Study examines role of business angels during periods of austerity

Published by  News Archive

On 26th May 2017

Government support for ‘business angels’ is essential even in times of austerity, according to research involving the University of East Anglia (UEA) and University of Glasgow.

Business angels - typically wealthy, entrepreneurial individuals who provide capital in return for a proportion of a company’s equity - are recognised in both developed and emerging economies as playing a significant role in stimulating entrepreneurial activity.

With the decline in both bank lending and venture capital investment since the onset of the global economic crisis in 2008, government efforts to encourage business angel activity have become a more significant component in strategies to increase the level of entrepreneurial activity in Europe.

This new study examined the responsiveness of angels to such initiatives in so-called austerity economies - countries that were hardest hit by the financial crisis and subsequent global recession. In order to receive bail-outs from the European Union (EU), European Central Bank (ECB) and International Monetary Fund (IMF), they had to take extreme economic and fiscal measures to reduce their budget deficits

The study focused on Portugal, which suffered one of the deepest economic recessions in the EU over the crisis years following the implementation of severe austerity measures. As with other countries, such as Greece, these had adverse impacts on economic growth, investment and employment, unemployment and welfare.

The researchers, also from the Polytechnic Institute of Beja and University of Évora in Portugal, found that government intervention to support angel investing can have a positive impact. However, the impact of the various government initiatives – measured in terms of take-up rates - varied. The findings are published in the journal European Planning Studies.

Co-author Dr Tiago Botelho, of UEA’s Norwich Business School, said: “Although the study confirms that government intervention to support angel investment can have a positive impact, different types of intervention appeal to different types of business angel, with implications for their effectiveness. The design of incentives also influences their effectiveness.

“Our evidence shows that the objective of expanding the number of active business angels, for example increasing the number of emerging and novice angels, requires different measures from the objective of encouraging existing and active investors to increase their investment activity.

“Other countries can learn from the Portuguese experience in relation to the types of interventions that have the highest and lowest levels of take-up, the link between the design and the take-up of incentives, and types of intervention that should be considered but have not been implemented in Portugal.”

After family and friends, angel investment is the largest source of external equity financing at the start-up and early growth stages of a business. As well as the provision of capital, business angels also contribute their experience, knowledge, skills and contacts to the ventures in which they invest.

The researchers found that in Portugal, which exited from the bailout in May 2014, business angels continued to invest during the financial crisis. The typical angel made three or four investments, investing between €100,000 and €250,000 each time. Some 80 per cent also stated their intention to invest in the following 12 months, even though the process of economic adjustment was expected to continue and possibly even worsen over this period.

Fiscal incentives had a low take-up rate among business angels, suggesting the need to adjust the current eligibility conditions for tax relief on the amount invested, or replace it with tax re-investment relief, the fiscal measure most highly valued and taken-up by angels.

There was support from angels for co-investment schemes, with a preference for passive co-investment funds – as introduced by the government two years before the study - in which investment occurs automatically without investment selection filters because it eliminates uncertainty for investors. Also among the most popular measures was the elimination of the prohibition on selling shares within five years.

Portuguese business angels thought government support for business angel networks should be primarily directed at activities that improve the efficiency of the market, rather than network running costs and training for investors. However, they considered it important to support the training of young and women business angels.

Because of the role played by the networks in dissemination and supporting participation of angels in the government’s co-investment fund, and increasing awareness of angel investing generally, the researchers argue that ongoing government support for these networks, preferably based on a regional model, is essential. 

They add that the negative assessment by business angels of some aspects of a new legal framework is a warning that public authorities should take their needs into account when new legislation or rules are introduced, and that legitimate business angel activity should not be obstructed by legislation.

‘Angel investing in an austerity economy - the take-up of government policies in Portugal’ José Bilau, Colin Mason, Tiago Botelho, and Soumodip Sarkar, is published in European Planning Studies and can be found at: http://www.tandfonline.com/doi/full/10.1080/09654313.2017.1328045

Latest News

  News
23 Jul 2021

UEA part of £2.5 million study on links between overlapping long-term health conditions

The links between different long-term health conditions will be explored in new research funded with a £2.5 million grant from the Medical Research Council.

Read more >
  News
21 Jul 2021

The impact of climate change on Kenya's Tana River Basin

Many species within Kenya’s Tana River Basin will be unable to survive if global temperatures continue to rise as they are on track to do – according to new...

Read more >
  News
Jago Cooper
20 Jul 2021

Appointment of new Director of the Sainsbury Centre

UEA and the Board of the Sainsbury Centre have appointed Jago Cooper as the new Director of the Sainsbury Centre and Professor of Art and Archaeology, starting...

Read more >
  News
19 Jul 2021

Global satellite data shows clouds will amplify global heating

A new approach to analyse satellite measurements of Earth’s cloud cover reveals that clouds are very likely to enhance global heating, according to a new...

Read more >
Are you searching for something?
  News
19 Jul 2021

Global satellite data shows clouds will amplify global heating

A new approach to analyse satellite measurements of Earth’s cloud cover reveals that clouds are very likely to enhance global heating, according to a new...

Read more >
  News
19 Jul 2021

Novel coronavirus discovered in British bats

A coronavirus related to the virus that causes Covid-19 in humans has been found in UK horseshoe bats – according to new collaborative research from the...

Read more >
  News
Gabriella Revach delivering a tutoring session
14 Jul 2021

UEA students tutor pupils disadvantaged by the pandemic

Students from the University have been providing tutoring sessions to pupils from across Norfolk.

Read more >
  News
13 Jul 2021

July issue of UEA Chemistry Magazine out now

The July edition yoUr chEm mAg is now available

Read more >
  News
Test tube and swab
08 Jul 2021

New research training programme focused on major health challenges funded in Norwich

The University of East Anglia (UEA) is jointly hosting a new programme training researchers of the future to address major societal health challenges in...

Read more >
  News
08 Jul 2021

Broadcast Journalism Degree achieves industry recognition

The University’s new undergraduate degree course, Broadcast and Multimedia Journalism BA, has been awarded professional accreditation by the Broadcast Journalism...

Read more >
  News
07 Jul 2021

Atmospheric acidity impacts oceanic ecology

Increased acidity in the atmosphere is disrupting the ecological balance of the oceans, according to new research led by the University of East Anglia (UEA).

Read more >