Written evidence submitted by UK Business Angels Association (UKBAA)



UKBAA is the trade body for Angel and early-stage investment established in 2012, covering England, Wales, Scotland and Northern Ireland.  We are pleased to have the opportunity to respond to this review by the Treasury Committee into the state of the Venture Capital Industry and to focus on the vital role played by Business Angel and earlystage investment in the Venture supply chain.


About UKBAA:

We are a private company limited by guarantee and operate as a not-for-profit organisation. Our role is to build and support the growth of an effective angel and earlystage finance ecosystem across the UK Our community includes over 18,000 angel investors across the UK and our membership consists of 86 Angel networks, 12 online platforms, 600 individual Angel investors, 28 earlystage funds and VC funds; nearly 30 Accelerators and 40 Associates, including professional advisers, lawyers; academics; other finance providers; and key stakeholders.


1.State of Venture Capital in the UK

1.1.  The role and importance of Angel Investment in the Venture Supply chain











2.              Key challenges and barriers to the effective growth of Angel Investment across the UK


A thriving angel market is core to the functioning of the Venture supply chain from start up to scale up. However, there are key systemic challenges and barriers within the angel investment across the UK which were highlighted during the pandemic and continue to have a significant impact on the Venture market overall. These key challenges include:



Further key issues include:


2.1. The need to rebalance and increase Regional Angel Investment Capacity


Despite extensive efforts across the Venture and Angel supply chain and the important funding being made available through the British Business Bank, 59% of angel investment is currently focused on the London Oxford Cambridge triangle.[7] This reflects the continuing overall concentration of all UK Venture on London at 50% of total equity deals and 66% of total investment.


Nearly all other UK regions have only 3-7% per region of the total known level of angel investment The exception being Scotland where 12% of the total angel investment capital. This leaves most regions around UK, where substantial communities of high growth potential small businesses are located, unable to access the investment they need to build and grow their business from start up through to scale-up.


UKBAA recognises the important role of British Business Bank to address these issues:

British Business Investments have played a vital role in addressing the lack of access to angel investment in the regions through the Regional Investment funds and more recently the Regional Angels Programme (RAP) launched in 2018 with £100m and receiving a further £150 in the 2021 Spending review. We are very grateful to the Government for providing vital funding support to BBB to address this challenge.


The RAP has been an important programme, offering opportunities for those Angel groups who are highly professional and strong track record to access a pot of coinvesting funding between £5-15m to boost investments in small businesses in the regions.   To date 184 companies have been supported [8] having been deployed in the regions by the 10 recipients of co-investment fund allocations.  And we are also working with BBB Regional Network team to help build stronger awareness of angel and earlystage finance across the regions.


However, the current RAP parameters preclude many angel groups across the regions and devolved nations that do not have the experience, track record or relevant funding structures to take advantage of these co-investment funds.  The existing instrument, whilst boosting the number of regional earlystage businesses that can access investment, is unlikely to achieve an increase in the supply of new regional Angel investors, or build sustainable regional angel ecosystems to back small businesses in the regional economies.



We need more public co-investment funding and support mechanisms to build angel investment capacity at pace to meet the investment needs growth-focused businesses across the regions– and as a vital aspect of the levelling up of regional economies. A multifaceted approach is needed as follows:






2.2. The need to Increase Angel Investment in Diversity


There remains a significant lack of diversity in Angel Investment across the UK and which impacts across the whole venture supply chain and prevents many more women and black and ethnic minority founders and from other underrepresented groups from successfully accessing investment.



We are committed to achieving change to increase the level of investment in diversity and UKBAA is working with BVCA, BBB, and other key players across the ecosystem to share data insights, good practice and developing joint strategies.

In relation to increasing the level of investment in women-led businesses, we are working together under the Alison Rose review Board[10]


Actions being taken:





Further Action by Government:

Increasing the level of investment in diversity is fundamental to the growth of our economy and to the success of the Government’s Levelling up Agenda. Government should reinforce these actions with further public investment as follows:






2.3. The need to increase Angel investment capacity in earlystage science, technology and innovation-supporting UK’s ambition to be a science and technology “superpower” and achieve net zero


With the increase in public investment in science, research and innovation to £22bn by 2024 and with launch of the Government’s Innovation Strategy last year, it is vital that we can leverage and build a strong supply of angel investment into business innovation and enable effective early commercialisation of science and research


Within our Angel community there is significant interest to back innovative solutions for climate change and supporting sustainability. There are strong experienced angels with science and industry backgrounds to identify, evaluate and invest in core priority areas of science innovation and technology, many are currently based in the London Cambridge Oxford triangle.


