UK must do more to encourage start-up angels George Osborne envisages a "Britain carried aloft by the march of the maker." And to that end he's shrunk corporation tax, raised research and development tax credits, cut red tape for small businesses, thrown start-up investors an income tax break and offered entrepreneurs relief on capital gains of up to £10 million. This, the Chancellor says, will make the UK "the best place in Europe to start, finance and grow a business". Well, it can't hurt. But look beyond the Budget's various measures and you see how far the country has yet to go to be truly supportive of entrepreneurs. I'm reminded of a blog posting by Silicon Valley venture capitalist David Hornik, who spent almost a month at the end of last year in the UK and Europe, meeting company founders, judging start-up competitions and getting to know the lie of the entrepreneurial land. "There's lots of great stuff cooking," he blogged on his return to America. But he also noted some major challenges including a "crisis of capital" which "threatens to retard the success rate of start-ups". He added: "There simply isn't a robust network of angel investors who are actively investing in Europe." Angels are backers who enjoy a share of the profits - should there be any. The theatre world has depended on them for years; those lucky enough to have "angeled" a Lloyd Webber musical will have done very nicely indeed but most have had to resign themselves to "reaping their rewards in heaven" - hence the term angel. In the technology world they are rich individuals who are able and willing to give enterprises the funding they need at their very earliest stage. Angels do exist in Britain but are nowhere near as prevalent as they are in Silicon Valley - home of Google, Facebook et al - where every second person seems to be one and angel culture has become a cut-throat market that's constantly shifting as investors try to out-do each other in access to the best start-ups in town. Neither are they as sophisticated. In Silicon Valley we have seen the rise of the super-angel - backers with as much personal cash to hand as a small venture capital fund, which they use to invest aggressively in multiple start-ups. They have out-invested more casual angels and started snagging deals away from big-name VC funds as well. Last September a few super-angels got enmeshed in an alleged price-fixing conspiracy, where they were accused of colluding to get more favourable terms from the entrepreneurs they were funding. Whether there was collusion or not, the row suggested that angel money was getting progressively easier for Valley start-ups to secure. At the same time, a new generation of angel-stage incubators has been making its mark. Exemplified by Mountain View's Y Combinator, these offer start-ups a small investment coupled with office space and access to a powerful network of advisers in return for small piece of equity. It's quickly proved a great way to get a business going and many such incubated start-ups are moving directly to generous funding rounds from VCs and super angels, again cutting more traditional angels out. Meanwhile, new angel "mafias" keep emerging - networks of entrepreneurs associated with specific Valley success stories looking to hit the jackpot a second (or third) time as angels. Alumni of Netscape and PayPal are among the most famous but now we have a Facebook angel mafia too. The most recent phenomenon was an audacious bid from super-angel Ron Conway and Russian investor Yuri Milner to invest $150,000 (£93,000) in every single start-up entering the Y Combinator incubator program - about 40 a year - sight unseen. It amounts to an "end-run", as they say in America, around all the other angels in town. But what is most interesting is to see who these angels are. They are not simply friends and family with a bit of spare cash to lend someone they know. Nor are they pure speculators, just looking for a potentially lucrative place to park their money. And they most certainly aren't banks. They are, for the most part, successful entrepreneurs in their own right who are 100% believers in the virtues of creating new businesses for profit and fun. When they back you, you get their enthusiasm, their competitiveness, their connections and their advice. Many British and European entrepreneurs do find family, friends, speculators, banks, VCs and even angels to invest in them. And this week's Budget will likely help expand the British and European angel scene. But so long as they're in competition with highly professional angels in other parts of the world, home-grown angels will face an uphill struggle. And that in turn will continue to have an impact on the start-ups they invest in and the growth that the Chancellor is understandably keen to encourage. "Until European entrepreneurs have a robust local source of start-up capital, they will continue to fail disproportionately," says Hornik, noting that many European start-ups are still looking to the US for cash. And when they find angels in America, many move over to the States for good. Mr Osborne must try harder. Source: thisislondon.co.uk << Back Author: Simon Firth

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