Skip to main content

ARCHANGELS - LEARNING LESSONS IN INFORMAL INVESTMENT FUNDING FROM SCOTLAND

I have been very fortunate in my career to work with some brilliant young academics who have gone to make a real impact in their field.

One of these is Dr Niall Mackenzie, who joined the University of Wales from Cambridge University five years ago before leaving to go back home to a lectureship at the Hunter Centre for Entrepreneurship at Strathclyde University.

Niall has been undertaking a number of research studies since he arrived back in Glasgow and possibly one of the most influential has been his analysis of the performance of Archangels, Scotland’s oldest business angel group.

Business angels – those private individuals investing in unquoted companies - have received growing attention and recognition for their activities in the UK in the last 25 years. Their investments typically involve receiving equity that is reduced with further rounds of financing for investee companies.

As would be expected with such transactions, angel investment involves a risk of failure but the promise of ‘winning big’ on a minority of deals is one of the drivers which convince angels that such risks are worth taking. In fact, research shows that around 9 per cent of deals generate ten times the original investment and these ‘holy grails’ are what drives many angels to invest in fledgling ventures.

Angel groups are formed when business angels come together to jointly invest in new businesses. These groups have been responsible for ensuring that Scotland possesses a highly developed and active business angel environment that is now embedded into the Scottish entrepreneurial ecosystem.

Since Archangels was established as the first group of Scottish business angels back in 1992, the industry in Scotland has developed rapidly with more than 1100 active single investors and around 20 different groupings of angels currently engaged in supporting early stage businesses.

It could be argued that this growth has been largely driven by the fact that the UK has the most favourable tax benefits for angel investors in Europe via initiatives such as the Enterprise Investment Scheme which offers significant tax benefits for high net worth individuals to invest in businesses.
Yet this in itself does not in itself explain why angel investment in Scotland has grown at a far higher rate than many other parts of the UK including Wales.

Some have suggested that this is largely due to the creation of LINC Scotland as the national association of business angels in 1993 and its support in establishing and supporting new angel groups.

Others point to the ongoing close relationship LINC Scotland has with Scottish Enterprise (the Caledonian equivalent of the Welsh Development Agency) which has helped improve awareness of, and support for, angel activities. More importantly, angel investment has come to be seen as critical part of business support, something which is certainly not the case here in Wales.

Finally, the creation in 2002 of the Scottish Co-Investment Fund (SCF) to provide matched funding of up to 50 per cent to business angels investments has also encouraged the industry.

Not surprisingly, this growth of angel groups in Scotland has resulted in a growing number of investments in new ventures and between 2000-2014, LINC Scotland members did a cumulative total of 854 deals with a total value of £274 million invested i.e. an average of around £18m invested in an average of 57 companies per year.

Of these, Archangels is seen as the driver of the angel industry in Scotland and its role in supporting early stage, high-risk companies was critical in persuading Scottish policymakers to support angel investors in Scotland in order to ensure innovative companies were given every opportunity to survive, thrive and grow. In fact Archangels is the longest, continuously operating angel syndicate in the world and has managed £92m of investments on behalf of over 200 investors into 80 companies across Scotland.

Indeed, Archangels pioneering role’ has resulted in the creation of a number of high-impact Scottish technology companies that are active in the global marketplace and contributing significantly to Scottish economic growth. In contrast, Angel funding from xénos – the business angel network owned by Finance Wales - remains stuck at around £2 million per annum. This is well behind what is happening in Scotland and significantly below what would be expected in our economy.

Certainly, the public-private partnering in supporting early stage, high-growth potential companies by business angel groups has made a major contribution to the Scottish economy and we could do worse than looking closely at how organisations such as Archangels have helped to create a vibrant and enterprising economy in Scotland.

Popular posts from this blog

THE CRACHACH

Unlike me, do you consider yourself part of 'the establishment' here in Wales?  As thousands gather for the Eisteddfod in Mold this morning, they will, according to some social commentators, not be participating in the greatest cultural festivals of Europe. Instead, they will merely be bit-part players in one of the annual gatherings of the great and good of Wales.  Unkindly, this set of the movers and shakers in Welsh society is known as 'the crachach' , and constitute a social class all of their own, dominating the educational, cultural and media sectors of Wales and allegedly looking down upon any outsider with new ideas, reinforcing mediocrity and failing to see beyond the limits of their own narrow experience.  They are said to live in a comfort zone that awaits the expected invitation to the next glass of chilled chardonnay and canapés, forgetting that due to their lack of leadership and drive, Wales remains firmly rooted to the bottom of the UK prosperity league ...

THE FUTURE FOR SILICON VALLEY

During the last twenty years, there have been many academics, politicians and policymakers (including yours truly) who have looked over to the innovation developed in Silicon Valley, California and wondered if we could ever emulate that success here in Wales. Whilst the former First Minister Rhodri Morgan proposed only last week that South Wales could become the “UK’s answer to Silicon Valley”, he is not alone in the world with such a suggestion for his local area. With imitation often being the sincerest form of flattery, many others regions across the globe have tried to emulate the ‘secret sauce’ that has led to this small valley to the South East of San Francisco becoming the seedbed for world-leading companies such as Hewlett-Packard, Apple and Google. But after fifty years of success, can it maintain its position as the premier location for innovation in the World? This is a question that its own business community has recently been asking itself. This has culminated in a...

MYOPIA AND ENTROPY

Over the next month, this blog will look very carefully at some of the new policies developed as part of the Economic Renewal Programme (ERP) launched by the Welsh Assembly Government (WAG) last week. Hopefully, it will help to start a debate on whether this is the right approach to turn around the Welsh economy and to drag us from the bottom of the UK’s prosperity league table. I will start by examining the decision to abolish International Business Wales (IBW), the Assembly’s overseas investment arm that was responsible for attracting business into Wales as well as promoting Welsh business abroad. Some will say that this decision to close down the last remnant of the old Welsh Development Agency was justified by the outcomes of last October’s review of IBW by Glenn Massey, the former inward investment specialist. However, if you bother reading the Massey report in detail, it actually has little evidence to suggest that the division was doing badly. If we examine IBW’s record on new j...