Written evidence submitted by Nelson Gray

Nelson Gray – Background.

I have been an Angel investor for more than 25 years, am a member of Angel investment groups in Scotland and the USA, and have personally invested more than 55 companies. Of these 23 are live (two are less than 2 months old) and 12 have managed positive exits, from 1x to 92x.

As a regulated fund manager [No: NXG01075] I have been responsible for investments into a further 50 early-stage companies.

I previously managed, and remain a member of, the Scottish Angel group Archangel, one of the world’s oldest angel groups, founded in 1992, and was a Trustee of the Angel Resource Institute (ARI). The ARI is a USA based charitable organization devoted to providing education and information on best practices in the field of angel investing.

I am presently a Senior Risk Finance Expert with the Word Bank, specialising in the development of early-stage angel and VC finance in emerging markets. Most recently developing a strategy for the development of a VC industry in Georgia. Working with the likes of the UK national and each of the devolved governments, the European Commission, GIZ and numerous other government agencies I have provided advice to government and training and mentoring to entrepreneurs and Angel investors in many counties across Europe and further afield, including the USA, South America, India, Australia, Kazakhstan, Georgia and New Zealand. I have helped to build Angel groups in Scotland, Latvia, Jordan, Russia, Egypt, Georgia, RUK and the Caribbean.

In 2017 I designed the professional BA curriculum on behalf of the €2.5m European Union Directorgeneral for Research & Innovation Early Stage Investing Launchpad (ESIL) project, seeking to increase angel investment capacity across Europe.

I have recently completed a contact on behalf of Enterprise Ireland, Invest Northern Ireland and Intertrade Ireland to assess the operation and future options for HBAN, the all-island umbrella group responsible for the development of business angel networks and syndicates across the island of Ireland.

I am presently on the investment committee of the UK Government’s $130m Angel CoFund.

I was the European Angel of the Year in 2008, am a previous vice president of EBAN, the European Business Angel Trade Association and received the Queens Award for Enterprise Promotion in 2015.

Contributions to published material include:


       Assessment of opportunities for government backed early-stage VC funds in Georgia, World Bank 2022.

       The instruction manual “Early Stage Investors Cultivation Manual”, focused on Business Angel Investment Development in an emerging market, World Bank, 2020.

       “Manufacturing a Start-up: case study of Industry 4.0 development in the Czech Republic”, World Bank 2019.

       “Angel Investing Diagnostic Toolkit”, analytical tools assess the potential for early stage investing activities in emerging markets. For World Bank, 2019.

       Report on Co-Investment Funds a framework “tool-kit” for designing and implementing (public/donor funded) co-investment funds. For World Bank 2019.

       The Angel Group Development Canvas (an adaptation of the Business Canvas), for World Bank 2019.

       Guidance Document on Developing Angel Investing in Emerging Markets: for World Bank 2019.

       “Stimulating Business Angels in the Czech Republic”, World Bank Group, 2018.

       Responsible for development of the curriculum for "The Professional Business Angel", the pan-European standard for training Business Angels under the €2.5m EU ESIL project (2017).   This codified standard formed the foundation of training delivered by the program partners Business Angels Europe (BAE), Go Beyond, European Business and Innovation Centre, European Crowdfunding Network, Bpifrance Financement SA and LINC. It is available here:

       “Angels without Borders, Trends and Policies Shaping Angel Investing Worldwide”, World Scientific, 2015.

       “Creating Angel Investor Groups: International Edition”, International Bank for Reconstruction and Development / World Bank, April 2014.

       “Financing New Ventures, An Entrepreneur’s Guide to Business Angel Investment”, Geoffrey Gregson, Babson College Entrepreneurship Research Conference Collection, 2014.










The current state of the venture capital industry in the United Kingdom, including opportunities and threats, such as the availability of domestic capital to allow firms to scale up in the UK.


The UK VC industry has been particularly strong in resent years. International comparisons show the UK to be the clear leader in Europe[1]. UK tech VC investment is third in the world, hitting a record high of $15bn in 2020[2].

The UK has the highest level of venture fund (VC) investing in Europe, by some margin. In 2019, prior to COVID, the UK recorded 1,425 VC deals totalling $14.31 billion, representing 40% of all European VC funding in 2019. The UK total is higher than the combined totals for the next four largest countries, Germany, France, Sweden and Spain[3]. The UKs dominance continued in 2020.  The UK raised 45% of new European VC funds in 2020[4]. It is estimated that there are 327 active VC funds in the UK focused on scale up companies[5].


