New later stage equity investment raises the ambition

Interview with Kerry Sharp, Director of the Scottish Investment bank

by Alix Mackay MRSC, Life Sciences Marketing Consultant and member of the Industry Leadership Group

If you have a leadership role in one of our high potential SMEs in Scotland, you’ll probably know that cycle of regular fundraising and how much of your time (and your life) it takes up.  And often, the quantities raised mean you can keep the organisation going, but you may find yourself in the same position 12-18 months later, asking for cash to take the business to the next level.  Well, there is an innovative Programme for SMEs in Scotland that is designed specifically to break that pattern; to provide the highest levels of investment (up to £10m) for the most ambitious so they can throw themselves into that long-term growth plan.

And the best bit?  The life sciences sector is an excellent fit for the programme.

The programme has been created, developed and launched by the Scottish Investment Bank (SIB) in partnership with the European Investment Fund (EIF) so I asked Director of the Scottish Investment Bank, Kerry Sharp all about it and why it is relevant to life sciences enterprises.

Raising the Ambition

Scotland enjoys a higher rate of growth than the UK as a whole when it comes to securing Foreign Direct Investment.  Last year, for the first time, over £1 billion of R&D investment was made in Scotland, solidifying its reputation as the most attractive FDI destination in the UK after London. Between 2009 and 2015, Scotland created more than 170 life sciences start-ups and over 60 university spin-outs – more than any other region of the UK.

However, the Scottish Investment Bank identified an opportunity to raise the ambition further.  Kerry explained how SIB recognised that, for the most ambitious enterprises, they needed significantly higher quantities of investment and, as these enterprises began to realise the growth and returns on initial investment, they were caught in a constant cycle of fundraising to raise enough equity to take the next step up.  SIB also recognised that many of these plans could be supported by access to new levels of industry expertise beyond Scotland.

To increase the availability of later stage equity investment to Scottish SMEs, filling that essential high investment, high risk gap in the funding landscape, SIB created the Scottish European Growth Co-Investment Programme.

At least £200m for Scottish Companies

The Scottish European Growth Co-Investment Programme came about due to a new partnership between the Scottish Investment Bank and the European Investment Fund, thanks to funding from the Scottish Government through the Scottish Growth Scheme.  This partnership has created a programme of £200 million; £50 million from SIB and £50 million from the European Investment Fund to be used to leverage at least £100 million from EIF backed Fund Managers into Scottish SMEs.  The European Investment Fund is the EU institution responsible for supporting risk capital markets across Europe.  It invests in private sector fund managers across Europe who in turn invest into all different types of sectors and stage of company.  This programme will support Scottish companies by typically providing up to £10m to match investment by these private sector Fund Managers.

Life Sciences SMEs are an excellent fit

From the start, Life Sciences was a key sector for SIB in developing a later stage equity investment programme.  In fact, the first 10 fund managers they met through this new partnership specialised in life sciences investment. That’s because, firstly, Kerry explained that there is a lot of Venture Capital activity at the moment in life sciences and there are lots of EIF backed VCs operating in our sector.  Secondly, given the importance of the sector to Scotland, and the levels of activity here, life sciences represents a large proportion of not only SIB’s current portfolio but also Scottish Enterprise’s wider activity. Through this experience, they have gained insight into life sciences investors which enables SIB to give good guidance throughout the process.  And finally, this new partnership with the European Investment Fund will facilitate further networks in life sciences in London and throughout wider Europe.

SIB will support you throughout the process

Talking to Kerry, it became really clear that the role of the SIB was above and beyond the capital investment available; they will support you from the start in being ready and prepared to take on the type of capital available through this Programme, finding the right investors for you and making the introductions.  Through their partnership with the European Investment Fund and their previous experience, SIB has identified the VCs with the biggest appetite for investing in the UK and Scotland have a refined, target list of investors with whom SIB has built a relationship and understanding of the types of companies in which they aim to invest.  This means they can guide you through the process and provide relevant insight into the investment interests of the fund managers.

Factors critical to successful applications

I asked Kerry what the European investors were looking for in a company applying for this funding.  Whilst each investor will have their own niches and areas of particular focus, there are common expectations amongst investors.   She said one of the most important things was the management team and their growth plans; their belief in the business, their technical insight, their track record and how they present the case for investment.  All this needs to be demonstrated in a robust business plan that can be pitched well.  They are also looking for ambition; a team that wants to be global and will welcome additional expertise and external support.

The ability to succinctly articulate the unmet need in a market and how the business will address this in a way that adds real value to the customer in a short “teaser” style document is a very important discipline.  This is something SIB can help with. Kerry also said it’s those companies that devote the time to the process and listen to the feedback throughout that create the best opportunities for success for themselves.

First steps

You can read more about the programme on the SE website. Kerry acknowledged that this sort of programme may seem daunting at first so she said the first step is to speak to an SIB investment specialist at the earliest stage.  This can be organised by submitting an enquiry online, emailing, telephoning 0300 013 3385 or through your Scottish Enterprise or Highlands and Islands Enterprise Account Manager.

The timescale involved in the programme really depends on the investor in question and their own decision making process but based on experience to date, Kerry anticipated that, for those companies with the right materials ready to go (such as business plan and slide deck) the process could take as little as 3-6 months from SIB making the first introduction.  And no matter how far a company progresses through the programme, there is a great deal of feedback and insight to be gained and, as a result, Kerry commented that she is yet to find a company that did not find the process beneficial.

The Scottish Investment Bank

Kerry Sharp is Director of the Scottish Investment Bank (SIB), the investment arm of Scotland’s main economic development agency, Scottish Enterprise, working in partnership with Highland and Islands Enterprise.

SIB’s role is to grow Scotland’s private sector risk capital market, ensuring both early stage and established SME’s with growth and exporting potential have adequate access to growth capital to reach their full potential, through working in partnership with private sector investors

Kerry leads a team responsible for SE’s direct investment activities, fund investment, portfolio management, market intelligence and research, and provision of financial readiness support to companies to help them access the most appropriate growth finance.

As well as operating the Scottish-European Growth Co-Investment Programme, SIB directly manages three funds – the Scottish Co-Investment Fund, the Scottish Venture Fund and the Energy Investment Fund; has invested in two externally managed funds – Epidarex Capital’s Life Sciences Fund and the Scottish Loan Fund (now closed to new investments), which is privately managed by Maven Capital Partners.

Further resources:

Scottish Enterprise Funding and Grants

EY Scottish Attractiveness Survey 2018

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Life Sciences Scotland Insight via Twitter and LinkedIn