the scale of GEM
the data will be more robust as a basis for monitoring the market.

The second is to require the BBAA to increase the range of its data collection at
least to the level that occurred in the 1990s when first the BVCA and then NBAN
were responsible for organising data collection on deals made through BANs. Of
course, this is only measuring the ‘tip-of-the iceberg’ in terms of overall market
activity. However, BBAA members are uniquely positioned to report on some
detailed aspects of investment activity that are beyond the scope of other approaches
(e.g. valuations, co-investments, loan-equity ratios, etc). We suggest that as a
minimum, BANs are asked to report on the following for each investment: location of
company, industry sector, whether ‘high tech’, stage of financing, number of angels
investing and amounts invested by each, locations of investors and any co-investors
and amounts they invested. The original questionnaire used for the collection of
information on behalf of NBAN can be found in Appendix 1.

A third recommendation is to seek administrative changes to the processing of

88(2) forms to address the limitations discussed earlier which limit their usefulness at
the present time. If all of the limitations could be addressed then this would make
these forms a comprehensive source of data on investment in unquoted businesses.
However, without additional detailed research and data collection 88(2) data does not
immediately separately identify business angel investment. Research in Scotland has
demonstrated both the usefulness of this data source and the additional effort required
to maximise its use in the present context. We would point out that the experience
with the use of 88(2) data in combination with other sources of market intelligence in
Scotland suggests that there are learning effects over time: initial investment of time
and effort reduces over time as market intelligence builds. Nevertheless, this option
remains a high-cost solution.

The key changes required to the 88(2) forms are as follows:

• Enforcing the requirement to file;

• Ensuring the completeness of the records;
• Requiring the disclosure of both loan and equity investments;
• Speeding up the time in which filing is required;
• Classifying investors so that ‘insiders’ and ‘outsiders’ and ‘connected’ and
‘non-connected’ investors can be identified;
• Publication of a list of 88(2) filings.

Given the administrative changes required, we consider it unlikely at the present time
that the 88(2) form can be modified to collect detailed information on shareholder

characteristics in a manner that will allow identification of business angel investment
specifically, and without commitment to additional research resources to build on the
raw data in the 88(2) forms this remains an untapped potential data source.

The fourth is to undertake a one-off survey of business angels to identify what

proportion are members of business angel networks, the proportion of their
investments that are made through these networks and whether such
investments are distinctive from those investments which are made without using
networks. With this information it would be possible to extrapolate from statistics on
investment activity channelled through business angel networks (e.g. provided by
BBAA) to generate an approximation of overall business angel investment activity.
However, this approach will only generate ‘headline’ figures and given the small
amount of investment activity that is channelled through BANs the resulting estimates
will be fairly crude.

This can be combined with a fifth recommendation which is similar: undertaking a

one-off survey to estimate the share of total business angel investment activity
that is accounted for by the EIS, and to use this information to scale up the EIS
investment statistics. This is more complicated than extrapolating from BAN
investments because EIS statistics also includes some types of investments that would
not be regarded as business angel investments. Thus whereas BAN investments are a
subset of overall business angel investment activity, the overlap of EIS investments
and business angel investments is less than 100%. Thus, surveys of business angels
and EIS investors would be required (although the survey of business angels could be
combined with the previous recommendation). However, frequent changes to the rules
of the scheme – notably the types of companies and investments which qualify – will
make it difficult to develop robust and consistent time-series estimates from EIS data

In summary, given the existence of GEM, BANs and EIS statistics, efforts to improve
their utility could generate much improved information on business angel activity at
little cost. However, all of these sources have limitations, and so none of them on their
own provide an unequivocal basis for developing a consistent time series data source,
hence our recommendation for a multi-method approach.

Improving the 88(2) forms is actually the best approach in terms of providing accurate
information on actual investment activity (subject to timely and comprehensive
reporting of the data) but seems unlikely to be feasible, at least in the short term
because of the changes that would be required to the way in which the information is
collected and reported. We therefore recommend that consideration is given to the
following: (a) pressing the GEM research co-ordinators to change the questions that
they ask about informal investment; (b) collecting more comprehensive data through
BBAA on their members’ investment activity, and (c) scoping a project, based on
an appropriate sample, to assess the overlap between EIS and ‘pure’ business
angel investment.

A new approach.

Our penultimate recommendation is that the Enterprise Directorate invests in a
company survey modelled on the Canadian Financing Data Initiative. Of all the
approaches reviewed this comes closest to meeting the ‘robust’ criterion. It has been
established that using companies rather than SMEs as the population in order to
reduce the scale and costs of the survey is likely to be feasible. It is methodologically
rigorous in its approach and can generate estimates of both stock and flow of business
angel investments on an annual basis. Moreover, the same survey instrument can
collect company-based data and angel-based data, the latter from company directors
who are angels. The survey instrument could also be used to collect information on
other aspects of company financing. The one weakness of the approach is that the
estimation procedure is critically influenced by the estimate of the proportion of
business angels who are company directors. We believe that the relevant information
could be collected and analysed at relatively low cost and that the size of the survey
instrument could be limited to three or four pages of questions in order to minimise
the demands on respondents.

The cost of a one-off survey might be prohibitive, so it would either need to be

designed to collect multiple types of information (perhaps replacing existing surveys)
or could build on existing company surveys such as the Annual Small Business
Survey. The first step might be to add some pilot questions in a future survey. We
recognise that the utility of this approach rests on a relatively high level of overlap
between the categories of company director and business angel (91% in the Canadian
study) – some testing to determine the proportion appropriate for the UK will be
required before a commitment to proceed is made.


