ENTREPRENEURS looking to launch drug discovery companies in Scotland are facing funding challenges because business angels are avoiding them for opportunities elsewhere, according to the head of their association.

David Grahame, executive director of LINC Scotland, told the Sunday Herald that his members had been burned in past drug discovery – so-called "wet science" – deals by under-estimating the length of time it would take for companies to become profitable.

Since angels generally only fund start-ups into the low millions of pounds, often in syndicates, they have also found the value of their investments diluted by venture capitalists driving hard bargains over later-stage funding.

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Grahame said: "We are not inclined to do life sciences. We might still do diagnostics or medical devices, but not wet science."

While pointing out that this would take a while to show up in the statistics because angels would still "follow the money" by reinvesting in later rounds for deals they had done before, Grahame said: "We are now more into the IT sector. You can build and sell that kind of company for less than 10 years ago. On clean energy, we know there's a future there but we are still working out which bits angels are going to make money at. Just like with life sciences, we are never going to invest in primary generation because it's massively capital intensive. But we're interested in the potential of downstream servicing."

But Scott Johnstone, head of the Scottish Lifesciences Association, said that he had not noticed a big shift in angel investment in his sector. He said that it had "always been a problem" to secure wet science investments, but said that Aberdeen-based Haptogen had made a good return for angel investors when it sold to Wyeth (now Pfizer) in 2007.

He cited NuCana, MGB Biopharma and EctoPharma as three drug discovery companies with angel backers, and said: "Deals are still getting done."