Angels turn bankers to aid finances of fledgling firms

Published on Saturday 6 February 2010 15:44

WEALTHY Scots have had to step in and act as bankers to fledgling firms, dishing out more than £1 million over the past 12 months that would normally have been provided by overdrafts or loans.

New research has revealed the business angels – rich individuals who take a gamble on start-up companies – have found themselves in the unusual position of providing debt funding to keep promising young firms afloat.

David Grahame, chief executive of angel investors' trade body Linc Scotland, said business angels were used to injecting two or three rounds of investment into early stage firms in return for an equity stake. But Linc's research found they have also recently found themselves having to act as debt providers when companies have been refused overdrafts or bank loans.

Although the banks say they are now lending as normal, Grahame said fledgling firms north of the Border were still struggling to gain financial backing from traditional sources.

He said: "We invest in pre-revenue companies, so it's perfectly normal that they don't get banking funding in the early stages. Angels typically put in two or three rounds of investment until the firms get traction in the market or get sales in the US, for example, but last year we saw several companies that had received five or six rounds of angel funding and still the banks said no. These are not basket cases, they are good propositions in our view so the angels step in."

Scottish business angels collectively invested 11m in fledgling firms last year, 1.4m less than in 2008. In total, they made 71 deals last year, one less than in 2008.