However, very many Angel investors across the UK lack the knowledge and experience of science, innovation and technological developments and compounded by the lack of developed angel ecosystems around universities and clusters of innovation in the UK.   This knowledge gap hinders investors from adequately assessing the technical and financial viability of key technologies and knowledge-based companies.[13] 



Government support is needed to materially grow the capacity of angel investors to identify, evaluate and back S&T companies and that will form the bedrock of future growth for Britain’s ambition to become a superpower:







3.  The importance of EIS in supporting the Growth of Angel Investment and the need to address the Sunset Clause.


3.1. The Enterprise Investment Scheme has underpinned the growth of Angel Investment in the UK.


It is also vital as an instrument to attract and support new investors, especially in supporting the growth of more women and diverse investors across the UK.


However regional disparities prevail in usage of EIS/SEIS scheme. Government EIS stats continue to underline the disparity in take up of EIS across the regions with 65% of EIS investment being made in London and the Southeast.


BBB-UKBAA research[15] has shown that 87% of angels used the EIS/SEIS scheme and 86% stated that they invest more and in riskier small businesses due to the presence of the EIS scheme, whilst 89% stated that they do not use the EIS scheme as a driver to their investment decisions or to support tax advantage planning.


UKBAA’s most recent research of our Angel Investment Member Community carried out in May-June 2022 has reinforced this view on EIS:

85% see as crucial in enabling them to support entrepreneurship and back their local economy.

87% to assign more of their personal capital into earlier stage risk businesses and support early commercialisation.

90% new to Angel investing in last 12-18 months, see as vital to their decision to start Angel investing in early stage high risk businesses.



3.2. The Impact of the EIS Sunset Clause 2025 on Angel Investment


The provision within the 2015 Finance Bill, as a condition for State Aid approval, introducing a sunset clause intended to restrict tax reliefs to shares issued before April 2025 requires urgent attention by Government. The failure to continue the EIS and SEIS schemes would result in the loss of a major pool of £1.8-£2bn annually of equity capital from angels and other private investors impacting 4000 small businesses under the EIS scheme and £175m in over 2000 start-up businesses under the SEIS scheme.

90% of Angel users of EIS said this would materially change their capacity to back high-risk start-ups.


This would have a direct impact on the whole venture supply chain from start-up to scale -up here in the UK , further compounding the extensive growth capital gap identified as £15bn annually.[16] 



It is vital that the Government urgently takes the necessary action to override the sunset clause and ensure the continuation of both EIS and SEIS reliefs beyond 2025 , giving strong assurance and certainty to the Angel and early stage investment community as well as the small business community of the continuing availability of the schemes.

UKBAA also endorses the submission by EISA and VCTA in addressing the Sunset Clause


4.                An effective Regulatory Framework is important for growth of Angel investment

See Annex for our comments.


5.              Looking forward: The overall economic climate for Angel investment and the implications of the global financial crisis for the future of Angel Investment in the UK


As already mentioned, since Angel Investors are committing a proportion of their own personal wealth into small businesses and taking their own decisions to invest in risk-focused, growth-potential businesses, they are directly impacted by the UK and global financial climate.


Previous financial crises have shown that the level of Angel investment is severely impacted. During the pandemic 52% of Angels reported a reduction in their investments into small business[17] . Our recent survey of UKBAA Angel investor members revealed that over 85% stated that worsening economic conditions would affect their own financial capacity to invest in start-ups and earlystage businesses over the next 12 months - and with consequent severe impact on the pipeline to Venture capital.  


As this submission demonstrates, the Government needs to move at pace in the face of impending significant shocks to the UK economy and wider Global environment, to use public investment and policy measures to address the challenges outlined above. It should work in partnership with UKBAA and key players across the finance and entrepreneurship ecosystem to ensure the continuing supply of Angel investment to earlystage businesses. This will in turn enable us to ensure an effective and connected supply chain of Venture Capital to ensure support to small businesses here in the UK to innovate and flourish, creating jobs, productivity and growth and tacking society’s biggest issues over the coming years.





