Angels who give wings to Scotland’s innovators 

Typically, venture capitalists who follow the angels look for less risk, and have a shorter timeframe for investing, between three to five years before exiting. 

“In the past, start-up companies were told you need to get your money locally. But we’re now saying look widely for strategic partners. Look to London and elsewhere, companies should broaden their horizons and make the most of the money flow.”

Increasingly, the VCT (venture capital trust) players, such as Mercia, Maven, Foresight and Blackfinch, are suitable tax-efficient co-investors alongside Scotland’s angel groups.

The life sciences sector in
Scotland has faced a rocky time in the post-Covid world. Britain’s £108bn life sciences industry, which employs more than 300,000 people in high value jobs, is a national crown jewel.

But AstraZeneca, Britain’s most valuable listed company, is considering moving its primary listing to New York. Sir Pascal Soriot has voiced his frustration at the National Health Service’s poor track record in supporting UK drug discovery.

Last year, AstraZeneca scrapped a £450m expansion of its vaccine plant in Liverpool. At the root of this is R&D (research and development) and vital phase III clinical trials of new medicines.

“After Covid there has been a new focus on what big pharma is going to do next. Therapeutics is more difficult, Brexit has made it hard from a regulatory point of view, so there’s been a dip. Although our Archangels companies are not doing therapeutics and the actual drug discovery, the services, the diagnostic tools and devices which sit around this have all been impacted,” says McKenzie.

However, in Scotland there is still outstanding technology and generative AI and machine learning is part of this and a big topic across almost everything. Read more about the tech sector as a ‘a real hotspot’ in deals market with the Summer Deals in Focus published in The Business magazine online.

David Ovens, McKenzie’s colleague at Archangels, says: “We’re sticking to our knitting in trying to pick deep tech that is difficult to copy which is heavily patented. We’re looking for ‘proof points’ or real value with modest amounts of money, of around £5m, so that you can get a valuation or an exit.

“There are definitely lots of interesting Scottish companies around it, in the life sciences sphere. It’s a question of being able to ride this cycle of what big pharma is doing. There are definitely problems to be solved. We’ve got Cytomos in our portfolio doing really smart cell-analysis and ground-breaking work with large blue chips,” he adds.

Archangels is also supporting the team at 1nhaler, a single dose inhalation device for targeted treatments.  “There’s a great team in place and this is exactly the kind of business that we want to help grow and succeed,” says McKenzie.

David Grahame is the doyen of Scotland’s angel investment groups. He was a discreet lieutenant among the founders of LINC Scotland in 1993, now Angel Capital Scotland, and is stepping back while Margaret Morton becomes the organisation’s first CEO.

He says Brexit was a severe blow, explaining that the European Union’s regional development funds allowed LINC to assist the angel groups with early administration and with network support. 

Grahame believes that business failure is a core part of the process. He says worldwide, half of all angel groups make no money. 

“It’s the 80:20 rule of failure to success. People, including the press, spot the failures all along the way but years later you might get a good exit such as Reactec,” he says.

“The wider economic impact for Scotland is just as important as the financial returns for the investor. A lot of angel investors do take massive losses, yet if you fund a company and it gets going and it employs 20 people and it falls over five years later, that is still a positive economic impact.”

We’ve been involved with a large number of angel deals – we’ve changed and adapted as these firms have matured

– Stuart Hendry

Stuart Hendry, founder and partner with MBM Commercial, has had a front row seat as a legal adviser watching the angels’ growth.

His company celebrates 20 years supporting entrepreneurship in the coming weeks. His major concern is that while there is more than enough start-up funding, it is the Series A and Series B money for scaling up ambitious companies that was missing.

Meantime, his company pioneered pro forma legal documents and the use of templates to keep the cost of deals at a modest level for young companies. 

“However, things have developed. A seed deal might be for £1m or £2m and you tend to find lawyers on both sides of the deal. Increasingly, clients want an efficient service and to get the deal done,” he says. 

He says young companies today are far better educated by Scotland’s accelerators and investment incubators, and by the accumulated knowledge of Angel Capital Scotland.

 “MBM, which now has a US arm dealing with US investors, has grown with the companies over the years. We’ve been involved with a large number of angel deals and then financing rounds – we’ve changed and adapted as these firms have matured,” he says.

Scotland’s angel success story remains known only to those directly involved and the advisers – but it remains a unique part of Scotland’s entrepreneurial success.