Angels rush in where banks fear to tread as firms struggle for funding

Published on Wednesday 20 January 2010 20:49

ANGEL investors in Scotland have been forced to fill the funding gap caused by banks' continuing resistance to lending to promising high-tech Scottish companies.

Archangel Informal Investments, which supports young, potential high-growth firms with equity funding, has raised almost 1 million in debt for Touch Bionics. The Livingston-based technology firm produces advanced prosthetic upper body limbs for amputees and has been supported by Archangel investors since its inception in 2003.

The debt funding package is a first for Edinburgh-based Archangel. Its chief executive, John Waddell, said the terms of the loan were "tough but fair".

The Scottish Co-investment Fund, which matches angel and private equity investment in Scottish firms, also contributed to the loan.

Waddell said banks were "nervous" about backing young, high-tech companies that export internationally. He said the banks' strict requirements, including personal guarantees from directors, would have proved too much of a "distraction" for management.

Waddell said: "Investors were keen to do it. We raised the money very quickly.

"After having spent time with a large number of banks that operate in Scotland, it became apparent that it was so much distraction for the management that it was easier to get the investors to do it, and they did."

Although Waddell said the investors would consider doing the same for other companies in its portfolio, it was not changing its policy as an equity investor.

"We are not becoming a lending institution," he insisted.

Stuart Mead, chief executive of Touch Bionics, said the lack of bank lending was threatening its growth plans. The loan will fund the launch of its world-beating bionic finger product in the US and the UK.

"The banks are hesitant to provide funding because they're still risk-averse as a result of the financial crisis. This can hamper progress needlessly. It's time for the banks to step up and start supporting profitable fast-growth companies," he said.

Firms such as Archangel and its listed rival Braveheart have tended to provide loans as an interim "bridge" before an equity fundraising has been achieved.

But the Scottish investor community has rejected the notion that private loans could replace bank lending.

Nelson Gray, an angel investor and a non-executive director of angel body LINC Scotland, said: "I wouldn't anticipate that this is a solution to the vast majority of SME funding requirements.

"We still have to keep the pressure on banks and the government to do what I regard as normal lending."