Further supportive evidence and information

(Numbering reflects the chapters in the main document)


1.Role of UKBAA

UKBAA’s role is to build and support the growth of an effective angel and early stage finance ecosystem across the UK and to address areas where capacity is weak, providing education and support; connecting investors to quality sources of deal flow and connecting the investment supply chain from start up to scale-up. We also seek to address core challenges and gaps in the market, such as addressing regional angel capacity imbalances and increasing angel investment in diversity. We are working closely with Government and key stakeholders across the UK to ensure an effective policy and regulatory environment to support and grow the angel investment base.



2.1    Need to build further Regional Angel Capacity:


Further evidence gained through a detailed mapping exercise of 20 angel groups across the Northern Powerhouse, West Midlands and South West carried out by UKBAA together with the Scale Up Institute [18]revealed only 1, 500 active angel investors in 20 angel groups with total level of investments made across these three regions of £25.9m per annum - which compares to the level of investment typically invested by individual experienced angel groups in the Golden triangle. This demonstrates the nascent nature of angel investment in these regions and the overall lack of investment capacity. 


2.1.   Examples of Good Practice to build capacity in the Angel market:


Scottish Investment Bank and Scottish Enterprise Angel Capacity Building programme:


SIB/SE established LINC Scotland to offer education and support with mobilisation of new syndicates LINC has had a separate budget of £500k annually allocated to LINC Scotland through SCIF/ Scottish Enterprise (until recently ERDF supported).  Its role is to build awareness and education to attract new angel investors and support mobilisation of new Angel groups and to build connections between Angel groups to support co-investment and peer to peer exchanges of experience. SCIF also directly supports new groups formed in Scotland, enabling them to access up to £150k for two years from SCIF to support the development and structure so that they can effectively build capacity to access the Co Investment fund.

This has resulted in the establishment of 24 active Angel groups across Scotland and the most thriving angel investment ecosystem outside London and the South east. [19]



Canada Angel support Programme





3.1.  Maintaining the EIS scheme beyond the 20205 Sunset Clause :


UKBAA member survey of Angel investors in our community (May-June 2022) in relation to the potential withdrawal of the EIS scheme by 2025:





Opportunities for further reforms:

Once the Government has given certainty on the continuation of the EIS beyond 20205 further actions to reform the scheme should be considered:


        Increase awareness and take-up especially in the regions: HMT and HMRC should support UKBAA , BVCA EISA, VCTA and BBB and all other key player in the ecosystem  in a major nation-wide campaign to raises awareness of the schemes to entrepreneurs and investors, especially focusing on regions outside the Golden Triangle, and among existing and new potential investors and entrepreneurs from diverse communities.


        Review the potential for additional targeted EIS/SEIS tax relief incentives: with a view to increase investments in diverse founder team and growth focused regional businesses.  Consideration also to be given beyond the Knowledge Intensive Businesses scheme to incentivising investments in the commercialisation of core Science and Innovation sector priorities as set out in the Innovation Strategy, including encouraging investing in net zero.


        Improving the working of the scheme: review the operation of the scheme to improve the effectiveness and working of the scheme without the restrictions of the EU and in close consultation with the investment and business community. 


        Addressing current technical issues such as the 3-year EIS qualification: Angel Investors generally bring not just one round of investment, but several rounds of funding to support the growth and scaling of their investee businesses, until they may be ready for Series A VC funding to take forward further growth and scale of the business. This is combined with direct support and advice by the Business Angels to the management team on building the business and ensuring traction ready for high growth.  At the same, time, Angel investors using the EIS scheme are trapped by the three-year rule on the period of investing under the scheme.


        If an investor makes several investments in a start-up over a period of years, they face an issue with EIS benefits having to be repaid if the company exits within 3 years of the later rounds.  This therefore discourages angels from making later stage investments in their portfolio companies and threatens their longer-term returns, as they fall behind the preference waterfall (see point below).  Whilst, where there is a positive value exit, most investors would not find this an issue, since Angels are making more risky deals in very early stage businesses, more often than not an ‘exit’ comes as a means of salvaging a business.  Angel Investors face getting a negative return on their capital, plus losing EIS benefit if it happens within 3-year EIS qualification period.



