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Business angels most effective in strategic development role, says Newcastle Business School study

Business angels can have the biggest impact on their investee company when they help shape its strategic direction, according to a new study published by Newcastle Business School at Northumbria University.

Stephanie Macht, a researcher in small business strategy, has surveyed 71 angels about their post-investment involvement and found that activities such as formulating strategies impact most positively upon investees’ success. The study also concluded that becoming an employee or a member of the company’s management team had the least positive effect.

Despite the widely acknowledged importance of business angels to UK small firms, little was previously known about their involvement and impact after they have invested. Miss Macht said she hoped her study would shed light on how growing companies can best work with their angels. “Although two thirds of business angels said that gaining return on investment was important to them, more than half also said that the enjoyment of supporting the entrepreneur through their knowledge, skills and network of contacts was a strong motivation for investment,” she said. “Using angels’ expertise and enthusiasm to advise the company strategically is clearly the best use of their time as opposed to getting them involved in day-to-day matters.” On average angels spend one day a week in their investee company, the report said.

Seventy two per cent of business angels questioned for the study had both founded and owned a small business before, but only 32 per cent stayed within industries in which they had prior work experience. Only a quarter of responding angels had ever received some kind of formal training or mentoring.

One business angel involved in the study was Tony Douglas, who has been investing in North-East companies for a decade. Having spent 10 years in his own defence and image analysis company, Joyce-Loebl Ltd, Mr Douglas sold up and joined a business investors group. He has invested in a total of 17 businesses including a music venue, magazine publisher and translation company, but only two have reflected his own expertise in electronics engineering. His latest pursuit is Current Thinking, where his angels group has invested £100,000, and he has recently taken on an executive role. “Typically I’m looking to double my money in three years, or gain a higher return over five years,” he said. “On average this happens in one or two out of every 10 investments and between four and six fail altogether.”

Mr Douglas said the Newcastle Business School at Northumbria University findings mirrored his own contribution. “Like any investor I want to make money, but I like to think I bring a lot more to the table including sales ability, knowledge of the market and a sympathetic ear,” he explained. “Not everyone can be a managing director, but angels are hired on the assumption that they have been successful in running their own business and know how to make money. That’s why involvement in strategic development is a must for any business angel in a young or growing company.”

Phil Smith | alfa
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