Our assessment of the various potential approaches is summarised in Table 1. In our

view, a multi-methods approach should be adopted to develop improved statistics on
the business angel market. The best approach to the development of a robust time
series dataset to measure business angel investment activity in the UK involves a
combination of a regular survey of angel syndicate investment activity, a Canadian-
style FDI survey, a modified GEM and a more detailed survey of BBAA members.
Adopting these recommendations would give the UK the best statistical information
on business angel investment activity and, more importantly, would provide policy-
makers with an effective ‘instrument dial’ for monitoring the early stage risk capital
market and providing the basis for evidence-led intervention in the market. Our final
recommendation is that BERR/Enterprise Directorate commission and publish an
Annual Report on the UK Business Angel Market. This Report would draw
together data from all available sources to profile our knowledge of the market, and
add expert informed commentary on market profile and trends.

Table 1. Summary of potential data sources: simplicity, benefits and costs

Action Simplicity Benefits Cost to Cost to 3rd party Cost- Priority Suggested
(5 = easy; (5 = high; 1 = BERR/Enterprise benefit (5 = Timescale
1 = low) Directorate (5 = highest)
complex) highest)
1. Annual survey of 3 4 Yes (c. £20k set up no 4 4 Test in 2008,
investment activity by costs and c.£10k annually from 2009
business angel running costs per
syndicates annum)
2. To change the 5 5 nil Yes – GEM 5 5 Test in 2008; Roll
questions on informal consortium: out in 2009
investment in GEM time cost in
interviews –
cost unknown
3. To change the 5 5 Yes – cost of the no 5 5 Roll out for next
questions on informal But may be questions But see survey
investment in the SBS superfluous if caveat under
Household survey the same benefits
changes are
made to the
GEM survey
4. BBAA to increase 5 4 nil Yes – BBAA: 4 4 Implement in 2008
the data that it collects cost of extra to collect 2007
on the investment data analysis statistics
activity of members and reporting
5A. A one-off survey 2 4 Yes – survey and No 2 4 Commission 2008;

of a ‘representative’ analysis costs (likely Implement 2009
sample of business to be high one-off cost
angels to assess what – low six figures –
proportion of the given problems of
market is covered by identifying
the BBAA and to representative
derive market estimates samples)
by scaling up BBAA
5B. A one-off survey of 1 5 Yes – survey costs Yes – HMRC to 3 4 Commission 2007;
a ‘representative’ (see 4A – there would facilitate survey Implement 2008
sample of business be economies of scope of EIS investors
angels and EIS in running 4A and 4B
investors to assess what together)
proportion of the
market is covered by
the EIS and to derive
market estimates by
scaling up EIS data.
6. Seek administrative 1 5 Yes – to negotiate Yes – to 1 2 2008-09 for
changes to the with Companies Companies discussion;
processing of 88(2) House House – timescale for
forms by Companies administrative implementation
House costs unknown
7. Company survey 1 5 Yes – survey and Possibly – if an 3 4 Feasibility study
modelled on the analysis costs existing subject to 2008; commission
Canadian Finance business survey availability survey late
Initiative is used of a 2008/2009

8. Annual Report on 4 5 Yes – research and No 5 5 Design and
UK Business Angel reporting costs commission in
Market 2008; report on
2006 and 2007
market in late 2008
(link to timescale
for BVCA


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Appendix 1. Questionnaire used by BANs to report on the investments that they had

National Business Angels Network

NBAN report on business angel investment activity
1st January 2003 – 31st December 2003
It will be used only to compile aggregate statistics. Apart from the summary
information shown in your directory entry, no other information on your organisation
or matches will be identified.



Please allow one questionnaire form for each investment that has resulted from
an introduction by your network. If you need more copies of the form than we
have provided, please use photocopies. Please write clearly in BLOCK
CAPITALS and keep a copy of each completed form in case of a query.

Name of business angel network Person completing questionnaire

............................................................. .............................................................

1a Name of investee company ............................................................................

1b City/town & county .........................................................................................

1c Is this investment also likely to be included in the statistical returns of another

network? Tick as appropriate.

No.................... Yes.................... Which network? .....................................

NB: All the above information is required to avoid double counting - this can
arise where an investment was included in a previous year or included in
the returns of another network.

2a Main activities of the company.


2B Could this company be classified as high-tech?

Yes.................... No....................

3 What was the stage of this financing? Please circle ONE number only.

1. Seed 3. Other early stage 5. Receivership 7. MBI

2. Start-up 4. Expansion 6. MBO
8. Other, please describe..............................................................................

4 Month of this financing ....................................... Year ................................




5a How many business angels who are registered with your network invested in
this company? ...............................................

5b How much was invested by each of the business angels registered with your
network (equity + loan)?

Angel number 1: £ …………..………..

Angel number 2: £ …………………….

Angel number 3: £ …………..………..

Angel number 4: £…………………….

Angel number 5: £ …………..………..

Angel number 6: £ …………………….

5c Please list the location of each of these business angels.

Town/City or county:

Angel 1: …………………………………
Angel 2: ………………………………..

Angel 3: …………………………………
Angel 4: ………………………………..

Angel 5: …………………………………
Angel 6: ………………………………..

5d Please indicate any other types of investor that were involved in investing at
the same time as these business angels. Please tick all the boxes that apply.


Venture capital firms Please name ……………………..


Other Please specify ……………………..

Other business angels not registered with your service

5e Amount invested from these sources.............................................................