Venture capital firm TechStart Ventures and angel investors Gareth Williams, Robin Knox, Ross Tuffee and Rob Dobson have topped a list of most highly-rated Scottish investors, based on the views of early-stage founders in Scotland.
While 76% of respondents would recommend their Scottish-based investors, the new survey revealed concerns about the low-risk appetite of Scottish investors that could see more early stage businesses setting up or relocating outside Scotland.
The research, organised by independent founders based in Scotland, was started to highlight opportunities for improvement in the Scottish early-stage investment landscape. The survey took in 61 individual founders.
The average score for founder sentiment towards investors in the survey was three out of five, with no respondent answering five.
While 90% of respondents did not regret taking money from their Scottish investors, 61% also have foreign investors in place.
Low valuations and the lack of widespread ‘smart money’ from experienced operators in the tech industry were common complaints from Scottish start-up founders.
Robert Gelb, founder, start-up advisor and lead author on the report, said: “The Scottish ecosystem is known for its approachability and strong founder community, but there is a feeling that more could be done to improve and grow.
“As Scottish-based founders, we want to be part of that conversation and support the ecosystem by celebrating what’s working, highlighting what needs improvement, starting conversations and encouraging open dialogue so we all can grow.”
Early-stage angel syndicates and funds, including Par Equity, TechStart Ventures, Equity Gap, Apollo and Marchmont Ventures, all received submissions featuring founder perceptions, opportunities for improvement, feedback and praise; however TechStart Ventures came away as the highest-rated fund.
Scottish Government-backed initiatives received a combination of positive and negative feedback from founders surveyed.
The Scottish Growth Fund received praise for its involvement in TechStart Ventures, and Scottish Enterprise’s grant offerings were seen as critical to early stage company growth, especially in technology.
The Scottish Enterprise Growth Investment Team (formerly SIB) received the most opportunities for improvement, with feedback from some founders ranging from a lack of operational experience in technology companies leading to mismatched expectations, to an over-active involvement in setting deal terms.
The research also revealed that investors which passed on an opportunity to invest scored an average of three out of five on speed of decision making.
A majority of founders advised other founders to look for capital outside of Scotland as soon as possible. Compared with other geographies, the biggest differences were in valuation size, lack of risk-welcoming capital, and absence of networks for large follow-on investment.
“Although founder sentiment is better than average, it’s clear there are common challenges with the funding ecosystem, and that founders are sometimes reticent to speak out about their concerns publicly,“ commented Gelb. “Certain approaches from funds and angels in Scotland are considered outdated, unhelpful, and not founder-friendly, and there's a strong perception of different cliques in the ecosystem.”
Investors in Scotland received higher marks for approachability (four out of five), and speed of the transaction (four out of five). Providing sensible terms, a willingness to take risks, and being light touch but supportive when needed, were all commonly highlighted as attributes of investors that were seen to be founder-friendly.
Danae Shell, founder of legal tech start-up Valla and contributor to the survey, said: “There are some fantastic investors in Scotland, and as a Scottish founder I can also access excellent valuations, terms, and networks elsewhere - it's not an either/or for me.
“The best investors, no matter where they are, are supportive when you need them, are willing to open up their network, and understand that startups will never be straightforward.”
Leah Hutcheon, founder and chief executive of online booking system start-up Appointedd, said: “There are some amazing investors in Scotland, who come with smart money and a real willingness to help companies thrive.
“A great example of this is Gareth Williams, co-founder of Skyscanner, who is one of our investors - we've had brilliant support from him, and his guidance, as well as his investment, has played a key part in our growth.
“However, to create more companies like Skyscanner - unicorns whose exit can seed the ecosystem with investment and experience - we need to be connecting Scotland's startups and scale-ups with access to more meaningful capital and support earlier.“
Angel investor Robin Knox, founder of Boundary - and formerly of IntelligentPOS, which was acquired by iZettle in 2016 - received high praise from founders, and stated: “Obviously it’s lovely to receive this kind of feedback, but to truly improve the startup ecosystem and encourage the next wave of high growth businesses we need to evaluate our performance from all angles and that includes listening to the founders in order to learn how we can better support them on what is an incredibly testing journey.
“Initiatives like this study are one of the ways we can continue to reflect and improve our ability to create the right environment to generate many more skilled jobs in Scotland,“ he added.
TechStart Ventures, a recipient of funding from the Scottish Government via the Scottish Growth Fund, received particular praise for its approach to risk and knowledge of what's needed to go beyond the local ecosystem.
Claire Rampen, chief executive of Reath, a venture backed circular economy start-up with investors in the UK and US, said of TechStart: “We absolutely love working with them, they have taught us so much about how to approach early stage - I think they are actually the most knowledgeable about early stage ventures of all the VCs I've ever worked with or come across.“
The Scottish Founders Survey is an independent project organised by startup founders in Scotland, consisting of quarterly surveys on different aspects of the ecosystem.
The next report will focus on unsung heroes of the Scottish start-up ecosystem and is open to founders to submit nominations by 10 December.
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