If there was one thing missing from the Scottish scale up ecosystem – what would you say it was?
I spoke to Jock Millican, founder of business angel investors Equity Gap, and he had some interesting thoughts on what might improve the environment.
“Angels will take companies so far, typically up to £2million,” he told me. “When they need more than that there is a bit of a gap, especially in Scotland. Venture capitalists will come in around £5m but typically it’s higher than that. So that middle bit presents quite a challenge to get that follow-on funding.”
It’s one of the areas Equity Gap is trying to address, to stimulate interest north of the border, along with Scottish Enterprise.
Interestingly he’s of the opinion there is no real shortage of investment capital in Scotland. Sitting somewhere just short of Archangels and Par Equity in terms of size, Equity Gap takes a slightly more democratic approach, in that members have a greater say in the companies that get their support.
“When I founded Equity Gap I felt like there was enough space for another angel investment group – and it’s great to see emerging syndicates coming along,” he said.
Far from jealously guarding their discoveries, they all work collaboratively to ensure the best outcome, often co-investing in companies.
“Of course we all like to think the ones we’ve chosen are the best,” he joked.
Having worked in early stage investment in Scotland for over a decade, Jock has noticed some encouraging changes. Individuals are generally better informed about the investment process.
“The growth in accelerators has helped companies be more prepared,” he said. “The coaching comes across to a degree but generally the companies are much more professional in their approach.”
There is certainly no shortage of programmes designed to help companies grow. Both ScaleUp Scotland, from Entrepreneurial Scotland, and TechX from the Oil & Gas Technology Centre have taken a new cohort in the first few months of 2018. It is this community, along with support from Scottish Enterprise that makes Scotland such an exciting place to scale, according to Jock.
“I think, in many ways, the scene we’ve got here is the envy of many countries,” he said. “In terms of our angels, Archangels is the longest running syndicate in the world, so we’ve built up some experience and knowledge there. I also think in terms of accelerators, competitions and the support from Scottish Enterprise, Scotland is the envy of the world in many ways.”
He’s not being an idealistic patriot – he accepts that, as a government organization, there is a certain amount of bureaucracy involved in working with SE – but travelling and talking to other investors, especially in the US, does underline the unique ecosystem here.
“Some of them just can’t believe the support young businesses get!” he said.
So what can a young business expect when they go in front of an angel?
The three key things – in this order – are:
1 The market – what is the potential for growth for this company?
2 The people – these are the ones running the company, at least initially, so angels need to feel they have enough of an entrepreneurial attitude that they inspire belief.
3 The product or service – does it have unique features that can be protected (intellectual property rights) and enough differentiating it?
Later in the process there is more detailed research into the company’s details, but be warned, seasoned investors see through the tricks and gimics.
“The person has to come through,” Jock said. “I’ve developed a reasonable understanding of which ones are being honest and clear – and which ones are less so.”
Once involved in a company, Equity Gap puts a member on the board as a director, to guide and advise. Considerable work goes into matching the individual to the company, in terms of experience and sector knowledge. With young companies there is also a focus on mentoring.
“They have all done something special, they’ve taken an idea in their mind and started a business,” he said. “A lot of it is about resilience and always moving forward.”
He quoted the example of Alison Grieve, whose device GHold – an ergonomic holder for tablets – has taken off in the US. Her previous product, the Safetray, had various issues including losing a big contract at a critical point. Another company supported by Equity Gap is Vert Rotors, whose chief exec Olly Dmitriev had the challenge of breaking into a market dominated by big corporates. His product, a conical compressor, doesn’t use oil and is smaller, quieter and more efficient than its competitors. It’s gaining popularity in many sectors outside the conventional market, like medical devices and satellites.
“We’re seeing about ten companies a month and just to hear the ideas they’re coming up with – it really gets you out of bed in the morning!” he joked.
“You can never predict what’s coming next! Being a business angel is very rewarding. There’s definitely a little bit more confidence that people can actually get businesses started.”