Adam Smith Business School

The onset of the coronavirus pandemic in early 2020 raised concerns that it would result in a collapse in business angel investing causing the loss of an entire generation of early-stage companies.

However, evidence gathered from a range of countries – including Scotland, Ireland, Canada and the USA – show that angel investing has been remarkably resilient according to research carried out by Professor Colin Mason at the University of Glasgow Adam Smith Business School. Investment did drop from Q2 to Q3 2020 but rebounded in Q4 and into 2021, with angel investment activity exceeding pre-Covid levels.

Commenting on the findings, Professor Mason says: “We anticipated that angels would stop investing because of uncertainty about the effect of the pandemic on stock markets and other financial assets, most notably property. We thought early-stage business investors would conserve their cash to be able to support their existing investee companies rather than make new investments.

“The evidence that emerged in the spring and summer of 2020 largely confirmed these fears. Then investment rebounded and we wanted to explain this resilience.”

Key findings

• Business Angel confidence increased as the vaccine programme gathered pace. Businesses which in spring and summer 2020 were unsure what would be the impact of covid on their business and so could not tell a 12-to-18 month funding story, had by the autumn a clearer line of sight of the direction in which they could go.

• Business Angels began to see more deals as investment pitching moved online. Both angels and angel groups had also learned how to do pitching and due diligence online had become more accustomed to the digital environment for connecting with people and more comfortable in investing in people that they had never met.

• The shift to digital also provided more opportunities for collaboration and syndication of investments. By removing many of the geographical barriers to investment, online pitching has enabled angels to expand the geographical range of their investments.

Tenyks is a spin-out from the University of Cambridge. CEO Dr Botty Dimanov has experience in online and in-person pitching to business angels.

“We have used both methods of pitching to great effect,” says Dr Dimanov. “Online meetings allow me to fit several pitches into a week and frees up time for preparation and rehearsing. I can present using two or three monitors, and it feels more like having an open and honest discussion with a friend rather than the more constrained formality of facing a panel of judges across a Board table.

“That said, in-person pitches allow you to use more of your emotional intelligence. You can build rapport much faster. You can mirror people more effectively, and they will notice it. For example, subtle cues such as the position of their arms, legs and bodies are difficult to detect on a Zoom call. However, these observations can be used to sense the energy of the room, identify sceptics and warm them up by transferring the desired emotional state. You can gauge people's engagement and see whether they use their phones or get distracted and can call them out. You earn their respect this way.”

Professor Mason adds that business angels are also influenced by the entrepreneur’s body language, notably the use of gestures and facial expressions of emotion. One angel group manager commented that, ‘we invest in the entrepreneur presenters so reading their body language and how they respond to questions is critical’. A prominent Canadian investor added, ‘taking pitches over a zoom call doesn’t really replace that face-to-face contact.’

The research shows how the proportion of long-distance investments has increased, weakening the local focus of angel investing. This raises the possibility that angel investment will increasingly flow from smaller and less economically developed regions to large city-regions.

Professor Mason continues: “Syndicated investments with other angels in response to the challenge of investing in entrepreneurs that they have never met, have led to larger deal sizes and investments in businesses that have already raised a round of finance. This has implications for the ability of entrepreneurs seeking a small initial funding round and those who are not well- enough connected to raise funding.

“Whether angel investing continues online is unclear. Most anticipate that they will move to a hybrid format for pitch events, but some fear the impact of ‘Zoom fatigue’ on willingness to engage. This desire amongst many business angels to return to in-person events may be driven as much by the desire to interact in-person with other group members as the attraction of live pitching.”

 

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Enquiries: Clairelouise.smith@glasgow.ac.uk 

First published: 29 March 2022