An article entitled "Risk Capital Investment in Scotland 2019 - 2020" published in the February 2021 edition of Young Company Finance (www.ycfscotland.co.uk) caught my eye. Recent trends in the market place were analysed based on data provided by LINC Scotland (https://lincscot.co.uk) and Scottish Enterprise. LINC Scotland is the Scottish Angel Capital Association and its members are significant contributors to investment in the early stage arena in Scotland. Many of their deals are run as co-investments with Scottish Enterprise who continue to back start-up and growth businesses across the country in a variety of ways.
The analysis focussed on deals carried out by LINC member syndicates and Scottish Enterprise. The data reveals that towards the end of 2019 and into the beginning of 2020 deal activity was strong. This inevitably tailed off as we entered the second quarter of 2020 due to the pandemic and lockdown. The drop-off in deal activity was not, however, as pronounced as might have been anticipated. It is also worth noting that the number of non-LINC and non-SE deals remained high during Q2 2020.
Understandably, LINC member syndicates overall focussed on existing portfolio companies during much of 2020, but there appears to be a reversal of that trend based on the analysis of deal activity towards the end of last year. During Q4 2020, 42% of all LINC member equity deals and 61% of investment amounts were made in new companies in which they had not previously invested. This meant that when assessed across the whole of 2020, 21% of LINC member deals and 25% of investment amounts were in new companies. These figures are largely back in line with the norms established in previous years. This is an encouraging sign as investors are seeing the quality of opportunities remain and are retaining their enthusiasm for investment in new companies in these challenging times.
In response to COVID, Scottish Enterprise established the Early Stage Growth Challenge Fund which was part grant and part convertible loan. This new form of funding received significant uptake from early stage companies and drove overall investment up during Q3 2020.
While the road ahead remains challenging for nearly all businesses, it is certainly heartening to see this data showing continued investor support for both existing portfolio companies and new companies in early stage businesses in Scotland.
(The above data is taken from Young Company Finance's February 2021 issue. Young Company Finance provide news, comment and analysis on the young company market. See www.ycfscotland.co.uk)
Morton Fraser has an experienced team of corporate lawyers in Edinburgh and Glasgow who advise both investors and companies on a wide range of equity investments and corporate transactions. Please do get in touch should you wish to discuss any of these issues further.
Stephen Clark, Senior Associate - stephen.clark@morton-fraser.com or call 0131 247 1344
