198
POLICY RECOMMENDATIONS
sources for startups. 22
angels to spread their capital over a larger number of deals. Moreover, some co-investment schemes pay the partner angel organization a deal fee: this represents a significant source of income for such organizations. 23
Government co-investment. Second, governments can create matching funds to co-invest alongside angel organizations. This is a much more cost-effective way in which governments can support the entrepreneurial fi- nance market than creating their own funds or investing in private-sector venture capital funds.* This is because angels have ‘skin in the game.’ They perform their own due diligence, invest their own money and make their own investment decisions. Co-investment funds lever- age the funds invested by angels providing additional capital that either increases the deal size, giving busi- nesses a longer financial runway and decreasing the time that they have to commit to fundraising or enables
Tax incentives. Third is angel tax incentives. Investing in new and early-stage ventures is high risk. Returns are highly skewed, with most investments failing to generate a return. It has been demonstrated that portfolios with more than 50 investments are required to significantly minimize the risk of poor returns and that a similar scale is required to maximize returns potential. 24 But few an- gels have the wealth (or bandwidth) to develop a portfolio of such a size. A further benefit of angel organizations is
*Due to the significant administrative burden of managing a fund.
22 Liverpool, an economically lagging city in North West England, provides an interesting example of public support for angel organizations, with local government alongside a not-for-profit public sector investment vehicle providing £1 million to support the region’s angel network. The rationale for this support is twofold. First, the angel network will contribute to the city region’s ambition to invest 5% of its economy on Research and Development (R&D) by 2030 – nearly double the government’s UK target – making it easier for high-growth technology and research and innovation businesses to access early stage funding. Second, it will ensure that more entre preneurs in the region can benefit from targeted investment and mentoring from angels. Support for the angel network was developed in response to research carried out by Merseyside Special Investment Fund (MSIF) into early stage funding in the region and reflects the support that businesses want to see put in place. See https://www.liverpoolcityregion-ca.gov.uk/1-million-boost-for-liverpool-city-region-angel-network/ 23 For a discussion of the successful and internationally emulated Scottish Co-Investment Fund, see : Harrison, R (2018) Crossing the chasm: the role of co-investment funds in strengthening the regional business angel ecosystem, Small Enterprise Research, 19:4, 285-311. https://www.tandfonline.com/doi/pd f/10.1080/13215906.2018.1428910
Powered by FlippingBook