TWO of Scotland’s best-known business angels are setting up an investment fund to inject money into later-stage companies that have lost steam during the recession.
Scott Carnegie and Nelson Gray have assembled a syndicate of 20 investors, who will together pump £3 million a year into businesses in return for minority equity stakes.
Their London & Scottish Investment Partners (LSIP) vehicle is made up of fellow business angels, high net-worth individuals and financiers from the south-east of England, including stockbrokers.
LSIP will focus on Scotland but will also look at businesses in other parts of the UK.
The syndicate will investment in sectors traditionally targeted by business angels – such as food and drink, life sciences, manufacturing and technology – but aims to fund later-stage companies rather than start-ups.
Carnegie, who founded the Discovery Investment Fund, will act as chairman of LSIP, while Gray – who is the special projects director at Scottish business angel trade body Linc – will be its vice-chairman.
The investors expect to meet for the first time in August and then every six weeks or so to consider their next deals.
Carnegie told Scotland on Sunday: “We’ll be looking at management buyouts, family businesses that are looking at succession planning and also ‘becalmed’ businesses that have good ideas and inventions but may need fresh cash to get them going again.
“But we won’t be a distressed assets fund and we won’t primarily be looking at insolvent businesses or ones in very complicated situations.”
Carnegie said he had founded LSIP based on demand from fellow business angels, who were looking for later-stage companies in which they could invest and see returns more quickly.
“We hope to also bring in other funding from sources such as Santander’s breakthrough fund and other bank mezzanine funds,” he added.
LSIP will invest between £300,000 and £500,000 in about six companies each year, with Carnegie expecting the “sweet spot” to be in firms that turn over between £500,000 and £10m. Carnegie said pitches did not have to be “investment ready” as he anticipated his members helping managers to shape strategies.
He said LSIP wouldn’t take majority stakes in businesses but would work with other shareholders to form working majorities. Equity rather than debt funding has been promoted by figures including Business Secretary Vince Cable since the 2008 financial crisis and double-dip recession.
The £2.5 billion Business Growth Fund – set up by the British Bankers’ Association with Barclays, HSBC, Lloyds, RBS and Standard Chartered – uses a similar model but on a larger scale, investing £2m to £10m in firms turning over £5m to £100m.
Carnegie says he thinks the popularity of equity funding is due to the lack of available debt funding, rather than a shift in attitudes within the business community.