By Claire West

The United Kingdom should urgently establish 'angel academies' for private investors in order to grow this critical source of funding for new ventures.

The call has been made by leading academics from Queen's University Belfast and the University of Strathclyde in Glasgow, following the findings of a new study which offers a deeper insight into the decision making process of business angels.

The study, entitled Business Angel Investing as a Learning Process, was conducted by Professor Richard Harrison of Queen's University Management School, Belfast, Professor Colin Mason of the Hunter Centre for Entrepreneurship at the University of Strathclyde and Donald Smith, a Director of the Discovery Investment Fund Limited, an angel group in Dundee.

According to the researchers, would-be and novice angels need to be urgently provided with opportunities to actually "learn the art" of angel investing.

Professor Harrison said: "Our recent report for the Department for Business, Innovation and Skills revealed that business angels currently account for between £400 million and £500 million of early stage investment in the UK, making them the single largest source of early stage capital in the country.

"Business angels are recognised as pivotal to the stimulating entrepreneurial activity. Not only do they provide the risk capital that is necessary for growth of early stage, high potential start-ups, but their hands-on involvement in the businesses in which they invest also strengthens business capacity to manage and absorb growth.

"Our study makes it clear that angels are on a steep learning curve, gaining knowledge from their very first investment, and learning from every subsequent one. It is vital that they are given opportunities to share these experiences so they are not put off making further investments, and also to learn from other investors about how to focus and discriminate in order to make the quick, effective, business decisions needed in future."

The study, which was based on data collected from 12 business angels, with a mix of experience, indicates three major ways in which angels learn:

1. From mixing with, observing, and listening to other business angels.
2. From experience - developing 'rules of thumb' that allow them to make more effective decisions as their experience increases.
3. From so-called 'learning events' - most notably failed investments. In the absence of direct experience, however, the ability of angel investors to learn vicariously from the experience of others is the most effective learning process.

Professor Mason said: "The importance of business angels as a source of finance for entrepreneurial businesses is well-recognised, especially at the present time when bank lending is so much harder to secure. Quite simply, we need to do all we can to encourage more business angels.

"The benefits of developing a strong, vibrant 'angel academy' type culture can clearly be seen in the United States, where in contrast to Europe, their angel market currently benefits from annual investment by business angels of some $23b. In Europe, our current business angel market is currently some 15 per cent of the size of that of the United States.

"Our study emphasises the importance of providing would-be, and novice angels, with the opportunity to learn the art of angel investing in order to grow private investment in businesses in the UK. To ensure business angels have the confidence to continue to invest at current levels, and to encourage growth, our policy makers urgently need to recognise that we need to follow the example of some other European countries which have established angel academies."

Donald Smith, of the Discovery Investment Fund, said: "One of the most interesting aspects of our research is that more experienced business angels emphasise the people involved in the business rather than business models or technology. It also emphasises the importance of angels being focused and discriminating in order to make quick, effective, business decisions."

The study Business Angel Investing as a Learning Process was presented at the recent Babson College Entrepreneurship Research Conference in Lausanne, Switzerland and is available as a Working Paper from Queen's University Management School and the Hunter Centre at the University of Strathclyde:

The full report is available here: