Individual investors are spreading their wings

Published on Wednesday 18 October 2006 00:57

SCOTLAND'S angel investors are flying high. Growing numbers of high net-worth individuals are investing risk capital directly into early-stage businesses, encouraged by generous tax breaks and the promise of attractive returns.

LINC Scotland, the national business angel association for Scotland, has seen its membership base grow from a handful of informal investors 13 years ago to 15 angel syndicates and individual investors, including TRI Capital and Ashleybank Investments in the Borders, Barwell in Glasgow, Aurora Private Equity in Aberdeen and Braveheart Ventures in Perth as well as Archangel Investments in Edinburgh.

David Grahame, LINC Scotland chief executive, said the three months to June 2006 had been the network's busiest ever quarter since it was formed in 1993, with members investing 2.55 million of their own money into 19 deals, helping to leverage a further 2.9m from other investors.

"The first half of the calendar year has been very good and the scene is fairly active," Grahame said. "Generally I think angels are in demand because there's a lack of funding from other sources, such as mid-ranking venture capitalists. The only syndicate investing flat out in life sciences is Archangel, but the rest are extremely diverse, astonishingly so, although there's still a tendency towards technology.

"I think the growing number of investors does contribute to deal numbers. Sometimes supply creates demand. We now have 15 angel syndicates active in the LINC network and the fact that they're on the scene means that people go to them."

About 100 angel syndicates and an unknown number of private individuals across the UK invest an estimated 1 billion a year in young companies. Under the government's recently extended Enterprise Investment Scheme, these angels can now claim 20 per cent tax relief on investments of up to 400,000 a year into eligible unquoted companies.

The Chancellor recently doubled this investment ceiling from 200,000 to encourage investment in early-stage businesses. The 45m Scottish Co-investment Fund, set up by Scottish Enterprise in 2003 and part-funded by the European Regional Development Fund, has also offered to match funding of between 50,000 and 500,000 in deals of up to 2 million, although it is now reaching the end of its investment cycle.

The TRI Capital Investments syndicate, with about 40 members, has done six to seven deals in the last 18 months worth up to 2m. Chairman Rob Dick said: "We're busy because an extraordinary number of proposals come our way from people like LINC and Scottish Enterprise and other connections.

"I think it's very exciting to see so many small and start-up businesses coming forward looking for funding, some of them with very bright and creative people involved. I think that has to be a great strength - hopefully for the local Borders economy but also for the Scottish economy."

Recent research from Library House, the research firm run by former BBC Dragons' Den star Doug Richards, shows Scotland has 54 venture-backed businesses per million people - more than any other region of the UK.