This is exciting news, I recently the opportunity to chat with Andrew Sloane; Senior Investment Manager for Scottish Enterprise Investments.

Andrew is part of the team that manages the day to day operation of a suite of three equity investment funds; Seed Fund (up to 200k), Co-Investment fund (200k to 2M) and Venture Fund (1m to 4M [in the Venture Fund we will invest from £500k to £2m into a company in deals up to approx £10m)). Because Scotland is part of the EU a portion of the money in the Co-investment Fund comes directly from the national government (Scotland) with a contribution from the EU’s European Regional Development Fund, with any investment into a company being at least matched by funding on parri passu terms from approved private sector investors. The first two funds; Seed Fund and Co-investment Fund can have up to equal contributions (50/50) from the private sector and government (though the public sector element may be less than 50%). The third fund, the Venture Fund may invest from $1m to $4m into a company in funding rounds of up to $20m, the balance to come from the private sector . The fact that government contributions scale back as risk is removed is brilliant. I have always been a huge fan of matching contributions with respect to getting government money, shows a form of commitment and that way the investor has some skin in the game too.

Here is what I like about the Scottish Investment model:
- Provides a continuum of funding from friends and family to $20M (Series C)
- Government funds are matched up to 50/50 by the private sector
- Government contribution scales back at the Venture Fund to a maximum of $2M ~10%
- Lean and efficient model
- Leverages private sector expertise and investment
- Angel Syndicates and VC’s deal with start-ups and funded companies
- Government involved in an indirect fashion

Generally a very well thought out model that does so many things right.

I asked Andrew what Impact has the fund had on the region. In terms of the supply side of the capital market the funds have made a significant impact. In 2008-09 there were 130 deals closed across Scottish Enterprise’s three fund, with  £92M invested  in total (including private sector monies) and government money was leveraged by a ratio of 2:1 (Private : Government Money).  The number of Angel Syndicates in Scotland has gone from 2 (approx 15 members each) to around 20 (~40 members each) since the fund’s inception. Although not without its challenges the Scottish model is rapidly becoming known as one of the best practices in early stage funding and continues to attract interest and new investors from around the globe.

Perhaps one of the most important lessons learned through managing the fund is the value of being a patient source of capital, particularly in the current economic circumstance. The best estimate is that from idea to IPO/Exit  is a longer term game of perhaps 7 – 10 years, maybe more. The continuum of funding is also an important aspect of the three funds and growing companies.

I am now officially a co-investment fund advocate; this model certainly provides some serious success that the OCE (Ontario Centres of Excellence) IAF and IDF funds should reflect upong. Part of TheCodeFactory mission is “Entrepreneurs are also supported through fiscal and policy advocacy”. I consider the co-investment fund one of the brightest blip on TheCodeFactory fiscal and policy advocacy radar.

Thank you Andrew.

Ian Graham

Filed under: Commercialization, Innovation, Start-up, The Code Factory by Ian
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