Globally the VC industry is facing a significant “reset”. This is in part a result of global economic condition, but also reflects a likely return to reality regarding valuations which have seen unrealistic growth as a result of the large amounts of new funding being made available to large VC’s[6]This however is largely part of the normal economic cycle, and investors and firms are taking appropriate measures to protect themselves[7]. The issues are not structural, and will pass.

There are a number of issues in the UK that, if addressed, would improve market operation:

This pales in comparison to the €6.6bn of investment estimated to have been provided to 38,230 companies by European business angels[16].


In the United Sates, possibly the most developed venture capital in the world, there were 5,268 VC deals valued at $74.2 billion in 2017, with only $2.5bn of venture funding into 1,524 companies being classified as “seed or early stage”[17]. In the same period however, there were 61,560 angel deals, valued at $23.9bn[18].


This suggests that to support high growth companies, public policy should focus on promoting and developing angel investment. VC investment will follow into those opportunities developed by angel investors. Having angel funding also seems to matter significantly for the ability of a firm to obtain follow-on financing from VC funds[19], [20], in part due to its role in ‘accrediting’ unknown start-ups (start-ups without investment history) and helping start-ups become investor-ready[21].


The reality of risk return means that investing in VC funds is itself a specialised activity, and such investing is not suitable for the vast majority of consumer investors, or those in need of safe return levels, such as pension funds.


It would be appropriate to look at alternative forms of structured lending, as opposed to traditional VC, as a tool to drive economic growth. In particular many firms would benefit from the availability of Revenue Based finance, a form of quasi loan that does not impact the firms balance sheet, and repaid not from selling the business, but from turnover growth[30]These structures are increasing popular in the USA. Unfortunately, the UK tax system discourages them in favour of equity structures. This is a substantial lost opportunity to help proved growth finance to many thousands of businesses.


The level of co-operation/integration between start-ups and established industry


No comments.

The operation and effectiveness of the current tax incentives (such as the Enterprise Investment Scheme (EIS), the Seed Enterprise Investment Scheme (SEIS) and Venture Capital Trusts (VCTs)) in the venture capital market, including any options for change.


These schemes generally operate well. A 2017 European study identified 4 of the top 5 tax incentive schemes across 36 countries as being in the UK[31].  Given the realities of risk return, it would not be appropriate to encourage additional early stage investing by consumers through the provision of additional tax incentives[32].

The operation and effectiveness of the regulatory regime(s) concerning venture capital.


The operation of the regulatory regime, in particular the operations of the FCA are overly complex, arduous and slow. Opportunities are being missed in the UK for the operation, for examplele, of Angel group side car funds. These are popular in the USA, enabling more smaller investors to invest alongside experience angel groups, and enable angel groups to make faster decisions, and complete funding round at a speed more conducive to startup needs. The cost and excessive requirements of the present FCA regulations make them impractical in the UK.

The role of other key bodies, such as the British Business Bank and the programmes which it oversees (including the Future Fund and British Patient Capital), and the Advanced Research and Invention Agency, and how they can support the venture capital market.


The British Business Bank is providing direct funding to companies. Research is required to ascertain if this is truly additional funding, or if it is displacing potential private investment.

British Business Investments operate the Regional Angels Programme, to help reduce regional imbalances in access for smaller businesses3 to early-stage equity finance. The Programme aims to increase the availability, supply and awareness of early stage, angel equity investments across the UK[33]. However, applicants must be regulated fund managers, and must demonstrate a track record of investment over past years. These requirements limit the scope of who can benefit from the scheme to existing, established professional fund managers.  Typical angel networks are excluded as few have formal FCA registration. This severely limits the ability of the program to generate and support truly new market entrants. This is contract to Co Investment funds established by Scottish Enterprise[34] and New Zealand Ministry of Business Innovation & Employment[35], both of which resulted in a significant growth of new early-stage investors.

The merits of policy proposals for strengthening the venture capital industry in the United Kingdom, such as:

As noted above, the realities of VC investment returns are largely unappreciated. Such investments are not appropriate for pension funds or the majority of retail investors. Early-stage investments into angel deals (EIS / SEIS) and VCT’s already provide significant tax incentivisation. These would be lost if the investments were to be made through an ISA.

Reported investment returns by VC is generally overstated as it includes unrealised capital gains, resulting from upward revaluations following from additional rounds of funding into existing portfolio companies. The majority of these will eventually be written off. Equity investing is not a place for those with small amounts to invest , and no experience.


One UK equity crowdfunding site promotes itself on the back of 11 companies for which some of their investors have received returns[36]. The majority of these are in the range of 180% to 300%. These numbers look impressive and encouraging to the inexperienced investor. However, a 300% return on an individual investment will not provide an overall return at a portfolio level likely to have a 70% write off rate. Of the 960 companies funded through the site, just 58, 6%, have delivered any financial return (not necessarily a profit, just some cash back). With their typical investor making just 2.4 investments the likelihood of them happening to select a ‘winner’ is small.


