Exclusive: These numbers show UK angels are providing stairway to entrepreneurial heaven

10 min read

04 April 2016

Former deputy editor

When it comes to business funding, venture capital firms are snatching up headlines by the handful. However, in an exclusive interview with Angel CoFund’s investment director Tim Mills, Real Business has been granted access to figures detailing the activities of Britain’s angels.

The exposure of the VC trend is prevalent in the UK, and indeed globally, thanks to firms pumping eye-watering sums into a seemingly never-ending stream of new and innovative businesses appearing on the scene.

However, angel investors are still incredibly active – more so than VCs, according to Mills, who oversees the government-backed investment fund.

“Angel investing remains the largest source of capital for early stage companies in the UK and has continued to grow year-on-year over the last six years,” he stated.

“Although we have seen the emergence of crowdfunding, and a resurgence in VC investment, angels still provide more than four times the funding of the crowd and twice that of the early stage VC market.”

In the last four years, the Angel CoFund has backed growing companies that are fast becoming well-known, including food delivery service Gousto and event booking service YPlan.

Over the last four years, the body of investors has backed 59 companies, a number that rose by 11 per cent since December 2014. As a result, these portfolio companies have employed over 1,000 members of staff, a number that grew by a fifth in the year.

These aren’t just one-offs either – the firm has made 35 follow-on investments, which is up by 46 per cent. To date, a total of £27.5m has been invested – a 25 per cent growth since 2014.

Generally contributing investments of between £100,000 and £1m, the CoFund is providing a stairway to entrepreneurial heaven. For example, having supported the business in the beginning, Gousto secured a £9m investment to scale and refine its operation in December 2015.

With angel activity very much thriving, Mills added: “We are also seeing angel investors who are much better equipped to conduct effective due diligence and so able to agree sensible terms and take a balanced, portfolio approach to investing often in very effective syndicates.”

Read more on Angel CoFund’s activities:

Commenting on the benefits of walking into the light to use angels ahead of VCs, he noted that institutional investors have responsibilities and processes to adhere to in order to satisfy investors and board members. By comparison, angels are able to spread their wings to be “inherently more flexible”.

“The gap between angels and VCs is closing as the sophistication and professionalisation of angel investors is rapidly changing for the better, leading to very significant angel-led rounds,” Mills explained.

“Furthermore, for many early stage businesses the appeal of angel investors, further to the cash, is the support that they bring in the form of mentoring, knowledge and networks as the startups look to get themselves into a position of strength before opening up to institutional money.”

Mills conceded though that lines are being blurred as institutional fund managers move into angel investment territory.

“In the CoFund’s portfolio we regularly see hybrid rounds where angel investors come in alongside funds, and sometimes the crowd, to build out bigger investments, which, of course, is very good news for the businesses being backed,” he said.

With a plethora of finance options open to SMEs in today’s market, challenger bank Mondo is an example of a business that embraced the hybrid approach – it secured £5m from Passion Capital and also sought £1m from the crowd, its would-be customers.

Revealing the biggest surprise for entrepreneurs, Mills said many are shocked that the CoFund’s average overall investment is £1.4m, while the average initial investment has rise by four per cent to £345,000 – achieved as angels have backed larger rounds.

Continue reading on the next page as Mills outlines the biggest moments for Angel CoFund in 2015, the most successful companies it has funded to date, and why VCs will follow the trail of angels.

Image: Shutterstock

With such a big year under its belt, he revealed what he considers the biggest moment for the business. “The CoFund passed its 100th investment milestone, so although we had a portfolio of less than 60 companies, we’ve supported more than half with follow-on funding rounds, and some with more than one follow-on,” Mills revealed.

“This fits with the CoFund’s approach as a long term investor – although we love to see overnight success, we know the reality of building a world class business usually takes longer.”

According to the CoFund’s figures, technology, in particular medtech, fintech, cleantech and biotech, accounted for the largest portion of the organisation’s funding last year.

Shedding light on the interest, Mills said: “Angels can be an interesting indicator of what sectors are likely to be disrupted in the future and where innovation is flourishing.

“Whilst institutional funds have reduced early stage investment into areas such as cleantech, medical and bio, we have seen that angels – often deeply experienced in these sectors – are recognising major opportunities and going for it. I predict that over the next few years, institutional investors will begin to follow.”

He highlighted that the entrepreneurial culture in the UK has resulted in more ambitious founders than ever before. As such, it’s common for the business owners to look for major partnerships and international expansion in order to achieve growth plans.

“In addition to that building a successful business and taking it the distance to achieve its potential is rarely possible as an individual or a small team, therefore hiring the right people and building the team is one of the key challenges almost every entrepreneur faces,” Mills added.

“This is also an area where investors can be a big help, bringing knowledge and networks of contacts, and often an added layer of credibility that helps identify and attract key hires.”

Mills lifted the lid on Angel CoFund’s best success stories to note three very different businesses – lending service Ebury, Gousto and children’s TV app platform Hopster, the latter of which is backed by Davina McCall.

“All have followed the growth party through angel investment, to mainstream VC investment, and are continuing to accelerate,” he detailed.

“In each case we invested alongside some great angels with really deep sector knowledge, who helped the founder teams build the foundations for future growth, and gave them the strength and positioning to attract tier one institutional support.”

Closing on what 2016 has lined up for angels, Mills said the investors used to be hard to find, seemingly preferring to hide in the shadows – something that’s going to change.

He said: “I believe this year we’ll see a greater number of angels and syndicates recognising the benefits of promoting themselves and the support they can provide as they actively build their own ‘brands’ in order to compete for the best investment opportunities.

“The UK has some particular structural advantages in areas such as fintech, which are likely to continue to grab the headlines, but this can all prove a little distracting and misleading. It’s far better not to focus on the sector, but focus on the team. The one lesson we are sure of is that disruptive, scaleable businesses come from every region across the UK and in every conceivable sector – the team is key.”

Want to raise investment from angels and high-net worths – here are four key ingredients for a successful approach.

Image: Shutterstock