Ahead of the 2017 Engage Invest Exploit (EIE) investor showcase at the Edinburgh International Conference Centre, three industry experts explain why the time is right to back the growing tech sector.
With the likes of FanDuel and Skyscanner having won headlines in the past year for winning major international investment, it could be claimed Scotland’s tech sector has never appeared more attractive to potential investors.
But whether you’re an industry veteran or a relative newcomer, there are a few important pointers to remember before taking the plunge.
“Don’t just invest in one firm - the best strategy is to spread your investment over several companies,” said Dr Colin Adams, director of commercialisation at Edinburgh University’s school of informatics from 2006-2016.
“That way, you might have a couple of losers but also a couple of good winners.”
Speaking to others can be key. There’s no need to fly solo. “There are lots of people who can advise you, and lots of others to invest alongside,” Dr Adams continued.
Angel syndicates offer the best bet for first-time investors. Scotland has the advantage of a thriving business angel community, with investors pumping a record £26 million into 31 start-up companies in 2014, helping to push the total amount of risk capital invested in Scotland up to £244m.
“Small scale investors should definitely look to join an angel syndicate,” said Ian Ritchie, a serial technology entrepreneur based in Edinburgh.
“There’s a lot of them around - they can introduce you to many different people.
“These are the guys that do know more about the industry and have a track record of success. They offer a better chance of winning.
“If you don’t know your way around the technology industry, the best thing to do is to be involved with an angel syndicate.”
But what about if you’re an experienced investor with more capital available?
“My advice is to back the team,” said Ritchie. “A team is much more important than the technology. If the team is good, they can usually make it work. Starting up tech companies in a new market is very difficult. You are starting from scratch. Many tech people come from those backgrounds - they don’t know the commercial market.
“But we’ve got a number of fast-growing tech companies, a lot of them based in CodeBase in Edinburgh. Compared to 10 years ago the sector is unrecognisble.
“We have companies in Edinburgh that are worth well over a billion pounds - that was unheard of in the past.
Austin Flynn, partner and head of the corporate team at Morton Fraser, said the market was looking buoyant for large-scale investments in Scotland.
“In the last month alone we have advised on seven different investments into high growth technology companies,” he said. “These have ranged from a first round of £120,000 to a fourth round of £2m, covering businesses from leading edge IT and software to biotech.
“With the likes of Skyscanner leading the way, it’s no surprise that Edinburgh has just been named as the best city in the UK to start a business by Expert Market based on factors such as speed of internet connection and the availability of tech savvy university graduates.”
But it’s important to remember, especially for those starting out, that investment comes with a degree of risk.
“You certainly wouldn’t want to invest unless you are getting enterprise investment relief,” added Ritchie. “No angel invests unless they are getting tax breaks going in and tax-free gains coming out.
“It has to be said that investing in early stage companies is a high risk venture. I have done it around 50 times - I’m up on the deal, but I did lose a company last week. You can definitely lose as well.”
To book tickets for EIE17 click here.