BUSINESS angels have increased the support they provide to potential high-growth firms in Scotland by 10%, according to figures which highlight their growing importance to the economic development effort.
Linc Scotland, the association of networks of angels and individual investors, said members invested £22.4 million in companies during the year to June, compared with £20.4m in the preceding period.
The funding was split between 64 companies in the latest period, up from 61. This suggests that members of LINC Scotland still found plenty of investment opportunities that met their demanding criteria despite the uncertain economic environment.
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Including well-known syndicates like Archangel and Par Equity, members of the association provide risk capital for early-stage firms which they believe have the potential to achieve rapid growth.
Many have focused considerable attention in areas like software development, in which firms have faced challenges recently. Some corporations have cut back spending on new systems.
David Grahame, chief executive of LINC Scotland, said: “It is reassuring to see that in spite of the global economic challenges, angel groups are continuing to support some of the country’s most promising prospects through these tough times.”
The money that is provided by angels has become increasingly valuable lately.
In recent years angels have had to pick up the slack that has been left following the decision of many private equity firms to shift their focus from providing venture capital for early-stage firms to doing bigger deals involving established firms.
Experts in early-stage finance have been complaining for some time that young firms have been finding it increasingly difficult to get bank funding.
Angels are also being required to leave their money invested longer than used to be the norm. Volatile stock market conditions have made it harder for angels to achieve exits through the floating of firms they are invested in.
Corporations have reduced mergers and acquisitions activity. In the latest year £19.1m, 85%, of the total provided by Linc members, was used to provide “follow-on” investments in firms that were already in the portfolios of the angels concerned.
In the preceding year £13m, 65% of the total, was used for follow-ons.
In the latest year Linc members added 15 companies to their portfolios. They provided a total of £3.3m for these. In the preceding year they provided £7.2m in total for 25 “new” investee firms.
The money provided by private angel investors can help companies to win support from other funders, to help share the risk involved. In the year to June investments made by Linc Scotland members were supported by £7.7m public funding, from bodies like the Scottish CoInvestment Fund. In the preceding year public bodies invested £9.1m.