THE issue of investment has never been a more vital one for Scotland’s new, young and growing business ventures.
Similar to others around the world, the investment market in Scotland has experienced a traumatic two years. The source of venture capital funds has dried up as VCs, initially sucked in by the new economy hype that the quick buck was the only target to shoot for, regained their senses and began licking the wounds caused by bad investment decisions.
As a result, deal-flow has dropped remarkably over the last 24 months as investors lost interest in high-risk early-stage investments. With no exit opportunities available (flotation or even trade sale), unproven technology and wildly speculative investment was spurned in favour of common sense.
It is fair to say that business angels have stepped in to fill the gap left by the retrenchment among established VC players. Angel investors are not adverse to risk and they have been able to provide valuable working capital for many small businesses struggling to commercialise technologies or take their first faltering steps into uncharted territory. However, there are limits to what the small investor can do.
The enthusiasm among business angels for Scottish Enterprise’s innovative Co-Investment Fund was predictable. The new fund was designed to invest from (pounds) 10,000 to (pounds) 500,000 in finance deals of between (pounds) 20,000 and (pounds) 1m. Although deals involve match funding, investment decisions are ultimately taken by the private sector.
With the current tough business environment unlikely to change in the near future, there will be no return to the freak investment conditions of 1999-2000.
Early-stage funding will remain difficult to obtain, especially as business angels become increasingly stretched by the demand for new finance. According to Scotland’s leading angel syndicates, this is already an issue they are facing as small investors are asked to follow finance previously provided by VC companies.
If Scotland’s economy is to grow and innovation is to be properly embraced, such funds will be essential and their creation is to be applauded.
