Angels in the UK are making a lesser return on start-up investment than their US counterparts, new research suggests.  Angel investors make an average internal rate of return (IRR) of 22% and 27% over four years in the UK and the US respectively.  Industry bodies are therefore calling for tax incentives for angel investments to be increased.

The report was published by the National Endowment for Science, Technology and the Arts (NESTA) in collaboration with the British Business Angels Association (BBAA).  It suggests that tax incentives such as the Enterprise Investment Scheme (EIS) are taken up by 82% of British angel investors at least once. About 24% of angel investments would not be made without the tax incentives, according to the survey.

NESTA and the BBAA are calling for the Treasury to increase EIS tax relief from the current level of 20% to 30% for investments in higher risk start ups.

“Angel investing can be a strong viable complement to traditional forms of investment which are not making anywhere close to 22% returns,” said Jonathan Kestenbaum, chief executive of NESTA. “As the UK grapples with finding new sources of finance to build the sectors that will drive our economic recovery, business angels will form a critical new asset class.”

The study indicates that that more than half of angel investments are directed towards very early stage, pre-revenue start-ups, and while 56% of angel investments in the study made a loss, another 44% made a profit. Some 9% generated over ten times the capital invested.

Business angels in the UK invest an average of £42,000, with each investor making around 6 investments.  Investors typically review 20 opportunities each and acquire 8% of a company.

Source: Startup UK