Trends 400. Analysing trends in angel investments is difficult, due to the lack of data and little harmonization in definitions. Currently...
Trends 400. Analysing trends in angel investments is difficult, due to the lack of data and little harmonization in definitions. Currently, the only data available is that collected by angel associations from angel groups and networks. This however only captures the “visible” market and overlooks the largest part of investments, which are carried out by individual BAs. It has been estimated that, when taking into account the “invisible” share of the market, the total amount of angel investment is likely greater than VC investments (Kerr et al., 2010). 401. Taking this important limitation into account, OECD (2011a) shows that the US and Europe are the most active BA markets, with France and the UK leading the European market (Figure 17). In the US, angel investment boomed in the dot com era, rising at a high pace and then falling off, as did venture capital. The constant growth of BA activity over the last decade came to a halt during the 2008-09 financial crisis, though the fall was not as dramatic as in the VC industry (OECD, 2011a). In this regard, BAs appear to be less sensitive to market cycles than are professional VC investors. Nevertheless, also for BAs the lack of opportunities represents an important challenge, which may discourage or defer investment in the first place.
402. Overall in Europe, in 2009, total investment through angel networks had already surpassed the seed component of the VC industry (Figure 18), which may be also explained by the increasing orientation by VC funds towards later stage financing. BA investment in seed/early stage VC funds has also increased in recent years (OECD, 2011a; Ernst&Young, 2014)
403. Although BAs invest across a broad range of sectors, the VC-preferred fields (ICT and healthcare sectors) feature high in BAs’ investment choices. According to the European Business Angels Network (EBAN), in 2013, in Europe, ICT collected 32% of investment preferences, followed by Biotech and Life Sciences (10%) and Mobile (10%)47. 404. Only a minor share of BA deals are cross-border, whereas most investments are local. This may be related to the importance of personal relationship and trust in the angel investment process. Crossborder deals are only possible when the necessary trusted relationships are in place, there is sufficient knowledge about the market and the legal and tax systems permit BA types of deals (OECD, 2011a). Policies 405. Angel investing is increasingly encouraged and supported by policy makers in many countries, as a way to mobilize financial resources and entrepreneurial expertise towards dynamic new ventures. In most cases, supply-side measures have been introduced, which mainly take the form of tax incentives and public co-investment. Given the local dimension of angel investing, in some countries, such as the US and Canada, support is provided at the local level rather than at the national level.
406. Front-end and back-end tax incentives aim to increase the number of BAs as well as the amount of capital invested. Typically, incentives are conditional on the shares being held for a minimum number of years or the capital gains being reinvested in new ventures. For instance, in 2008, Italy introduced tax relief for business angel investments, which consists of a tax exemption for capital gains on the sale of a startups’ undertakings, provided that the start-up is less than seven years old, that the investor holds the shares for at least three years, and that the capital gains are reinvested in another start-up in the next two years (OECD, 2014b). 407. Japan has introduced an angel tax system since 1997, which comprises reduced taxation on capital gains and carry forward of losses. However, as angel taxation was only used for a small amount of investments, to further increase angel funding, the system was amended in recent years with the introduction of an income exemption system, whereby, under specific conditions, BAs can deduct from their annual income an amount of money substantially equivalent to the investment carried out in the same year (OECD, 2011a). 408. Another common supply-side measure consists in the creation of co-investment funds, which match public funds with those of private investors that are approved under the scheme. In some cases these funds target all seed and early stage investors, including also VC funds (see Box 9), but there exists also programmes that are especially focused on BAs. In the UK, the Angel CoFund invests amounts of GBP 100,000 to GBP 1 million into SMEs with high growth potential, working in partnership with syndicates of experienced BAs.
409. In some countries, public support has been provided to BA associations, networks or groups to help start these organisations. For instance, EBAN was created in 1999 as a federation of BANs across Europe with financial support of the European Commission. In the US, it was the Kauffman Foundation which supported the creation of the Angel Capital Association (ACA) in 2004. In some cases, however, the public support to start national associations did not produce the desired impact, due to relatively immature markets and the difficulty for these associations to build enough momentum to develop (OECD, 2011a).Some policy measures target the specific skills required for angel investing, promoting training, mentoring and coaching, although this type of measures have been less popular than tax incentives or financial support. In the US, the Kauffman Foundation created the Angel Capital Education Foundation (ACEF), which offers education programmes about angel investing, with the engagement of experienced angel investors as lead instructors (OECD, 2011a). 410. On the demand-side, investment readiness programmes are intended to help entrepreneurs develop their business plans and presentations, in order to appeal to angel investors. To do so, emphasis is placed on better understanding the needs and expectations of potential investors and how to present a business plan that appeals to these expectations. 411. Other measures that aim to improve information flows and networking opportunities between financiers and entrepreneurs, including business incubators and accelerators, may also concern BAs. The support to broader networking activity in the entrepreneurial ecosystem may also improve the exit prospects of BAs, as these are able to strengthen linkages with other players, such as VC funds, which may step in at a later stage of the investment, or large companies, which might become M&A partners.
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