Professional business angels are cashing in on the Seed Enterprise Investment Scheme (SEIS) or Enterprise Investment Scheme (EIS) to temper the risk of investing in startup companies.
More than 90% of business angels take equity stakes in new start companies through either EIS or SEIS, according to new research.
Figures from HM Revenue & Customs (HMRC) also back this – with the most recent revealing £84 million is sheltered in SEIS tax breaks.
The most popular investments are technology startups covering finance, biotech and mobile and telecoms, confirms the research from Nation of Angels.
Around three-quarters of business angels are tied up in these sectors.
Technology startups
Of these new companies, nearly a quarter of financial technology firms are delivering high growth, says the study.
Many business angels are diversifying, with an average five investments on the go – which may be in part due to the £100,000 cap on SEIS investments.
Despite the rush to technology, the research found consumer electronics is the least risky investment, with only 5% of investments losing money.
The research also profiled the typical business angel and found they are most likely to be:
- Under 54 years old (75%) with 16% under 35
- The number of women business angels has doubled from 7% to 14%
- Fewer women admit losing money in their investments
- 45% of business angels invest in crowdfunding platforms
- 75% reinvest their gains back into small businesses
- Around a third of investments are expected to give a six times return on investment
The study is believed to be the widest examination of business angels and how they invest in business to date, involving more than 400 business angels.
Social impact
“The results show the importance of business angels to the economy,” says the report.
“They are prepared to risk their money and give their time and experience to help small businesses grow. Many of their investments also have a social impact.
“The government has reacted to this with tax breaks like SEIS, but we need to look at ways to support their significant contribution to creating jobs and opportunities.”
SEIS and EIS offer investors in business important tax breaks – including reducing the income tax paid and capital gains tax deferrals and exemptions.
HMRC figures show more than 1,200 startup companies have benefitted from SEIS cash since the program opened in April 2012.
