Business Angels

Business angels are high net worth individuals who invest their own money, along with their time and expertise, directly in unquoted companies in which they have no family connection, in the hope of achieving a financial gain through an exit. They are recognised as being the most significant source of risk capital for new and young entrepreneurial companies, financing many times the number companies that raise finance from venture capital funds. Governments in many countries are actively involved in supporting business angels through tax incentives, networking support and training.

Colin Mason has been a pioneer of business angel research, building on exploratory studies undertaken in the USA in the early 1980s. From 1989-91 he undertook the first ever study of business angels in the UK with Richard Harrison under the ESRC Small Business Research initiative. He had gone on to undertake numerous other studies of business angels with both Harrison and others and well as writing several state-of-the-art reviews of angel research and policy.

His research has had significant impact on policy in both the UK and further afield. The initial study led the UK Government to establish what were then called Business Introduction Services – now termed Business Angel Networks (BANs) – which acted as dating agencies to enable business angels and entrepreneurs seeking finance to connect with one another. He undertook both the interim and final evaluations of this initiative with Richard Harrison. His edited book with Richard Harrison on business introduction services (1996) was translated into Japanese. He complied an annual directory of business angel networks which was published initially by the British Venture Capital Association and then by the National Business Angel Association between 1993 and 2001.  Subsequently he worked closely with the European Business Angel Network which was created in the late 1990s to promote the creation of business angel networks across Europe.

When subsequent research revealed that networks did not appear to produce better deal flow to enable business angels to make more investments he explained this in terms of the lack of ‘investment readiness’ on the part of businesses seeking angel finance. In a 2001 paper with Richard Harrison he proposed an investment readiness programme which would produce investable businesses. This suggestion was also adopted by Government which funded six investment readiness pilots in the same year.  Meanwhile he had been working on a separate study of how business angels make their investment decisions with Amy Rogers, a London Business School Sloan Fellow. An outcome of this study was a video – You Are the Product – which provided a fly-on-the-wall view of business angels discussing an investment proposal. This was funded by The Design Council. It was written and directed by former University of Southampton colleague Mike Clark and produced by John Allen. He used this video in the Fit For Finance investment readiness programme run by Hertfordshire Business Link and Examplas in the early 2000s as well as in a variety of MBA and other university courses.

He has recently revisited the investment readiness concept as a result of recent invitations from the OECD’s South East Europe team and Dutch small business organisations to speak on the topic. A paper with Jennifer Kwok of NETPark County Durham reviewed evaluations of investment readiness programmes and he is currently working on a paper on how investment readiness has changed.

Other important studies include a book on business angels in Finland with Annareetta Lumme and Markku Suomi, the first estimate of the size of the angel market in the UK, the first  study of business angel returns, a critique of how angels ‘pitch’ for funding, a comparison of how bankers, venture capital fund managers and business angels make investment decisions with his former student Matt Stark, and a paper on business angel policy in Europe.

One of the problems encountered by both researchers and policy-makers is the difficulty in measuring the size of the market and examining trends over time. There are no directories of business angels, their investments are not publicised and they typically avoid publicity. Indeed, William Wetzel jr, who was the first scholar to highlight the importance of business angels observed that the size and characteristics of the population of business angels is unknown and probably unknowable. In 2008 Colin Mason and Richard Harrison were asked by the UK government to undertake a critical review of approaches to measuring business angel investment activity and make recommendations for how the angel market in the UK could be measured cost-effectively on an annual basis. They proposed a focus on the ‘visible’ market and a methodology for scaling this measurement to estimate total market size. They were then asked to implement this approach and produced two annual investment activity reports covering 2008-9 and 2009-10. Colin Mason was also invited by the National Angel Capital Association of Canada to assist in similar studies of angel investment activity in Canada in 2010 and 2011.

His current research on angel exits, which is funded under the ESRC’s Co-Investment Initiative is looking at the exit process in angel investing.

Recent publications, including papers from the angel exits research, can be found here.