INVESTMENTS by Scotland’s business angels could be generating as much as £100 million annually for the country’s economy, a new study has suggested.
A major review of the country’s longest-established angel syndicate, Archangels, has found that every £1 put into its portfolio of companies results in a contribution of between £7.08 and £8.94 to the country’s gross value added (GVA). In addition, Archangels’ companies have generated an estimated £1.3 billion of turnover since 1992, a multiple of 14.34 for every pound invested.
The study’s co-author, Dr Niall MacKenzie of Strathclyde University’s Hunter Centre for Entrepreneurship, said that multiple is more than double the average of the US venture capital community, where there is a return of $6.27 for every $1 invested. This out-performance is likely to be as a result of Archangels’ 23-year history in the sector, giving it the experience to avoid certain pitfalls.
“The results of this study underline the significant contributions Archangels makes to Scottish company growth, regional competitiveness and economic development,” MacKenzie said.
“Our findings should be of particular interest to policy-makers and others seeking to better understand the economic impact arising from early stage investment.”
He hopes to extend the research with data from other angel syndicates, but at this point estimates that Archangels outperforms the rest of the Scottish sector by about 30 per cent.
During the past five years, Scottish angels and angel groups within the LINC Scotland network have invested between £14m and £17m annually. Applying the 30 per cent discount, this suggests the sector supports up to £106m of GVA per year to the Scottish economy.
Again applying the discount, companies backed by Scotland’s business angels appear to be generating annual turnover of £140m to £170m.
Mike Rutterford, co-founder of Archangels, said he was surprised by some of the findings within the study. Chief among these was the discovery that although 44 per cent of the companies backed by Archangels have gone bust, they accounted for only 14.9 per cent of cash invested. “That is quite an arresting statistic,” Rutterford said. “I can assure you it felt like much more at the time.”
Archangels only invests in Scottish-based companies, 80 of which have received a total of £90m since the group was set up. This has leveraged an additional £27m from Scottish Enterprise through its Co-Investment and Venture funds.
Archangels companies have created nearly 3,000 jobs to date, and of the 18 from which Archangels has exited, 12 remain in Scotland, three have moved overseas and three subsequently dissolved. Those that stayed in Scotland continued to build on the original investment, generating further revenues of £587m and creating an additional 240 jobs since Archangels sold.
Speaking at University of Strathclyde’s Technology and Innovation Centre, where the results of the study were unveiled, Deputy First Minister John Swinney said Archangels has done “tremendous work” in guiding government initiatives to increase support for start-up firms.