Investment Policies and Behavior of Italian Business Angels: an Empirical Analysis

The history of incentives implemented to aid the operations of business angels is relatively short. The first attempts were undertaken in the United Kingdom in the early 1990’s and other western European countries followed by the end of that decade (Aernoudt, San Josè and Roure 2007). The following paragraphs examples of some of the measures currently in place in Europe. The first established approach to incentive angel investments is that of fiscal benefits. The rationale for such incentives lays with the assumption that an improvement or the worsening of taxation on investments will result in increasing or decreasing the appeal of the activity of informal venture capitalists (Harrison and Mason 1999).

Regarding Tax reliefs the UK has in place the “Enterprise Investment Scheme” (EIS) which allows an investor, which holds 30% or less of the shares in an unlisted company which is qualified for being part of EIS, to reduce his income tax liability up to 30% of the amount investment. The investment has to be held for at least three years and the maximum deductable amount in any given year is equal to £1,000,000. Furthermore no capital gain tax applies to the sale of such shares if they are sold after three years and in case the shares are sold at a loss at any given time, part of the loss can be deducted from taxable income of the investor (Enterprise Investment Scheme Association). On April 6th2012 also the “Seed Enterprise Investment Scheme” (SEIS) was launched with the aim of supporting companies in an earlier stage than the EIS. The SEIS operates in a very similar way to the EIS except that under the SEIS regime a company can receive only £ 150,000 and investors can deduct 50% of their investment for a maximum of £ 100,000 (www.seis.co.uk).

In France instead, policy makers have implemented a new vehicle, the “Societè Unipersonelle d’Investissements à Risque” (SUIR) which can be translated in English as “Individual Company for Risk Capital Investments” (Aernoudt, San Josè and Roure 2007). The SUIR is a one person company which allows to have tax exemptions on all capital gains and revenue streams gathered from investments performed through the SUIR. In order to eligible for tax breaks the SUIR must hold no less that 5% and no more than 20% of shares in companies that meet certain requirements, like for example being unquoted, being EU based and being less than 5 year old etc. In the Netherlands investors can give loans to unlisted companies who are less than 8 years old for a maximum of € 225,000 with an interest rate that is 5% lower than the long term average rate and all the interest income received is tax free (Aernoudt, San Josè and Roure 2007). This allows companies to finance themselves at a low rate and the same time allow for investors to achieve good returns on their investments.

Apart from tax benefits, the most recent method of increasing the attractiveness of informal venture capital investments is through “co-investment schemes”. In these kinds of programs the public sector matches the investment of a business angel with equity, with some form of loan or a mixture of the two (Aernoudt, San Josè and Roure 2007). One example of a co-investment fund is the “European Angels Fund” (EAF) which is managed by the “European Investment Fund”. The European Angels Fund enters in long term contracts with Business Angels granting a predefined amount of equity for co-investments upfront to each Business Angel that will be used in future investments. All investment decisions will be taken by the business angel and the monetary amounts of each individual contract lie between a minimum of € 250,000 to a maximum of € 5 million. The individuals that qualify for these programs must have a positive track record of successful investments in a targeted investment area and the companies that are eligible to be financed have to be innovative small and medium enterprises. For the time being this program is only active in Germany and Spain however the goal for the future is to extend the plan to every country in the European union (www.eif.org). Programs similar to the European Angels Fund are present in Belgium, UK, Scotland and Germany (Aernoudt, San Josè and Roure 2007).