How has COVID affected start-up funding?

Even securely established businesses have struggled to navigate the challenges thrown up by the pandemic in 2020. Few companies have escaped without any impact. Staff have been furloughed (or worse), plans have been delayed and forecasts have been rewritten. For many, the priority has been to simply survive.

What has been less reported has been the impact on our future business success stories. What has happened to the budding entrepreneurs who have had to put their dreams on hold? Where are the start-ups that had big plans for investment and growth in 2020? Where are the businesses that may not have shed jobs, but have been denied the opportunity to create new ones?

With all the uncertainty and turmoil, have investors been ready to take a chance on exciting new projects? If not, when will they be ready to take the plunge?

Do angels fear to tread?

One of the most effective routes for early-day investment is via a business angel (someone who invests their money in the initial phase of start-ups, usually in exchange for equity).

Catherine Lewis La Torre, CEO of the British Business Bank, stresses their importance: “Business angels are the most significant source of equity investment in start-up and early-stage businesses seeking to grow, also providing ‘smart capital’, alongside equity finance, as they bring business experience, strategic advice and networking opportunities.”

The UK Business Angel Market Report is an essential barometer of angel activity.  And the second edition, released in October, showed surprisingly robust levels of investments and interactions.

The report noted that “Given the often personal nature of angel investing and the prevalence of syndicates, networks or clubs in the industry there were fears that angel activity could be seriously impacted by Covid-19.”

“… Thankfully, so far at least, this has not been the case. The level of activity from syndicates, networks or clubs has largely stayed the same (40%) or increased (26%) since the onset of Covid-19, with only around a quarter seeing less interactions. Furthermore, angels are still using both their money and expertise to support SMEs during these challenging times.”

“The level of activity from syndicates, networks or clubs has largely stayed the same (40%) or increased (26%) since the onset of Covid-19”

“At the time of the survey (July 2020) over half of our respondents had made at least one investment.”

This was not the verdict you might expect. In fact, you would assume that the angel investments would have collapsed in such troubling times.

So why are angels continue to invest – with both their money and time?

Angels earning their wings

Since the onset of Covid-19, half of the business angels have increased their engagement with their investee businesses. And when asked why it appears that the investors feel they have something tangible to offer – their experience. They seem to genuinely want to give something back.

As many angel investors have been through the highs and lows of business ownership, overcoming shocks such as at the Dotcom crash and the banking crisis, they are in a good place to offer sound advice.

The report points out that investors can bring valuable experience and insights to their portfolio businesses helping them maintain resilience and take the relevant business decisions during this period. This has included taking a lean business model approach and lengthening the runway to the next main funding round.

In fact, most angels surveyed were generally confident about the future growth in the value of their portfolio. 72% stated they were either somewhat confident or very confident of revenue growth over the next 12 months. Almost half of the angels are open to building their portfolio in 2020/21, while only 12% said they intended to make no further investments.

The report by the British Business Bank and the UK Business Angels Association offers a very different perspective on investment attitudes in a world trying to cope with a pandemic. It reminds us that when times are hard, there are people who want to step up and help.

Those experienced angel investors who take the time to mentor and advise early-stage businesses, at a time when it is so essential, have certainly earned their wings.

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