Business angel investment reaches new heights
Business angel syndicates in Scotland participated in deals which invested over £100m in young entrepreneurial companies in the financial year to end March 2020.
This is a record for the business angel syndicates, which are members of LINC Scotland, the national business angel association, and it demonstrates their strong and continuing support of the sector.
David Grahame, director of LINC Scotland, said “Entrepreneurial companies, particularly in the tech and life sciences sector, are a key part of the Scottish economy and especially of its future growth. Even in normal times these high-risk ventures are not suitable for debt financing in their early stages but rely on external equity investment to drive their growth. Much of this is provided by business angel investors, an area in which Scotland has particular strengths.
“LINC Scotland’s members currently support several hundred high-potential companies across most of the priority sectors identified by Scottish Government. Collectively these businesses have created thousands of high-quality jobs, predominantly in Scotland.”
LINC Scotland’s figures show that in the year from April 2019 to March 2020 its member groups invested in 114 deals, raising a total of £103 million for 87 separate companies, a few of which completed more than one investment round in the period. Although most portfolio companies need several follow-on rounds before they can reach profitability or an exit for their investors, the syndicates have continued to make investments in new companies; in the year to end March 2020 these represented 31% of the total number of deals, and 28% of the investment value.
The syndicates usually co-invest with other investors, both to spread their own portfolio interests and to increase the size of investment rounds. In many cases, two or more syndicates join together to co-invest, and in most deals they have co-investment from Scottish Investment Bank funds on a matched funding basis. Over the past year syndicates have also been able to bring in other private investors from a wide range of backgrounds, including venture capital and corporate funds, universities, and early stage specialists such as Foresight and Techstart Ventures, both managing funds under the Scottish Growth Scheme.
The first quarter of 2020 was the busiest quarter of the business year for the angel syndicates, with 30 deals raising £27m investment. Although the coronavirus pandemic may impact angel investing, the syndicates are working with their portfolio companies to help them through the crisis, and remain determined to continue investing in promising start-ups and scaleup businesses in Scotland. The leaders of some of the most active angel groups in Scotland have confirmed this intent:
Niki McKenzie, joint managing director at Archangels (believed to be the oldest business angel investment syndicate in the world), commenting on the syndicate’s investments in four companies in the first quarter of 2020 said “Each of these businesses is a shining example of home-grown Scottish innovation that is succeeding on a worldwide stage. We are both proud and willing to offer our continued support to these businesses as they scale up.
“These are difficult and uncertain times for all of our portfolio companies, but we remain confident that businesses like these – led by change makers and entrepreneurs – will play an important role in driving the Scottish economy forward when the time comes. Archangels remains committed to supporting Scottish businesses and I would encourage any early stage companies in the technology and life sciences space to come and share their ideas and aspirations with us.”
Fraser Lusty, director at Equity Gap, commented “This is a significant milestone for the Scottish angel community and evidences both the buoyancy of early stage investment and the quality of deal flow. Equity Gap continues to invest in new opportunities, as well as providing significant scale up funding to our existing portfolio. In response to coronavirus, we have been working with our portfolio companies to help them identify how to minimise business risk and leverage any opportunities.”
Par Equity’s business angels also had a busy year, as partner Andrew Noble explains: “It’s exciting to be part of a growing tech sector in Scotland and crossing the £100m threshold is an important milestone for the angel investment community. The Par Investor Network is the backbone of our investment activity and collectively it has invested in 19 Scottish companies in the last year alone. One of those leading the charge is portfolio company Current Health – a provider of remote patient monitoring devices – which raised a further £9m in November. We’re delighted with Current Health’s progress and in particular its recent partnership with the Mayo Clinic in the US to predict and identify potential coronavirus cases in patients and health care workers using its AI powered wearable technology. This is an excellent example of home grown Scottish talent, and technology as a force for good.”
Kevin Grainger, chairman of Eos Advisory, added ”At Eos we firmly believe that some of the best early stage Scottish businesses have the potential to make a significant impact on some of the key issues facing the world today, such as healthcare, climate change and food and water security. It is these innovative business that Scotland nurtures so well, and that Eos looks to invest in and support.
“Even in the middle of the current pandemic we take a sustained view with our investments and look for longer term global potential. This is reflected in our current deal flow and we are close to completing our largest investment deal yet, which will be Europe’s first cancer drug accelerator. Whilst all businesses are being affected by the current situation most of our portfolio are coping well and indeed some, such as ILC Therapeutics, have significant opportunities to contribute to the fight against COVID-19. We see these innovative early stage businesses not only as good investments in their own right, but also invaluable to support the growth of high skill jobs and the economy in a world adapting to the pandemic.”
Scott Carnegie, chairman of London & Scottish Investment Partners, looks to the future: “Planning for the uncertainty of what will happen in the next twelve months, and surviving long enough for certainty to emerge, which may be some time, have been crucial parts of the work that London & Scottish Investment Partners have recently been undertaking with our portfolio companies.
“We are pleasantly surprised and impressed that our companies have shown resilience and enterprise to ensure they will come out the other end of this crisis. We look forward to continuing to help and invest in them, and in new cases that will emerge post COVID-19.”