The government may have it in for philanthropy, but it's taking a surprisingly helpful approach to something else those tax-dodging wealthy people want to do with their money: angel investing
by Josh Spero
The government may have it in for philanthropy, but it's taking a surprisingly helpful approach to something else those tax-dodging wealthy people want to do with their money: angel investing.
On Tuesday, straight after Nick Hurd's Giving Summit press briefing, I went to the offices of PlayJam on Old Street, part of Tech City UK, a technology cluster from Clerkenwell to Stratford. (Its hub is Silicon Roundabout, around Old Street Tube.)
PlayJam has developed a social games network for television, so you can play family-friendly games through your smart TV against others around the world. The games include simple Tetris-style ones, interactive general knowledge competitions and more advanced racing games. Competing with expensive consoles by Nintendo and Sony, PlayJam comes with your new TV and can be played with your remote.
The event at their offices was to celebrate the first investments made by the Angel CoFund, which has £50 million of government money to invest alongside business angels. Angels find the companies, do the research and due diligence and then commit their own money; then they can approach the government. PlayJam received £500,000 after angels had raised £1.75 million. In total, £7.2 million has been awarded by the Angel CoFund to five companies.
George Whitehead of Octopus Venture Partners, an angel-investing network, is the chairman of the Angel CoFund and said that the companies the fund would invest in had global ambition and significant growth potential: 'The whole point of the co-fund is a simple one: getting government cash, targeting it towards some of the best, most entrepreneurial, most talented opportunities this country has to offer.' With an average IRR to angel investors of 22 per cent, according to NESTA, Whitehead said these could be lucrative opportunities.
The second ministerial encounter on Tuesday was a lot happier. Business and Enterprise minister Mark Prisk MP seemed in a jolly mood as he spoke of the advantages of angel investing, which included not just the money but the expertise of entrepreneurial backers. 'That combination of the inventor, the investor, the entrepreneur is becoming something of a natural ecosystem,' he said.
It was left to Richard Hargreaves, an angel investor into PlayJam, to sound a serious note: angel investing was needed because venture capital had dried up. 'A business angel is nowadays for investments under £2 million in this country the single most important source of capital. Forget venture capital – it’s business angels.' His words about these companies being 'at the heart of the generation of innovation and economic growth' would have been honeyed to Mr Prisk's ears.
He also stressed how difficult angel investing was, hence the importance of having the government standing beside you: 'Putting together syndicates of angel investors is extremely hard. My colleagues and I since 2006 have raised £35 million of angel money into 25 or so deals. That has not been easy to achieve. For us, the initiative of the co-fund is hugely significant and welcome because it’s a facilitator. It’s a facilitator to do something we’re doing anyway – it just makes it easier.'
The government has tried many times to be a venture capitalist, he added, but public sector funds had never been as 'professional, pragmatic and personable' as the Angel CoFund.
When I asked Mark Prisk whether angel investing was letting the banks off the hook – shouldn't they be providing credit to small businesses? – he said access to finance should be improved, but it shouldn't be the only thing: 'We need to wean ourselves off the high dependence we’ve had in the past of focusing on loans and debt. The point about business angels is that it’s a small proportion if you think about it in total in terms of investment, £75 billion lent last year. What I want to make sure is that there’s much more choice for businesses within the lending market but also with angels, VC and so on.'
This is a frank and useful admission: banks are not helping, so a separate industry needs to arise. If the Angel CoFund's projects are successful, perhaps the government will see its way towards kicking in a little more cash.