Inside Business: Angels answer the prayers of small business

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The Independent Online
Investment by business angels in smaller UK businesses has increased by 38 per cent, to more than pounds 22m in the past year, according to the British Venture Capital Association.

In its annual publication, "Sources of Business Angel Capital 1996-97", it points out that in the 12 months to the end of June 1996, business angel networks on its books introduced 388 investors to 212 companies. There are 40 networks listed in the directory, which helps entre-preneurs find sources of start-up or development capital, and helps would-be angels find investment opportunities.

However, networks account for only a small proportion of the UK's business angel capital market. Most of the activity in this area is invisible, with many angels reluctant to court publicity for fear of attracting an unmanageable number of business propositions.

According to an analysis by Southampton University, conducted for the BVCA, of the 36 networks that track their investments, angels are assisting in funding the "equity gap" widely regarded as an inhibitor of small-business growth. They complement the formal venture capital industry by providing smaller amounts of money at an early stage in a company's development: 69 per cent of business angels invested pounds 50,000 or less in a company, and just under half of the investments were in new firms.

Business angels also helped entrepreneurs gain access to other sources of funds, since 38 per cent of their investments formed part of larger financial packages.

Support services, such as software, engineering and leisure firms, received the most business angel funds. Forty-seven high-technology firms obtained pounds 6m from 153 business angels last year, rising to pounds 10.5m when other sources of finance are taken into account. Nearly two-thirds of these investments were at the start-up or early stages of company development.

The South-east continued to have the greatest concentration of business angel networks, accounting for 39 per cent of all investments and 58 per cent of the cash provided. The South-west was the next hottest spot, with 18 per cent of companies financed and 12 per cent of the total funding. Scotland and East Anglia also benefited from big rises in activity, with angels investing pounds 2.5m and pounds 1.8m respectively.

David Quysner, chairman of the BVCA, says: "This is an exciting and growing source of funding for small, early-stage UK companies. These figures are just the tip of the iceberg, yet they are impressive in their own right, showing that business angels are providing much-needed equity capital."

q Free copies of the BVCA publications "Sources of Business Angel Capital 1996-97", "A Guide to Venture Capital" and the directory of BVCA members can be obtained from the association. Telephone 0171 240 3846.

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