StartupCafe

Barry Sealey and Peter Shakeshaft kicked off the University of Edinburgh Archangel Speaker series tonight about the Angel Investment market in Scotland. Here are my notes from the talk (which means that some of the points were directly copied from the slides).

Barry Sealey is co-founder of Archangel Informal Investment, originally formed in 1992 and has 100 investors. Currently chairman of Indigo.

Peter Shakeshaft – currently chairing LINC Scotland

Barry Sealey, Co-founder of Archangel

We are all here because we’re a successful country and we want to be. UK economic growth will come from new businesses and new technologies. Now, going back in the day, it was an investment fund – ICFC and now called 3i. Many funds have moved away from funding startups and focus on mature businesses as they manage large funds. Most of the formal funds have moved up the ladder. Many of the VCs are doing “bigger” startups. Banks do not support early stage and only realistic options for young startups nowadays – is friends and families – and business angels.

Business angels are individuals who invest their own cash and provide practical help. We have a vigorous angel community. Archangel is the largest, but it is not the only one.

Peter Shakeshaft – LINC Scotland talking about wider angel market in Scotland

Scotland is one of the most active angel investment syndicates in the world.

There is a growth of angel investment, but there is a slow down and maybe leveling off, but not finished 2009 yet.

Back in 2000, there were only 2 syndicates – Archangel and Braveheart, since then we now have 19 syndicates – plus another 3/4 in the making. The more mature the syndicate gets the more likely they are to have a lot of existing investments, so they spend time supporting the ones they have rather than doing new deals. It is therefore really important to have new syndicates because they have money right away.

Drivers of success? Why is Scotland so successful?

• Withdrawal of CV funds. The angels came in to fill the vacuum of funds.
• Existence of LINC Scotland and role models like Archangel. LINC’s prime aim is to work to increase single angels and angel syndicates.
• The Scottish Co-investment fund was created in 2003 – it was unique and important. We are aware that there is a global jealously! Had a party from France the other day. Private sector decides to invest, then public will follow
• Emergence of a separate asset class – no point putting money in banks, property, or high risk but high return early stage companies.

In Scotland, there is an important demand side.

• Scotland’s history of invention and innovation, there are many many inventions. Scotland is a innovative country.
• Government support – great support. Have a number of innovations in Scotland – such as the proof of concept fund, and the investor ready process. John Swinney and Jim Mathers are supporters.

If you are starting out, what sources are there?

• VCs – not interested in early stage companies, and tend to be shortish terms
• Banks – they’ve never really been a key financer of early stage companies
• Grants – encourage people to go for grants – but not terribly smart money – i.e. not a lot of help
• Family, friends (and fools) – it might be emotionally attached money
• Angels – one key element of angel money is that its smart money. they are looking after investment, and provide on-going help
• Sales – there is no better money to get your company than sales

Hand back to Barry to talk about the history of Archangel.

Started in 1992, with 2 founders based in Edinburgh. Now 100+ investors, Scotland’s leading angel syndicate, one of the largest and most active in Europe. Compares well with angel groups in Silicon Valley. Focus on early-stage Scottish companies across all technology sectors (life science, IT, advanced tech). A fundamental focus on high growth companies. Co-invest with other angel groups.

Hands on skills to build young companies – we invest solely in equity. Extensive network to tap into for directors, due diligence, deal referrals, fundraising, services and sales. Influence and contacts in public, private sector.

General investment strategy:

• Companies based in Scotland, mostly central belt
• All tech sectors with defensible IP and USPs, with patents
• High growth potential with global reach
• Focus on startup and early stage
• Equity investment that qualifies for tax relief (EIS)
• Typical initial investment from 250k-500k with deal size from 25k to 2million plus support

How?

• Chief executive and team review about 100 proposals a year
• Likely ones are developed and brought to the board
• Board must be unanimous and invest first 100k
• Wider group invited to invest
• Never failed to raise funds
• Patience

Current portfolio – 23 active companies. Companies employ approx 800 people on Scotland

Archangel portfolio highlights – optos, touch bionics, flexitricity

Current portfolio:

• 23 companies
• average age of investment – 5 years
• avg amount – £1.5m
• SE investment – 18/23
• CV investment – 4/23
• Avg new deals per years – 3
• avg number of rounds – 5
• avg numb er of angels – 22
• profitable companies – 5
• 74% product focused
• 26% services
• Funded 12 spinouts from uni and NHS.

Outcomes

• new deals in 2008 – 1
• follow ons in 2008 – 2008
• Scottish enterprise – 27
• VC – 11
• Seeded 63
• Failed/moribund – 29
• Flotation – 3
• profitable companies – 3

Why do we do it?  We want to make money, but also because it is very satisfying to support young innovative people, talk about technology and money, but the important bit is the money.