Leading academics on entrepreneurship want the UK to establish “angel academies” for private investors, which they say would encourage more people to invest in new ventures.
Would-be and novice angels need to be urgently provided with opportunities to actually “learn the art” of angel investing, the study says.
The study, Business Angel Investing as a Learning Process (download a copy below), indicates that angels currently learn through three major ways:
From mixing with, observing, and listening to other business angels.
From experience – developing “rules of thumb” that allow them to make more effective decisions as their experience increases.
From so-called “learning events” – most notably failed investments. In the absence of direct experience, however, the ability of angel investors to learn vicariously from the experience of others is the most effective learning process.
Professor Colin Mason, of the Hunter Centre for Entrepreneurship at the University of Strathclyde, and one of the study’s authors, explains: “The importance of business angels as a source of finance for entrepreneurial businesses is well-recognised and we need to do all we can to encourage more business angels.
Colin Mason says the benefits of developing a strong, vibrant “angel academy” type culture can be clearly seen in the US, where in contrast to Europe, the angel market currently benefits from some $23bn in annual investment by business angels. The European market for business angels is only 15 per cent of the American market, however.
“To ensure business angels have the confidence to continue to invest at current levels, and to encourage growth, our policy makers urgently need to recognise that we need to follow the example of some other European countries which have established angel academies,” Colin Mason adds.
A recent report for BIS reveals that business angels currently account for between £400-500m of early stage investment in the UK, making them the single largest source of early stage capital in the country.
“Our study makes it clear that angels are on a steep learning curve, gaining knowledge from their very first investment, and learning from every subsequent one,” adds Professor Richard Harrison of Queen’s University Management School in Belfast, another of the study’s authors.
“It’s vital that they’re given opportunities to share these experiences so they are not put off making further investments, and also to learn from other investors.”
The study, which you can download below, was conducted by Professor Colin Mason of the Hunter Centre for Entrepreneurship at the University of Strathclyde, Professor Richard Harrison of Queen’s University Management School, Belfast and Donald Smith, a director of the Discovery Investment Fund, an angel group in Dundee.
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