After John Wilkinson mentioned that the Scottish was doing some innovative stuff around angel funding at our lunch, I thought to myself gotta check this out. Anyway, on the weekend I had the opportunity to do a bit of searching on the subject and I really like what I have discovered. In Scotland they have something called a “Scottish Co-Investment Fund”.

Here is the skinny on the co-investment fund concept:
- Government matches Angel contributions
- Funds are administered by private sector angel groups
- Start-ups looking for funding deal directly with the Angel Investors
- There is no interaction between the start-up and government

This almost sounds too good to be true and in TheCodeFactory world is the ideal mix of government sector support for entrepreneurship and early stage knowledge based companies. Wait … it gets even better. Scotland has been using this model for many years to great effect and they have in fact gone from 2 identifiable angel syndicates in 1996 to 18 angel syndicates in 2007 according to nelsongray.com.  In 2007 the Scottish Co-investment fund invested in 61 companies with an average deal size of £231. On average 5 companies are getting funded per month, awesome.

Let’s put a bit of perspective around those Scottish Co-Investment Fund numbers in comparison to what we are doing in Ontario for seed funding. Since its announcement in 2005 the Ontario Investment Accelerator Fund IAF (Ontario equivalent of Angel funding) has invested in 8 companies.  Therefore, on average the IAF has invested in 1 company every three or four months. In terms of award efficiency the Co-Investment Fund model is 15-20 times more efficient than the IAF. In terms of economic efficiency (award/overhead) a Co-Investment Fund model should be ~90% efficient while the IAF is roughly 30% efficient. Finally there is the intangible factor of culture. Angels usually have their roots in start-ups or entrepreneurship and understand early stage investment while people working for the government well … they work for the government and things move at government speed.

I am now officially an advocate for the Co-Investment fund concept as it applies to Angel Financing. In terms of efficiency there is little doubt in my mind that the Co-Investment fund is a great model. This model maximizes the contributions of both the private and public sector. I have downloaded a number of reports on the Scottish Co-Investment Fund and will be digging into this topic in great detail over the coming weeks and months. Very cool stuff!

Ian Graham
 

Filed under: Commercialization, Innovation, Start-up by Ian
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