4.1. HMT and FCA Proposed Changes to the Risk Capital framework


In line with UKBAA ‘s responses to the recent consultations by HMT and FCA into the operation of self-certification of HNW and Sophisticated investors and promotion of investments, we recommend that the eparameters should be maintained and any restrictions should be avoided that add extensive new responsibilities to Angel groups or that have unintended consequences in undermining the contribution of Angel and early stage investment to support the productivity and competitiveness of the UK economy.


4.2. Opening New Pools of Capital: Opportunity to exploit DC Pension Schemes to boose investment into Venture Capital


We recognise the importance of ensuring that the existing untapped UK DC pension schemes can invest in VC funds to boost their growth and sustainability.


UKBAA is supportive of the efforts of the BVCA to address this issue and also the work of the Productive Finance Working Group, led by Bank of England, FCA and HM Treasury to set out a roadmap to enable DC Schemes to support venture as well as proposals for a new Long-term Asset Fund. 


4.3. Supporting Access to Talent to support growth of Businesses from start up to scale -up


Supporting the development of talented entrepreneurial teams is a key concern for Angel investors in ensuring the effective scaling of their investee businesses.


Reviewing the EMI Scheme: Government should ensure that the EMI scheme is maintained to enable earlystage businesses to build and scale and incentivise and maintain talented players through offering share options at a time when early stage businesses do not have any or sufficient revenue to pay the salaries and costs that many would normally command in corporates or less risky businesses, also ensuring this is not affected by other regulatory changes that might affect the working of the scheme including reforms to CGT or  further dilution of Entrepreneurs Relief: 


5. Looking forward: The Importance of Certainty and impact of Global events:


Previous financial crises have shown that Angel investors tend to focus on their existing portfolio with a view to supporting those already identified as potential successful high growth businesses and making fewer new investments. BBB research of the Angel market in 2020 at the height of the pandemic and lockdown, revealed that 52% of Angels reported a reduction in their investments into small business and with 47% reducing the amount of investment they planned to commit over the coming 12 months[21] . This pattern of reduction in Angel activity could be repeated in the face of a further impending UK economic crisis and global recession with resultant impact on the availability of start-up and early stage capital, especially for new investments and consequent severe impact on the supply of angel backed businesses ready to seek Venture Capital.


Our recent survey of UKBAA Angel investor members on the impact of the current financial climate revealed that over 85% of the respondents identified that the current economic conditions would affect their own financial capacity to invest in start-ups and early stage businesses over the next 12 months:   50% 5identifying cost of living and potential UK recession as a key factor; 20% attributed Stock Market performance; 15% attributed to the continuing impact of Brexit.


June 2022





[1] Scale-Up Institute Annual review on the State of UK Scale-ups 2021

[2] Beauhurst “The Deal” 2021 (announced Angel deals and deals known to have at least one angel investor).

[3] British Business Bank _UKBAA Report on the UK Angel Market Oct 2020

[4] British Business Bank _UKBAA Report on the UK Angel Market Oct 2020

[5] Beauhurst “The Deal” 2021

[6] Beauhurst  The Deal 2021 and BBB Equity Tracker report 2021

[7] BBB-UKBAA UK Angel market report Oct 2020

[8] BBB Equity Tracker report June 2022

[9] BBB-UKBAA UK Angel market report 2020

[10] Jenny Tooth UKBAA is a founding member of the Alison Rose Review Board led by Alison Rose of Nat West and BEIS Minister Paul Scully .


[11] Mapping female Investment across the UK Beauhurst and Women Angel Investment Task Force launch tbc



[13] This also reflects the concerns expressed in the recent letter to the Prime Minister from Sir Patrick Valance and Lord Browne of Madingley presented  at the CST Letter to the Office of the Prime Minister

[14] www.investincreative


[15] UKBAA-BBB UK Angel market report 2020

[16] Growth Capital Report Sept 2020 led by SUI and Innovate finance

[17] BBB-UKBAA UK Angel Market report Oct 2020

[18] DCMS Creative Scale-up Programme Investor capacity study UKBAA-SUI 2020

[19] LINC Scotland report on Angel Investment in Scotland 2022

[20] NACO: Review of Ange Support programmes Canada.

[21] BBB-UKBAA UK Angel Market report Oct 2020