The Seed Enterprise Investment Scheme is drawing huge amounts of ‘smart capital’ from business angels, according to new research.
These investors are have tied up their cash in 15,000 businesses contributing £4.5 billion to the economy while creating 69,700 jobs.
The research by the British Business Bank and the UK Business Angels Association wants to see more investment and to encourage more business angels to pump their money into start-ups.
The study has profiled the typical target investor:
- Men who are probably white and live in London
- The average business angel age is 52 years old
- They are experienced investors with an average eight years in business
- Average investments are £25,000 with follow-ups of £7,500
- They spend 1.6 days a week helping the business they have invested in
- Their capital is tied up for six years
- Investments are held through SEIS or the Enterprise Investment Scheme
Tax breaks encourage investors
SEIS and EIS are attractive investment wrappers because they come with significant tax breaks.
SEIS offers a 50% income tax repayment on investments of up to £100,000 in a tax year plus no capital gains tax on the value of any share growth.
If the investment turns sour, loss relief is also available to cushion the blow.
“Business angels provide two key assets,” says the report The UK Business Angel Market.
“One is ‘smart capital’ where they offer their business experience and networks to pivot early-stage businesses to a higher growth trajectory. For example, they will often take a non-executive board position in the company.
Significant role in business
“The second is ‘patient capital’ because to develop the business in this way takes time. Therefore, by acting as long-term investors, angels can play a significant role in getting innovative businesses ideas off the ground.
“For a growing business, this combination of expertise and capital can be crucial for success.”
Many business angels operate as syndicates with a lead investor, says the report.
“Angels can invest on their own, or through an angel group or syndicate. Most commonly, angels invest in these syndicates via a lead angel. Angels can provide multiple rounds of finance and frequently co-invest with other sources of equity,” says the report.