Posted on Thursday 12 May 2011 by Ulster Business

Scottish investor Nelson Gray virtually wrote the book on angel investment syndication. He gave Ulster Business his perspective on how Northern Ireland could follow the lead of Scotland's flourishing business angel community.

The Government produced a report last year which showed that Scotland accounted for 29% of the £64m in visible business angel investment deals which took place in the UK. Relative to the size of the country's population that is a massive amount, and provided further proof Scotland is leading the way when it comes to angel investment. LINC Scotland, the equivalent to Northern Ireland's increasingly successful Halo network, was established way back in 1992. Its members invested around £21m of their own money in 104 transactions last year. Nelson Gray, who has invested in 21 companies personally and is presently an FSA registered fund manager with Braveheart Investment Group plc, the AIM-listed business angel investment group, believes that Northern Ireland is on the right road to emulating Scotland's success, with Halo investors already doing deals together. But he says further formalisation of these investment syndicates, as well as co-investment fund support from Government and leeway to develop the ecosystem free of rigid metrics, will be needed to increase effective business angel support. "The business angel networks like Northern Ireland has at the moment, they are supported in various ways by government funding. That process is currently done on the basis of a target where you will come up with X number of deals and invest Y amount of money.

Therefore there is a competition to keep all the deals within your network. What we've been able to do is get past that, so LINC doesn't really care who does the deals as long as deals are being done," Gray told Ulster Business. "It is a slightly different approach. You are concentrating on building the infrastructure and a local operating investment community, rather than being hung up about the number of deals or the amount of money going in." He notes that because Scotland's almost 20 groups - such as Braveheart and Archangel - have now developed into professional companies with standard processes and legals and are so well known, entrepreneurs now usually go to them directly rather than through LINC. "I get the impression that because the idea of creating groups is relatively new it has created some tension between the parties in Ireland because people are trying to claim credit for the same deal being done. The trick to making this work is to realise that business angel investing is not a competition sport, it is a collaborative activity," he explained. "What you have to do is create an environment and community that will share deals. Here, if a group can do the whole deal, it will do the deal. But when it comes to the second round of funding it will often need the help of the other groups. So we've moved to the syndication of syndicates and that needs to be encouraged because there are relatively few venture capitalists to pick up the investments later on. We are seeing angel groups around the world having to fund companies for three to five years and very few groups can do that by themselves." The benefits of the groups are, for the business angel, less burden in terms of monitoring all of their investments and the spreading of risk, while entrepreneurs get access to people with different areas of expertise. Gray has recently been advising Dublin's HBAN angel network, which has set up four groups within the last 18 months, a faster rate of development than in the early days of Scotland's angel infrastructure. Similar models for angel investment are operating in the US, Canada, Australia and New Zealand. Someone has to be tasked with putting investor groups together if Northern Ireland is to develop in this way, thinks Gray. He also believes co-investment funds could play a big part in developing the market here, but only if they bring more private sector expertise into the sector. As manager of Scotland's first co-investment fund in 1999, Gray was required by Scottish Enterprise to find as many co-investment partners as possible in order to stimulate the market. He hopes the manager of Invest NI's new Co-Investment fund will have a similar remit, and should be measured on the amount of private sector funds they bring in as well as the amount of money going out. "I hope the managers of the new co-investment fund in Northern Ireland have the resources, the funding, talent and instruction to go out and do that, so they have to get out there and make the deals happen and not wait for business angels to bring deals to them," he said. "In an ideal situation they have almost got to make themselves redundant by the end of the fund."

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