LINC Scotland: Scottish business angel syndicates buck declining equity investment trend
In the second quarter of 2020, angel syndicate members of LINC Scotland maintained the high level of equity investment activity seen in the first quarter, bucking the trend of a decline of investment in companies generally during the coronavirus pandemic.
Taking these first two quarters of the year together, the syndicates invested £15.27 million, an increase of 95% over the amount they invested in the first half of 2019.
The angel syndicates co-invest with several other types of investor, including institutional investors such as VCs, and public sector funds (largely those managed by Scottish Investment Bank). In all, the angel syndicates secured more than double their own investment from these sources in the first half of 2020, leading 58 deals which totalled £40.87m, 96% greater than the 2019 total.
The figures for the second quarter of the year follow a very successful financial year (to end March 2020), when the Scottish business angel syndicates participated in deals worth over £100m.
The companies supported by the angel syndicates are predominantly high potential ventures in the tech and life sciences sectors (although other sectors are not excluded); they are often pre-revenue, and need funding to develop a prototype, carry out trials, or win pilot contracts with potential customers, before they are able to enter their chosen markets. Angel funding helps them through these high-risk stages and supports them as they start to win commercial traction.
Grant funding is immensely helpful during these early stages, but debt financing is not normally available, so equity from the angel syndicates fills a crucial gap. Although the angel syndicates have been working hard to support companies already in their portfolios, they have not ignored new start-ups.
Approximately 20% of the investment by the syndicates in the first half of 2020 went into new companies, and the investment of £3.13m was an increase of over 80% from the figure for 2019. Average total deal sizes for new companies also increased significantly, from £573k in the first half of 2019 to £819k in the same period this year.
David Grahame, director of LINC Scotland, said: “It is extremely encouraging to see LINC members increase their investment in the first half of this year compared with 2019, and provide very significant support to the portfolio in highly unusual market circumstances.
“It is particularly pleasing to see an increase in the amount invested in new companies – these early stage ventures provide the continuity essential to maintain Scotland’s reputation for innovation and entrepreneurship.”
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