The role of government co-investment funds in the supply of entrepreneurial finance: An assessment of the early operation of the UK Angel Co-investment Fund

Abstract

Co-investment funds -which invest alongside private investors, especially business angelsthereby leveraging their networks and experience and minimizing public sector transaction costs -are a recent approach by governments in various countries to address the early stage entrepreneurial funding gap which is perceived as a barrier to the ability of firms to scale-up. However, little literature exists on their operation, impact and effectiveness. This paper assesses the early operation of the UK's Angel Co-investment Fund, established in 2011. Interview evidence from angels and business managers suggests that the Angel Co-investment Fund is improving the availability of finance by enabling firms to raise funding rounds of between »500,000 and »2 m, hence addressing some aspects of the broken finance escalator model. However, our evidence suggests that it is not yet impacting the supply side, either in terms of stimulating the formation of new angel groups or enhancing learning amongst less experienced angels. Some aspects of the operation of the investment process have attracted criticism from angels and entrepreneurs which need to be addressed. Nevertheless, there is sufficient evidence for positive impact to justify the scheme's expansion.

Identifying the impact of external environment on business angel activity

“…Examples of good practice include targeted tax schemes, establishing of public venture capital funds addressing the lack of seed and start-up capital, and training programmes for prospective investors (for best practices from other countries, see e.g. Bonini et al, 2018;Owen & Mason, 2017). In the Czech Republic, the priority, however, should be given to establishing and developing a private angel market because direct funding is likely to fail without effective informal VC market structures (see also 'Policy Recommendations' in the World Bank Group Study, 2018).…”

Emerging trends in government venture capital policies in smaller peripheral economies: Lessons from Finland, New Zealand, and Estonia

“…Where angel network seed investing is established, one way in which the ensuing series A‐B finance gap can be at least partially addressed, is through government angel co‐financing program. The success of the U.K. Angel Co‐investment Fund established in 2013 (Owen (Baldock) & Mason, ) has led to a similar European Investment Fund (EIF) European Angel Fund which match‐funds angel syndicate investments to generate more substantial early stage venture funding. In 2017, Finland established a 30m Euro joint Tekes‐EIF funded European Angel Fund to enable angel investment to address its growing series A‐B finance gap.…”

Enabling investment for the transition to a low carbon economy: government policy to finance early stage green innovation

“…This is more likely to occur when low carbon innovations are closer to the market and have clearer commercial potential (Olmos et al, 2012; . For example, the UK Government Angel Co-investment Fund supporting angel syndicates can still struggle to raise large-scale follow-on funding rounds, particularly for capital intensive longer horizon green businesses (Baldock and Mason, 2016).…”