In addition to the overall risk level, few investors have a realistic understanding of the level of illiquidity involved in this sector. Once invested, the funds will not be available to meet other needs, foreseen or otherwise, for many years. With virtually no secondary market[37], it typically takes 8 or more years for those few companies that are ultimately successful to achieve a profitable exit[38].

The financial thresholds for high net worth individuals should be increased. The High Net Worth qualifying annual income figure of £100,000 and the wealth threshold of £250,000 have remained unchained since inception in 2005. These numbers are lower than international comparisons for income. They are substantially lower in relation to capital.

The impact on not increasing the thresholds over time is illustrated by the USA experience. The USA figures have largely remained unchanged since introduction in 1982[39]. The thresholds were reviewed in 2020 by the Securities and Exchange Commission (SEC), who decided to make no changes[40]. The primary reason for not increasing the thresholds would appear to be concern over the resulting negative impact upon the amount of funding available to early-stage companies, resulting from the thresholds not being adjusted for close to 40 years.


If the USA financial thresholds were adjusted for inflation since 1983 annual income would need to be $538,000 and net worth $2.7 million. By not adjusting for inflation the SEC estimate that the number of U.S. households that qualify as Accredited Investors has grown from 2% of the population of U.S. households in 1983 to 13% in 2019. As one respondent to the SEC consultation commented “there may indeed now [be] hundreds of thousands of investors who have become qualified as Accredited Investor solely on the virtue of inflation of their asset prices but who otherwise lack necessary financial sophistication to carefully weigh the risks associated in investing in exempt offerings”.


In practice, even the proposed increased welth levels are unlikely to provide sufficient real protection in themselves. “Best practice” suggests that because an investor is likely to lose their entire investment in any single start-up company, they should spread their money across at least ten different companies. It turns out that while the typical angel investor is not apparently following perceived best practice[41], even to do so, and have a portfolio of 10, is not sufficient[42]. Real diversification however takes 15-25 companies[43].

So, presuming you can join a syndicated deal for as little as £5,000 (which is low), £75,000 would give you 15 investments, the minimum for effective diversification. But, one needs to reserve up at least 4x the initial stake for follow on investments, to maintain a valuable holding in those that are successful (some companies will get no follow on, some more than 4 rounds)[44]. So, a capital requirement, over say 7 years, of £300,000. If you follow the advice to not invest more than 10% of your wealth in this asset class, that suggests a wealth of at least £3m.

Generating home-grown talent through the education system


No comment

Attracting international talent through the visa system


No comment

Any other possible Government or public sector intervention


No comment

The effectiveness of any other government or public sector intervention in the venture capital industry.

No Comment

The effectiveness of government policy around venture capital in meeting wider government objectives (for example: around “levelling-up” and tackling regional inequality, the aim for the UK to be a science and technology “superpower”, net zero).


As noted above, in the USA, the most developed capital market globally, 65% of VC deals return less than the capital that was invested in them. The majority of successful VC investment outcomes are relatively small, at around £50m of value based on published outcomes (and a more realistic estimate of half that based on likely non published outcomes).

It is likely that those looking to use VC investment to drive other government objectives, such as “levelling-up” and tackling regional inequality, and net zero will be disappointed. VC is not that good at piking and growing winners.

There are continuing calls for more funding to meet increased demand. There is however no evidence that this demand is “credible” that those seeking the funding are actually worthy of receiving it. With vast pools of funding available, we already see a 65% fail rate of companies that have been fully assessed, funded and supported. There is no evidence to suggest that tis will be improved by providing more funding to more companies. Indeed, the opposite is likely. More companies will fail as the exiting talent base is more thinly spread.



Annex 1: Venture Capital Definitions

Not all "VC" is the same, and not all is relevant to the early stage. Although the term “private equity” is used as a general catch all description for forms and stages of funding provided to enterprises not quoted on a stock market (including venture capital, growth capital, replacement capital, rescue/ turnaround and buyouts), the term is also, confusingly, used to reference later stage investing (post venture capital).

Stage of Investment

Venture Capital Transactions (VC)


Funding provided before the investee company has started mass production /distribution with the aim to complete research, product definition or product design, also including market tests and creating prototypes. This funding will not be used to start mass production/distribution.


Funding provided to companies, once the product or service is fully developed, to start mass production/distribution and to cover initial marketing. Companies may be in the process of being set up or may have been in business for a shorter time, but have not sold their product commercially yet. The destination of the capital would be mostly to cover capital expenditures and initial WC.

