Angel investment ends 2020 on upward curve

In the final quarter of 2020, angel syndicate members of LINC Scotland, the national business angel association, invested more than double the amount posted in quarter three.

This brought total investment by the syndicates for the year to £25.0 million, just a little short of the £26.9 million reached in 2019, which was a record year.

In the early months of 2020 angel investment continued at high levels, but as the coronavirus restrictions started to have an impact, investors focused upon helping their portfolio companies to survive, and overall investment levels fell, although at nothing like the rate which was at one time feared.

The angel syndicates co-invest with several other types of investor, including institutional investors such as VCs and corporate venture funds, which had helped to raise investment levels in 2019.  Although the numbers of deals in which institutional and other private investors participated stayed the same (66 deals) from 2019 to 2020, the amount invested dropped by almost a quarter (23%). The size of investments by VCs and other institutional investors varies widely;  in 2019 these investors made ten investments of over £1m each, totalling £31m, whereas in 2020 only seven investments over £1m were made, totalling £18m.

Co-investment by funds managed by Scottish Enterprise have also been a major component of deals led by LINC angel syndicates, accounting for approximately a quarter of total deal sizes (23% in 2019, 26% in 2020).  In addition, angel syndicates were able to help many portfolio companies to secure funding from Scottish Enterprise’s Early Stage Growth Challenge Fund, set up in response to the COVID pandemic and awarded as a mix of convertible loan and grant.

During 2020, the number of companies in which LINC angel syndicates invested for the first time had initially reduced while they focused on supporting portfolio companies.  This trend has now reversed.  In 2019, a quarter (25%) of LINC angel syndicate deals were in new companies, taking 29% of the private sector investment. Following the decline in investment in new companies in the middle of 2020, in the fourth quarter new companies represented 42% of all deals and 61% of all investment, bringing the totals for 2020 (21% of deals and 25% of investment) back towards previous norms.

David Grahame, director of LINC Scotland, said “LINC member syndicates started 2020 with the impetus of record investment in the previous quarter, and this high level of activity was initially maintained.  The coronavirus changed everything, but the syndicates were able to keep investing, supporting portfolio companies to an extent which was beyond initial fears and expectations.  Investment in new companies suffered a little while the focus was on those needing immediate help, but it is very gratifying to see the syndicates once more engaging with and investing in new companies, and maintaining the pipeline of ventures which are essential to the future of Scotland’s economy.”