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Business Angel Investments On The Rise

The financial slowdown and global economic crisis notwithstanding, business angel investments only got stronger than ever before in 2009, to emerge now in 2010 with renewed vigor to make further investments across industries and many more businesses.

This aspect can be easily explained and understood by looking at the poor availability of credit in the market, especially from banks which were reeling from the crisis, and in fact bore the brunt of its impact. With few options to choose from, business angel investments were a natural choice for businesses seeking much needed capital for growth or expansion, and in the case of new businesses, for establishing themselves up in the first place.

If we look closely, we have numerous pointers towards the growth and expansion of business angel investments, even in the midst of the financial crisis:

  • If we are to collectively look at all the business angel networks, not just in UK but across Europe, they have only gone up. With those seeking funding as well as those willing and able to provide that funding only increasing, it is a clear sign of the fact that business angel investments remain dynamic and will continue to grow in strength in 2010.
  • Looking at the business angel networks, we see that there are more angels who have actually joined the networks than those who have left them, another sign of the overall buoyancy in the system.
  • Deal sizes too have gone up, which are an indication of the confidence that the business angels have about the overall business outlook in the future. Of course, many other factors have also had a role to play in getting the overall deal size figure to go up, such as a few mega deals in infrastructure and energy projects and so on, as well as more and more Web 2.0 technological ventures coming into the fray, many of which received the funding they were seeking whereby overall deal sizes went up.
  • Apart from the UK, countries across the EU region have seen a spurt in the number of members enrolled in various business angel networks. The deal flows too have seen a similarly spiraling upward movement.

That said, the going for business angels as a whole has not been easy, as their own income from the stock markets or real estate as well as prior investments in other companies have not been good. Yet, with exit not really being an option for almost anyone, at a time when the market chips have been pretty much down and out, the business angels have truly lived up to their name by proving to be angels who were there when they were needed the most. Of course, through the course of the crisis, the bulk of the business angels still making investments were essentially those with really deep pockets who could not only sustain themselves but also continue to make additional investments.

The fact that valuations have been significantly lower has also played a significant role in the increased number of deals, which in turn, when taken altogether, has increased the overall deal size, as even with lower valuations, the number of deals as a whole have gone up. The angels also realize that this is as good a time as any to make their investment, as their equity stake at this time would definitely come much cheaper than it would at boom time. The stake that they could have in these companies could be that much higher, which would in turn warrant them additional control over them. Moreover, once the economy again picks up buoyancy, and assuming that it grows rapidly, the profits that the business angels would make then would also be substantial.

Thus looking at the situation the way it exists, the government and other administrative bodies must recognize the huge contribution that business angels make to the business community and to the economy as a whole. Perhaps, lending active support and encouragement to them would further help their cause, when credit from all other areas seems to have all but dried up completely.

Ideally, policy makers should provide all possible support to potential investors in start-ups; especially since it is coming at a time when well-entrenched businesses are finding the going tough. The start-ups that the angels are funding today, may very well go on to become large enterprises of tomorrow, and create enormous wealth as well as jobs for the society. Thus at a time when these angels are doing something truly angelic, it is crucial that all possible support and encouragement is meted out to them.

Fiscal incentives is another aspect that must be provided to the business angels. These could be in the form of tax breaks as well as exemptions of numerous kinds which would help them hasten the process of actually initiating the business of the venture that they are funding. The administration has to realize that these angels are not just investing in a start-up for their own selfish motives of profit; they are just as enthused by the ability to stir up entrepreneurship in society. Today, they are guiding and mentoring budding businesspersons who could eventually become stalwart business leaders leading high flying businesses – businesses that could potentially create thousands of jobs and prove to be a source of direct and indirect livelihood for many more.

The fact that entrepreneurship as a whole is being encouraged and nurtured should also not be overlooked by the administrators; after all, the true might of an economic powerhouse is amply reflected by the number and scale of large entrepreneurial ventures that it has. Together, it is these ventures that really fuel the growth of any economy.

There is also an urgent need for the administrators to reinforce collaboration between the various participants of funding start-ups, including business angels, venture capitalists, and others so that these start-ups have multiple options to choose from and have a better say and negotiating power to get the best possible funding under the most appropriate terms and conditions.

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