Later Stage Venture

Financing provided for an operating company, which may or may not be profitable. Late stage venture tends to be financing into companies already backed by VCs. Typically, in C or D rounds.

Capital for Mature Companies Transactions

Growth Capital

A type of PE investment (often a minority investment) in relatively mature companies that are looking for primary capital to expand and improve operations or enter new markets to accelerate the growth of the business.

Rescue/ Turnaround

Financing made available to an existing business, which has experienced financial distress, with a view to re-establishing prosperity.

Replacement Capital

Minority stake purchase from another PE investment organisation or from another shareholder or shareholders.


Financing provided to acquire a company. It may use a significant amount of borrowed capital to meet the cost of acquisition. Typically, by purchasing majority or controlling stakes.

Source: Invest Europe.


June 2022



[1] European Venture Report, 2021, Pitchbook.

[2] Tech Nation Report 2021,







[9] The 2016 ‘Global Tech Exit Valuations’ report by CB Insights showed 54% of exits globally were at $50m or less (and they also pointed to the fact that the majority of smaller exit values are not made public, so that figure will likely be significantly overstated).

[10] See Annex 1.

[11] European Venture Report, 2021, Pitchbook.


[13] Colin M Mason, “The Real Venture Capitalists: A Review Of Research On Business Angels,” (2008).

[14] Europe includes: Austria, Baltic countries (Estonia, Latvia, Lithuania), Belgium, Bulgaria, Czech Republic, Denmark, Finland, France, Germany, Greece, Hungary, Ireland, Italy, Luxembourg, Netherlands, Norway, other CEE (BosniaHerzegovina, Croatia, Macedonia, Moldova, Montenegro, Serbia, Slovenia, Slovakia), Poland, Portugal, Romania, Spain, Sweden, Switzerland, Ukraine, United Kingdom.

[15] Calculations are based on the following: Of €71.7bn total PE investment, majority (€65.3bn) went into company buyouts. Just €6.4bn was classified as VC, of which €0.6bn was invested at the seed stage, €3.5bn in start-ups and €2.3bn in latter stage companies.

[16] EBAN, “EBAN Statistics Compendium: European Early Stage Market Statistics,” (2016),

[17] PwC, “PwC MoneyTree,”

[18] Jeffrey Sohl, “The Angel Market in 2017: Angels Remain Bullish for Seed and Start-Up Investing,” Center for Venture Research (May 17, 2018),

[19] Lerner postulates that risk capital in the U.S. may be more abundant, and therefore start-ups have many different avenues of obtaining their initial seed funding, including venture capitalists. As a result, U.S. firms do not necessarily have to raise an angel round before getting funding from larger players.

[20] Lerner postulates that risk capital in the U.S. may be more abundant, and therefore start-ups have many different avenues of obtaining their initial seed funding, including venture capitalists. As a result, U.S. firms do not necessarily have to raise an angel round before getting funding from larger players.

[21] J. J. Madill, G. H. Haines Jr., and A. L. Riding, “The Role of Angels in Technology SMEs: A Link to Venture Capital,” Venture Capital 7 (2005): 107–29.




[25] Has Persistence Persisted In Private Equity? Evidence From Buyout And Venture Capital Funds, Harris, Jenkinson,Kaplan,Stucke, National Bureau Of Economic Research, Working Paper 28109, 2020.

[26] The good, the bad and the ugly of VCTs and EIS, 2015.

[27] Small-Business-Finance-Markets-2019-20-report-Infographic-Amended (

[28] Business Finance Survey Report 2019.

[29] Business Finance Survey Report 2019.

[30] See for example for explanation, and for example.




[32] Evidence relating to this was provided to the 2021 HM Treasury Consultation, Financial promotion exemptions for high net worth individuals and sophisticated investors, and can be forwarded if requested.

[33] Regional Angels Programme, Request for Proposals, November 2021, BBI.




[37] Exits in the UK, 2011-2020, Triple Point, Beauhurst, 2020.

[38] Business Angel Exits: Strategies and Processes, Colin Mason, Richard Harrison and Tiago Botelho, 2015.

[39] The only changes to this definition have been the introduction of the principal of joint income ($300,00) in 1988 and a 2011 provision excluding the investor’s primary residence. A change is being made in 2020 to add the term “spousal equivalent”.

[40] Securities and Exchange Commission, 17 CFR PARTS 230 and 240, [Release Nos. 33-10824; 34-89669; File No. S7-25-19], RIN 3235-AM19, Accredited Investor Definition, 2020.

[41] According to the, the American Angel Survey  the typical angel investor has a portfolio of just seven companies.