Analysing trends in angel investments is difficult - why ?


400. Analysing trends in angel investments is difficult, due to the lack of data and little harmonization
in definitions. Currently, the only data available is that collected by angel associations from angel groups
and networks. This however only captures the “visible” market and overlooks the largest part of
investments, which are carried out by individual BAs. It has been estimated that, when taking into account
the “invisible” share of the market, the total amount of angel investment is likely greater than VC
investments (Kerr et al., 2010).
401. Taking this important limitation into account, OECD (2011a) shows that the US and Europe are
the most active BA markets, with France and the UK leading the European market (Figure 17). In the US,
angel investment boomed in the dot com era, rising at a high pace and then falling off, as did venture
capital. The constant growth of BA activity over the last decade came to a halt during the 2008-09 financial
crisis, though the fall was not as dramatic as in the VC industry (OECD, 2011a). In this regard, BAs appear
to be less sensitive to market cycles than are professional VC investors. Nevertheless, also for BAs the lack
of opportunities represents an important challenge, which may discourage or defer investment in the first

402. Overall in Europe, in 2009, total investment through angel networks had already surpassed the
seed component of the VC industry (Figure 18), which may be also explained by the increasing orientation
by VC funds towards later stage financing. BA investment in seed/early stage VC funds has also increased
in recent years (OECD, 2011a; Ernst&Young, 2014)

403. Although BAs invest across a broad range of sectors, the VC-preferred fields (ICT and healthcare
sectors) feature high in BAs’ investment choices. According to the European Business Angels Network
(EBAN), in 2013, in Europe, ICT collected 32% of investment preferences, followed by Biotech and Life
Sciences (10%) and Mobile (10%)47.
404. Only a minor share of BA deals are cross-border, whereas most investments are local. This may
be related to the importance of personal relationship and trust in the angel investment process. Crossborder deals are only possible when the necessary trusted relationships are in place, there is sufficient
knowledge about the market and the legal and tax systems permit BA types of deals (OECD, 2011a).
405. Angel investing is increasingly encouraged and supported by policy makers in many countries, as
a way to mobilize financial resources and entrepreneurial expertise towards dynamic new ventures. In most
cases, supply-side measures have been introduced, which mainly take the form of tax incentives and public
co-investment. Given the local dimension of angel investing, in some countries, such as the US and
Canada, support is provided at the local level rather than at the national level.

406. Front-end and back-end tax incentives aim to increase the number of BAs as well as the amount
of capital invested. Typically, incentives are conditional on the shares being held for a minimum number of
years or the capital gains being reinvested in new ventures. For instance, in 2008, Italy introduced tax relief
for business angel investments, which consists of a tax exemption for capital gains on the sale of a startups’ undertakings, provided that the start-up is less than seven years old, that the investor holds the shares
for at least three years, and that the capital gains are reinvested in another start-up in the next two years
(OECD, 2014b).
407. Japan has introduced an angel tax system since 1997, which comprises reduced taxation on
capital gains and carry forward of losses. However, as angel taxation was only used for a small amount of
investments, to further increase angel funding, the system was amended in recent years with the
introduction of an income exemption system, whereby, under specific conditions, BAs can deduct from
their annual income an amount of money substantially equivalent to the investment carried out in the same
year (OECD, 2011a).
408. Another common supply-side measure consists in the creation of co-investment funds, which
match public funds with those of private investors that are approved under the scheme. In some cases these
funds target all seed and early stage investors, including also VC funds (see Box 9), but there exists also
programmes that are especially focused on BAs. In the UK, the Angel CoFund invests amounts of GBP
100,000 to GBP 1 million into SMEs with high growth potential, working in partnership with syndicates of
experienced BAs.

409. In some countries, public support has been provided to BA associations, networks or groups to
help start these organisations. For instance, EBAN was created in 1999 as a federation of BANs across
Europe with financial support of the European Commission. In the US, it was the Kauffman Foundation
which supported the creation of the Angel Capital Association (ACA) in 2004. In some cases, however, the
public support to start national associations did not produce the desired impact, due to relatively immature
markets and the difficulty for these associations to build enough momentum to develop (OECD,
2011a).Some policy measures target the specific skills required for angel investing, promoting training,
mentoring and coaching, although this type of measures have been less popular than tax incentives or
financial support. In the US, the Kauffman Foundation created the Angel Capital Education Foundation
(ACEF), which offers education programmes about angel investing, with the engagement of experienced
angel investors as lead instructors (OECD, 2011a).
410. On the demand-side, investment readiness programmes are intended to help entrepreneurs
develop their business plans and presentations, in order to appeal to angel investors. To do so, emphasis is
placed on better understanding the needs and expectations of potential investors and how to present a
business plan that appeals to these expectations.
411. Other measures that aim to improve information flows and networking opportunities between
financiers and entrepreneurs, including business incubators and accelerators, may also concern BAs. The
support to broader networking activity in the entrepreneurial ecosystem may also improve the exit
prospects of BAs, as these are able to strengthen linkages with other players, such as VC funds, which may
step in at a later stage of the investment, or large companies, which might become M&A partners. 

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