Surge in business angel syndicates as wealthy investors spurn stock market

FIVE new business angel syndicates could be set up in Scotland this year as wealthy individuals seek an alternative to the battered stock market.

The first serious angel syndicate in the west of Scotland, Caledonia Investment Angels, has just been incorporated with funds of around £2m. Investors are setting up two more syndicates in Aberdeen and Edinburgh, and insiders expect another two by the end of the year.

Caledonia was founded by Jackie Stewart, a former engineer and retail entrepreneur who recently resigned as the gatekeeper of Equitygap.com, a small angel syndicate based in Hillington near Glasgow.

He said: "Senior figures in the angel community felt that a strong syndicate was really necessary in the west of Scotland. We need one to match Braveheart and Archangel [the leading Scottish angel groups]."

Between 15 and 20 investors have joined the Glasgow group. Each is willing to invest at least £100,000. Stewart said he was looking for more investors to join. "The more members you have, the easier it is to do deals quickly. I am trying to get some of the big hitters on board."

High-profile local investors include John Boyle, the Direct Holidays founder, and Chris Gorman, the retail entrepreneur and Gadget Shop chief executive.

Stewart said Caledonia would initially consider investments of up to £500,000 at a time in any industry sector and any part of Scotland. Scotland has around 12 structured business angel groups, but there are many more which consist of just two or three investors.

David Grahame, chief executive of Linc Scotland, which represents most of the country’s business angels, said: "Angel investment is a growth area at the moment partly because the returns everywhere else have been so rotten."

Another angel syndicate is close to being established in Aberdeen by investors who have made their money in oil and oil-related services.

And a group of technology entrepreneurs in the Edinburgh area is looking at setting up a similar group within the next few months.

Grahame said two more syndicates could be set up by the end of the year, making even more cash available for young companies. More funds are likely to come from Scottish Enterprise’s £20m co-investment scheme for small companies. Braveheart, based near Perth, is one of the syndicates which were recently chosen to run part of the fund.

Business angels affiliated to Linc Scotland ploughed £39.6m into private companies in 2002, up from £23.4m in 2001.

But an increasing proportion of angels’ cash is going on follow-on investments because venture capitalists are less interested in early stage companies.

The increase in business angel activity has come despite tighter rules imposed by the Financial Services Authority. The regulations were designed to protect unwary investors, but some experienced angels say they have made life more difficult.

One syndicate, VeRN, which was backed by the OWL founder Ian Ritchie and Spider Systems founders Martin Ritchie and Nick Felisiak, was forced to scale back its activities by the new rules.

DOUGLAS FRIEDLI

Scotland on Sunday 30th March 2003