How an angel can magically turn you into a unicorn

By Jonathan Harris

With FanDuel and Skyscanner both
in the ranks of ‘unicorns’ (early stage companies valued at over $1bn), it
is impossible to say that the unicorn phenomenon has passed Scotland by. Unicorns have achieved such high valuations in part due to the flow of new institutional money looking for a different asset class in which to invest, itself a result of low interest rates affecting other forms of investment.

However, although in Scotland very large deals are still few and far between, they have increased to the point where one can say that they
are no longer simply exceptions. In particular, the number of investments in the £1m-£2m range has grown substantially.

Scotland has a remarkably varied entrepreneurial ecosystem, covering a wide range of different technology sectors, and a wide range of companies in each sector. In the ICT sector alone, we see games creators and apps developers, e-commerce ventures and data analytics businesses, as well as many companies in the elds of micro and opto-electronics.

The funding available to these companies also covers a wide range. Scotland has built a strong business angel community, and its model of encouraging business angel syndicates has been copied around the world.

There are more than 20 such syndicates, able to provide funding for companies at a much earlier stage than institutional investors. They co-invest with each other, and with the Scottish Investment Bank (SIB), and are starting to co-invest with some VCs and corporate venture rms. This means that they are able to make substantial investments where appropriate.

It is often said that there are too few venture capital firms in Scotland, and while this is true, nonetheless the YCF Guide to Finance for Young Companies (www.ycfguide.com) lists some 50 VC and corporate firms which have invested in Scottish companies, with examples of their portfolio companies.

However, all investors see many more business plans than they can invest in, and companies in Scotland wanting to secure the larger sums that such firms can provide should spend some time meeting them and building networks, usually starting in London.

Equity crowdfunding has not yet made a significant difference in Scotland, but some larger deals are starting to appear. For more established companies, debt finance becomes a possibility, from providers such as
the Scottish Loan Fund and Business Growth Fund. Examples of recent investments (see panel) illustrate the range of deals covered.

Jonathan Harris is editor of Young Company Finance www.ycfscotland.co.uk

 Recent deals

Powerphotonic, Dalgety Bay; designs and manufactures high value laser optics for customers in a range of sectors from defence to the medical sector. £2m from business angels (Archangel Investors and SIB)

Digital sports arena, Dundee; games studio developing a massively multiplayer football management simulation Gameday Live. £250k from business angels (EOS, Equity Gap)

Freeagent, Edinburgh; online bookkeeping and accounting. £1.1m equity crowdfunding (Seedrs)

Dukosi, Edinburgh; battery management technology for electric cars. £1.2m from institutional investors (Par Equity, IP Group)

Holoxica, Edinburgh; 3D holographic displays for medical imaging. €1.28m EU grant (Horizon 2020)

Objective Associates, Stirling; developer of Seller Dynamics, a marketplace management system. Over £1m raised to date from business angel group (ESM Investment and SIB)

Administrate, Edinburgh; developer of online training management software. £1.7m from business angels (Archangel Investors, SIB)

Smarter grid solutions, Glasgow; developer of Active Network Management solutions for electricity utilities. £2m from Scottish Loan Fund