Embedding business angels in financial policy and growth


By establishing the importance of business angels, and facilitating their engagement with industry, this research has supported investment worth £750 million a year to the UK economy.

What was the problem? 

It was Professors Richard Harrison and Colin Mason who first introduced the term ‘business angel’ to the UK some 25 years ago. Used in a report on informal risk capital, it described a wealthy individual who invests their own money in a new or emerging small business in return for an equity stake. The term is now commonplace, such is the endurance of the business angel as a trusted and value-added source of finance for small and medium-sized enterprises (SMEs). The challenge for industry and policy makers has been to maximise the potential of business angels while allowing them to maintain their light-touch anonymity.

What did we do? 

Richard Harrison, now Chair in Entrepreneurship & Innovation at the University of Edinburgh Business School, has been working with Colin Mason for many years. In 1990, their report on informal risk capital was the first to identity the importance of business angels as a key source of entrepreneurial finance in the UK, as well as their desire for relative anonymity. To make it easier for ‘angels’ to connect with businesses, Harrison and Mason proposed what came to be known as Business Angel Networks (BANs). It is through this community that a long-term research agenda emerged around business angel opportunities and challenges.

As well as collecting evidence on angels’ investment returns, Harrison and Mason have explored why many businesses come to market without being ‘investment ready’. They have looked at how angels make their investment decisions and devised investment readiness programmes to suit. In 2007, they were asked to recommend how angel investment activity could be measured cost-effectively, resulting in two reports to the UK Department of Business Innovation and Skills. Their recent research has highlighted a significant move away from individual investing towards groups of angels working together.

There is no doubt that the work of Colin Mason and Richard Harrison has been one of the key drivers behind the emergence of angel funding. It provided the conceptual framework to justify intervention on the part of government.
David Gill, Managing Director of St John’s Innovation Centre, Cambridge
What happened next? 

In over 25 years of research activity, Harrison and Mason have influenced the attitude of successive governments and economic development agencies towards business angels, embedding the investors in SME finance policy both in the UK and overseas.

Their work on Business Angel Networks (BANs) provided a structure to the hitherto unorganised angel market, beginning with five UK demonstration projects which, in their first three years of operation (1992-1995), facilitated 64 investments and £3.7m direct investment.

Such was the interest among Training and Enterprise Councils that the Department of Trade and Industry commissioned the researchers to produce a best practice guide for BANs and, by 2000, there were 48 networks in operation, 26 of which were public sector funded.

Between 1993 and 2003, business angels invested just under £250m in nearly 2,000 companies through BANs, leveraging a further £200m from other sources.

Research on investment returns provided government with an accurate picture of the timeframe over which business angels invest. This resulted in measures in the 2001 Budget to change the Capital Gains Tax taper, in part by making it more generous.

Similarly, the reports for Business Innovation and Skills resulted in the establishment of the Seed Enterprise Investment Scheme in 2012, offering tax breaks to investors in small companies. In October 2014, The Telegraph reported a “73% surge in the number of start-ups raising funds from private investors through this Government-backed scheme”.

As recognised by the ESRC when awarding the researchers the Outstanding Impact for Business Prize 2015, their influence extends to many international organisations, including the Organisation for Economic Co-operation and Development and the World Bank, both of whom have adopted the idea of ‘investment readiness’. Having worked with Enterprise Ireland and Industry Canada, Harrison is currently helping the Malaysian government develop its angel market.

About the researcher(s)

Chair in Entrepreneurship and Innovation

Research unit

Subject area:
  • Entrepreneurship & Innovation

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