Paddy Graham: Significant increase in deal volume in Scotland

Sometimes it’s easy to get caught up in the negativity that seems to surround the world of business, from plunges on the stock market to mounting regulation and the uncertainty being created by Brexit. But peel back those layers of commentary and the figures often paint a different picture.

Data released last week by consultancy firm Beauhurst showed that the UK’s high-growth economy is in good health. A record £8.3 billion was invested in high-growth companies during 2017, more than double the previous 12 months.

The number of deals that took place in Scotland soared by 44% year-on-year. This increase was second only to the South West of England and compares to an 8% growth in London.

Scotland’s performance can be credited in no small part to a growing and increasingly active network of angel investors. They accounted for just under one third of all Scottish deals and one quarter of all UK angel deals.

This is a positive sign. Their support can be invaluable to high-growth companies, particularly those at the earlier-stage of their development, not just in terms of the funding but also in the provision of strategic guidance. That philosophy, of providing support alongside investment, is one that BGF employs too.

BGF has invested in a number of companies which have benefitted from angel involvement. These businesses often have a very clear sense of direction and professionalism, which helps them move to the next stage of growth.

To this point, it’s also gratifying to note that Scotland captured the highest number of “mega-deals” – each worth more than £50 million – outside London. This suggests that, as a nation, we’re not doing too bad at starting, nurturing and providing a good home for the companies that are going to go on to be iconic, industry leading names.

If the supply of equity investment increased in 2017, so too did the demand. Given the current climate of economic and political uncertainty that’s encouraging but not wholly surprising.

At the beginning of the year, one of my positive predictions for entrepreneurial Scotland was that while 2017 wouldn’t be easy, neither would it be the headache that many were feeling. Firstly, many entrepreneurs who have or are in the process of growing a successful business have learnt not to assume or obsess about an ideal situation. They prefer to get on with the job.

And secondly, the best entrepreneurs know that uncertainty, in and of itself, isn’t always a bad thing. A place without any uncertainty would stifle creativity, give rise to monotony and place very little value on a person and team’s ability to assess or take calculated risks.

The caveat to all this? A deep pool of capital doesn’t necessarily mean a patient pool of capital. For growing businesses, investor patience is not only a virtue, it’s vital.

Patient capital exists to help management teams realise the best possible value for their business – and that can take time. BGF was created to address this very point. As an investor, we don’t have an exit timetable which means we can support companies until they find the right kind of exit, at the right time and the right price for the entrepreneur and the economy.

There is, however, no conflict between patient capital and exits and that’s demonstrated in the fact that BGF was the top investor into exited businesses in 2017. The management teams we work with are able to shoot for the right type of exit at the right time for the business, rather than by a timetable dictated by us.

It’s an approach that’s gaining more and more traction with growing businesses, which is borne out in the number of deals we did last year.

BGF funds companies headquartered in the UK & Ireland exclusively. However, we did more deals with more companies specifically seeking investment to grow and expand than any other investor in the world.

I firmly believe that’s a reflection on the work BGF has been doing to meet more and more management teams, grow our infrastructure and expand our presence across the UK. But more crucially it suggests that in the minds of entrepreneurs, the correlation between patient capital and business growth is getting stronger. And that can only be a good sign of things to come in 2018.

Paddy Graham is an investor at BGF

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