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KITE Invest looks into the small, but highly developed, Scottish angel investor community

Although the angel investor community of Scotland is a smaller group in comparison to its regional counterparts, LINC Scotland is considered to be one of the more mature national angel associations. Since 1993, the Association has become regarded as one of the most developed in Europe, with LINC members recording total investments over £336 million at LINC Scotland’s 20th anniversary. KITE Invest spoke with LINC Scotland’s President, David Grahame, to get a look into this small, but esteemed, angel investor community.

KITE Invest: What are the characteristics and achievements of LINC Scotland that have giving it the recognition as one of the ‘more mature national angel associations’?

David Grahame: At a generic level we benefit from operating in a region of manageable size, which is relatively closely networked, and also from achieving a general consensus across government and the private sector that LINC should be the lead body for the development of the business angel market place in Scotland.  In that role we were lucky enough to recognise early on that aggregation of the angel population into structured angel groups was a natural evolution and to encourage and support this. Even though we now have over twenty independent angel groups operating here, which is a rather dense concentration in a region of 5m population, we have managed to maintain a collegiate and collaborative approach across our whole community.

KITE: Over the course of 22 years, what have been some of the biggest industry changes and surprises?

DG: The angel group phenomenon, which I just mentioned, combined with increasing professionalisation, made possible one of the other most significant developments – which was the introduction in 2003 of the Scottish Co-Investment Fund. This invests public money pari passu in deals sourced and led by accredited business angel partners – a very imaginative step by government at that time.  Other trends have been the growth of syndication among the groups to cover bigger deals, partly driven by the realisation that the progressive ‘ladder of finance’ from angels to VCs is largely a myth!  Perhaps the main surprise has been the staying power and commitment of our members, who have increased their total annual investment every single year right through one of the deepest recessions in living memory.

KITE: What are some of the goals the Association hopes to achieve before its 30th anniversary?

DG: In one sense our main ambition is for LINC to be unnecessary!  By that I mean that we would like to see a fully functioning and truly sustainable angel ecosystem powered by its own successes and no longer requiring our intervention as a market developer.

KITE: While the members of LINC Scotland only invest within Scotland, the Association has been very active in collaborating beyond its borders – as made evident by being one of the founding members of the European Business Angel Network and Business Angels Europe.What are some examples of good practices that LINC Scotland has incorporated from international collaborations?

DG: The earliest was probably gaining an understanding of the benefits and power of investing in groups rather than individually. Then later, alternative models for angel group structure and operation.  Also, better strategic thinking about the path to exit, even before making a first investment.

KITE: Other angel groups are now becoming involved with cross-border investments;do you foresee this happening in the case of the angel community in Scotland?  

DG: Our members have no formal policy against cross border investing but a couple of factors make this low priority.Firstly, they are classic ‘hands on’ investors which means being close enough to the company to provide active support and intervention. Secondly, they are lucky enough to have strong local deal flowbecause, although Scotland has only about 8% of the UK economy/population, it has around 15% of the R & D.  The most likely areas in which cross border investing would occur would be in very specialised sectors such as biotech.

KITE: LINC Scotland’s aim is to act as an investment facilitator not an advisor, although from time to time the Association takes on the role as an incubator, providing know-how and operating support. What is the general outlook of startups in Scotland like – the number of those established yearly, the main industries of interest,etc?

DG: Scotland is one of the more active start-up regions of the UK with over 30,000 new businesses last year and both Edinburgh and Glasgow being among the top ten UK cities in this regard. The range is very diverse but the top sectors for our investors were Life Sciences and Enabling Technologies which together accounted for over 70% of funds deployed. Internet/Digital and Energy are now also showing significant growth.

KITE: Lastly, what main piece of advice do you give to startups seeking investment, as well as, investors seeking to invest?

DG: For startups, don’t make the mistake of thinking that equity investors are suppliers of funding like banks but understand that they are really your first, and perhaps most important, customers and adjust your mind-set and preparation accordingly.

For investors, firstly be really clear what your personal motives are – financial gain, ‘putting something back’, entrepreneurial engagement and so on. Then understand that angel investing is best enjoyed as a team sport and get together with some like-minded people. Have fun because that will sometimes be your only reward!

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