Archangels, the business angel organisation behind scores of early stage business investments in Scotland, celebrated its 25th anniversary last week, and the party for its 80-plus members was not desperately solemn.
“There was a fair amount of robust banter,” says joint founder member Mike Rutterford, still firmly in harness as a board member since he launched Archangels in 1992 with fellow entrepreneur Barry Sealey. “I would have said it was joyous. We billed it as a quarter of a century celebration as it sounds twice as long as 25 years. It was emotional, but fun; also a reflection on what we have achieved and where we are going.”
The celebration at Dovecote Studios in Edinburgh – addressed by Sir Brian Souter, founder chairman of the Stagecoach group – also included the annual self-styled “State of the Nation” address by the organisation’s dignitaries. “We like these grandiose titles,” says Rutterford. “But it is really a snapshot of what has gone on for the organisation in the past year and the prospects for the coming year.”
And 2016 was suitably an annus mirabilis. Archangels led funding rounds to inject lifeblood capital into nascent and growing technology and life sciences businesses totalling a record £14.6 million. That was up on investment of £13.9m in the previous year. Another significant milestone was also passed last year, with total funds invested by the group’s investors since the syndicate’s formation, all those years back, topping £100m. It is estimated that overall these investments have created 3,500 high-quality jobs north of the border in that time and generated revenues of more than £1.3bn.
Business angel groups make no bones about the fact that they are not philanthropic endeavours and want to make a buck, but the two concepts are not mutually exclusive and Archangels’ track record shows the boost to the wider Scottish economy.
“Barry Sealey and I hit it off in the first 45 minutes of us meeting,” says Rutterford. “We had both done well out of Scotland. We both wanted to put something back, especially in technology companies. We also wanted to make a heap of money because that is the best way to keep score. We are not philanthropists or charitable organisations. But it is possible to make a difference and still have fun, even if Archangels has to make nasty decisions from time to time, and they often involve people.”
The seriousness is shown by the failure rate. Of the 82 Scottish companies the organisation has invested in down the years, no fewer than 39 have failed – nearly half of the early business start-up dreams have gone up in smoke. Such is life at the business end. Rutterford is candid on the mistakes he and Archangels made along the way. “Looking at the number of silly decisions we made in the past, we made some absolute lulus. That was part of the learning process. ‘We won’t do that again.’ It’s part of growing up,” he adds.
He is pleased that on those failures the Archangels investors, through their judgment and expertise, lost only 15 per cent of their money. Rutterford is also confident that the ratio of failures can’t help but get less. He describes the organisation’s approach as “homespun” back at launch during the early 1990s recession. Even looking back 15 years ago, Archangels employed just one main business proposition “gatekeeper”, Peter Shakeshaft, who with one colleague processed 200 applications for financial help a year. That compares with a team of five running the rule over entrepreneurial concepts and developments now.
“Under Peter, 80 or more propositions could be discarded right away as they were not in our sector,” says Rutterford. “Pubs, hotels, adult websites etc. Our team now is bigger and the operation more streamlined. We still get some weird and wonderful applications, though.” Contrary to the myths surrounding the sector, which comprises about 20 business angel groups in Scotland, he says that only about one in 50 applications pass muster. Archangels only invests in two or three new deals a year.
Another popular misconception, he says, is that such groups are only interested in major investments running into millions of pounds. “People think we invest £1m, £2m, £3m all the time. But we also love the smaller investments as well, say £50,000 or £100,000. And the amount of effort and mentoring that goes into these smaller businesses is just as much if not more than the bigger deals. Individual members might come in with £5,000 or £10,000, others come in with £50,000. In fact, we are not that interested in someone coming in with a single investment of, say £200,000 or £300,000, as they might look for special rights [in the business] as a result. If they have £100,000 we would say to them: ‘Why not look at ten separate investments of £10,000, taking a basket approach?’”
There have been challenging times in the company’s long history, with Rutterford citing the financial crash. For a couple of years, as the banking drama unfolded, Archangels made very few investments in new deals, he says, instead concentrating on the 15 or so existing investments that the organisation had on the books. “We just stuck to what we knew about. There was so much stress in our existing portfolio we had to look after our existing investments. There was a hiatus, but we came through it.”
And the current challenges to the early business investment industry, popularised by Dragons’ Den on television? Certainly, Rutterford is not fazed by Brexit uncertainty.
“Who knows? We are not bothered by it at this moment,” he says. “Nobody knows, there’s only speculation. The sun will rise, Brexit or not. In five, ten years we will do what we are doing. There is no reason to change a tried and tested business model that Archangels has. The general climate now is one of equilibrium [on deals] that seems about right.”
The organisation focuses very much on the technology and life sciences sectors because of their newness. “This is the lifeblood of Scotland. If we are not inventing and selling new things we are stuffed. It’s not the mature stuff that takes us forward, but the new.”
Archangels has invested in Optos, the Dunfermline-based creator of the world’s first widefield eye scanner, which is now owned by Nikon and a global leader in retinal scanning. Also Touch Bionics, producer of the world’s first bionic hand. Three months ago it pumped £3.6m into Zone Fox, which aims to guard against staff illegally hacking into their employer’s software to steal intellectual property.
One regret Rutterford has is what he sees as an insufficiently seamless and fruitful relationship with Scottish academia, often the testing ground for life sciences, where – like technology – Scotland has a recognised competitive edge.
“There is still a gulf between academia and us in terms of investing. We have too often failed to make the connection in aligning with academics. They may be conducting a fabulous experiment. But then they write up their PhD and it goes in the bin, that’s just tragic. One problem is that some academics don’t want to be a chief executive. They just want to make their dream a reality.”
More positively, in a message of hope to businesses who have been turned down by business angels, Rutterford added that even if an entrepreneur cannot get financial backing they can still be useful in giving some initial mentoring advice and putting them in touch with other business connections, both in Scotland and abroad.
Business angels can also misjudge potential, he admits. Rutterford himself rejected a business five years ago for its online back pain tool because he didn’t think it could be monetised. But Archangels put £250,000 into that business some months back after a life sciences “guru” in its ranks thought it was a “fantastic” idea, given that it has been estimated that 15 per cent of work hours lost in Britain are through back pain.