The geography of business angel investments in the UK: Does local bias (still) matter?

Abstract

Business angels (BAs) - high net worth individuals who provide informal risk capital to firms - are seen as important providers of entrepreneurial finance. Theory and conventional wisdom suggest that the need for face-to-face interaction will ensure angels will have a strong predilection for local investments. We empirically test this assumption using a large representative survey of UK BAs. Our results show local bias is less common than previously thought with only one quarter of total investments made locally. However, we also show pronounced regional disparities, with investment activity dominated by BAs in London and Southern England. In these locations there is a stronger propensity for localised investment patterns mediated by the ‘thick’ nature of the informal risk capital market. Together these trends further reinforce and exacerbate the disparities evident in the UK’s financial system. The findings make an important contribution to the literature and public policy debates on the uneven nature of financial markets for sources of entrepreneurial finance.

Promoting cross-border investing by business angels in the European Union

“…Experienced business angels are also likely to have more geographically dispersed networks, hence their deal flow will have a significant non-local component and they will know individuals in various locations with whom they trust to undertake the due diligence and post-investment monitoring and can co-invest with them. Cowling et al (2021) present evidence that more experienced investors are much more willing to invest at a distance.…”

“…Business angels generally only look for distant investments after local investment opportunities have been exhausted (Gvetadze et al, 2020). Investors in major centres of economic activity are therefore more likely to invest locally on account of the much denser and richer investment opportunities available in such locations (Cowling et al, 2021;Harrison et al, 2010). In Sweden 75-80% of the angel investment that originates in metropolitan regions is invested locally.…”