The latest study by BIS (Department for Business Innovation and Skills) has found that start-ups are increasingly turning to angel investors for funding. Financial back-up is one of the most challenging aspects that new business ventures have to face. Getting fund approvals from venture capital financers and banks can be a rather uphill task. Angel investors come to the aid of start-ups in such situations.
According to the study, the increase in the submissions of business plans to angel networks for 2009/2010 was 11%. It also found that these informal investors preferred working with other investors or investing in syndicates than operating as individual business angels. When investing in groups, the investment amounts are bigger, and can be more than £500,000 per project in comparison with the £200,000 that individual business angels typically invest.
Angel investors may even make a subsequent investment in the company at later stages, known as a follow-on investment. The study reported an increase in the subsequent investments made by angels when compared to the same ten years ago. It was also seen that the investors were focusing more on start-ups with employee counts of under ten, with biotech, IT, pharmaceuticals and health being favoured over other sectors.
One of the report’s co-authors noted that as private venture financing to start-ups had declined to a large extent, business angels will need to fill this funding void. Minister for Business and Enterprise, Mark Prisk stated that new business ventures get much needed support from business angels, and welcomed their valuable contribution to the UK economy.