The European Investment Fund releases “The Business Angel portfolio under the European Angels Fund: An empirical analysis”

March, 2, 2020

The European Investment Fund – EIF (INSME Member), which is the Europe’s leading finance provider for small and medium sized enterprises (SMEs), has the mission to facilitate their access to finance and support innovation, research and development, entrepreneurship, growth, and employment.

In this framework, EIF promoted the European Angels Fund (EAF), which provides equity to Business Angels and other non-institutional investors for the financing of innovative companies in the form of co-investments. The European Angels Fund (EAF), in fact, engages co-investment relationships with business angels all over Europe that are likely to be more experienced and wealthier compared to the average Business Angels.

The purpose of the paper is to analyze this specific portfolio of Business Angel (BA), since the financing provided by them are vital especially at the early stage for highly innovative companies.
The enlightenment of the Business Angels working logic is important since it can help policy makers to better address their efforts to design a tailor-made policy tool to promote this crucial segment and help the increasing of capital availability for SMEs. The use of EAF’s database for this research is very relevant also because it contains information of nearly 500 investments made by more than 100 European BAs choose to be involved in a co-investment agreement with the EAF.

BAs can be considered as an informal Venture Capital that can directly invests part of their personal assets or invest them as a part of an organization where a one angel takes the leading role. BAs structure make them avoid the problems related to the investee-investor relationship, that often can find resistances especially towards innovation financing investments. Considering this, they also follow a more personalized approach that let them work better with the youngest and smallest of SMEs.
In general, the preferred targets of BA are the innovative high-tech start-ups, especially if qualified in the field of Finance (Fintech) and services (Retail) and most of the time the co-investment of these BA are strictly related to the achievement of policy targets.

Another characteristic of BA investment is the localness, that they prefer, in fact, to invest locally, since they are more familiar with the business environment in their immediate surrounding and also the sector of investment is closely related to their area od studies.

Finally, the analysis examines the growth after two years having received the EAF co-investment.

The indicators took into considerations are employment, total assets and turnover, for all of them the results were positive. If on one side we stressed the importance of BA to fill the lack of funds left by the Venture Capitals, on the other side the target choose by the BAs are especially the smaller companies that represent also the most vulnerable segment of the SME population: young, highly innovative start-up companies that operate on the cutting-edge of their respective technology fields.

Read more here.

Source: EIF - The European Investment Fund

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