01/02/2012

By Modwenna Rees-Mogg, AngelNews

Did you know that angel investing is one of the oldest human commercial activities and investing agreements were recorded in the Babylonian law code of Hammurabi dating back to 1780 BC? With that history behind it, no wonder we were keen to assist Anca Erica of Imperial College in undertaking a research project into the value and benefits of business angel networks today!

So last autumn we sent a selection of our readers a survey to find out what you thought about business angel networks. Anca also undertook a review of existing research into business angel networks and undertook some telephone surveys, with the result that she created a very impressive study into the subject just before Christmas.

We thought you might be interested in the key facts it revealed. I wonder if you agree with what she found out?

Overall conclusions of the research

The results of the study reveal that users of business angel networks are largely unsatisfied with the service offerings provided and there is an acute need for innovation. The main conclusion of this paper is that business angel networks should improve their value proposition by using key innovation drivers.

The general recommendations include:

1) Increasing the quality of business propositions received and entrepreneurs presenting;

2) Improving the quality of their member angels through careful selection and increase their willingness to invest;

3) Better co-ordination of post-presentation activities to increase the ratio of successful investments.

Other information she drew from her research includes:

1. It is well recognised in the angel market landscape that BANs are not profitable organisations. This is an issue for more than just angel network managers especially these days when public subsidy is much harder to obtain. If angels and, indeed entrepreneurs, remain unwilling to pay fees and commissions at a level which makes a network independently profitable, they will suffer from a decline in either or both of the number of networks from which they can source deals and the quality of the services which such networks provide.

2. Is this really an issue though as the study revealed that only 23% of business angels investment opportunities are sourced through traditional business angel networks with a further 14% are sourced through online angel networks? With all sorts of people (including bank managers) sending deals to angels, what is the value overall of any one network to either business angels or entrepreneurs?

3. With 82% of business angels belonging to 2 or more networks and 59% of entrepreneurs having approached 2 or more networks to raise funding, this suggests that there may be oversupply of networks in the UK, but it also suggests that angels like to have a choice of sources for deals – see 2 above!

4. It appears that online networks are as popular as traditional angel networks for angels and for entrepreneurs and that crowd funding is going to become a meaningful part of the deal sourcing mix, especially for angels who just want to invest cash and not offer their expertise. Maybe we will see segmentation of the business angel market into value add angels and plain old private business investors?

5. Light is beginning to be shone on the knotty issue of fees. Despite their moans, entrepreneurs accept that fees have to be paid to get access to investors, but angels would prefer to pay fees, in whatever way, over and above entrepreneurs being charged presentation fees. So this argues that bold angel networks should look at their service offering and then price it in a more market driven fashion.

6. Lastly, there are lots of ways business angel networks could improve but some are more important than others. But the FSA and HM Government should take note as the market is demanding the sorts of services be offered that are currently generally precluded because of the restrictions of regulatory legislation

You can read the full report by clicking here

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