NESTA & BBAA: business angels to reap returns

Business angels stand to make an average IRR of 22% over four years from early-stage investments in the UK, according to new research published by The National Endowment for Science, Technology and the Arts (NESTA), in collaboration with the British Business Angels Association (BBAA).

The report reviewed a total of 1,080 investments, of which more than half were pre-revenue start-ups. While 56% of the investments made a loss, 44% led to positive returns and 9% were home runs - generating more than 10x the capital invested.

The research also demonstrated that investing in one's area of expertise, performing at least 20 hours of due diligence prior to investing and staying connected with the business via board level can lead to better investment outcomes.

BBAA estimates that angels currently invest approximately £1bn per year and the new study finds that tax incentives such as the Enterprise Investment Scheme (EIS) provide a significant boost to angel activity: 82% of British angels have used the EIS at least once. As a result of the findings, NESTA and the BBAA are calling for an increase in EIS tax relief from 20% to 30% for the higher risk start-ups.

On average, business angels in the UK invest £42,000 per company, typically acquiring 8% of each business. Co-investments were seen as the preference for investing in start-ups with an average of five angels co-investing in one round.

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