Fraser Lusty fills us in on what makes a good investment opportunity for the consortium behind 50 different funding rounds since 2010
Equity Gap made the headlines in 2016 as Scotland’s most active and busiest business angel syndicate and has since gone from strength to strength, reporting strong investment activity, with stand-out deals involving Edinburgh-based Vert Rotors and Shotscope.
The consortium has rapidly grown since its inception in 2010 from 15 original co-investors to 100 members which have now collectively completed more than 50 rounds of funding over the last seven years.
One of its early endeavours, in partnership with the Scottish Investment Bank (the investment arm of Scottish Enterprise) and Apollo Informal Investment, was a £160,000 investment in Edinburgh-based online booking start-up Appointedd.
The deal, which was led by Equity Gap, gave Appointedd – run by entrepreneur Leah Hutcheon, who has since gone on to amass huge success and win a string of awards – the capital to hire new staff, ultimately doubling the size of its team, and drive a rapid growth strategy targeting new markets and territories.
Appointedd’s disruptive time-saving software, which provides a suite of services, such as online booking, customer relationship management and marketing, attracted the eye of the investors and, ultimately, the business community at large.
Funding secured, the start-up set out to empower small businesses and replace traditional pen and paper systems with state-of-the-art, affordable software which gave them the freedom to manage their entire operations online.
Hutcheon said at the time: “They say ‘time is money’ and, for any company whose business model depends on selling time, it really is. Our software means small businesses don’t waste time but manage it as they would any other resource.”
Initially developed for the health and beauty industry, Appointedd’s customer base has quickly diversified to include a broad range of service providers from physiotherapists to dog walkers, music teachers to PR consultants. Its latest collaboration is a strategic partnership with AEVI, a subsidiary of Diebold Nixdorf, which primarily works with merchant banks.
Equity Gap director Fraser Lusty had said: “We have been extremely impressed with Leah and believe that we can bring commercial perspective that will help her take her business forward to the next level.
“This collaborative investment is a great example of how Scotland’s vibrant angel community works together to support start-ups and grow enterprise in Scotland.”
And it’s thanks to this co-investment model that the Edinburgh-based firm – in partnership with the Scottish Investment Bank and various other syndicates – has leveraged £19.9 million funding into the Scottish economy.
Q&A with Fraser Lusty
We wanted to find out how other businesses can get a piece of the action and, ultimately, how it all works. Who’s involved in this consortium, for example? Are these investors Scotland’s very own Dragons? And what do they look for in a company to warrant parting with their hard-earned cash?
We caught up with Fraser Lusty, Equity Gap director, to find out…
Q: What type of funding do you provide?
A: Equity Gap is a business angel syndicate, whose members actively invest and co-invest in early stage Scottish based companies either before or just on the point of revenue. We can also provide investor or director support even if the business doesn’t meet our funding criteria.
Q: Can anyone apply?
A: Pretty much anyone can apply, as long as they are an early-stage Scottish based company and past the point of R&D (research and development). We invest in all sectors apart from property and traditional retail.
Q: What types of companies are the most lucrative for you?
A: We’re particularly interested in the life sciences, software and mobile industries, as well as new products and clever tech companies.
Q: Why, in your opinion, are more companies looking to alternative finance/funding?
A: It’s ultimately a consequence of what happened in 2008 when the banks drew up the draw bridges. The angel space is now more buoyant in Scotland than elsewhere.
Q: What are the main challenges for businesses and in your industry?
A: We’re lucky in that there aren’t many. It’s a fairly transparent space and there are definitely room for more angel syndicates. We’ve maintained a small operational base because we don’t want to grow too quickly. We’re not investing as much as we could because we just don’t have the bandwith. But we’re lucky to have a good reputation based on word of mouth and a group of high-profile investor members.
Q: Who are your members?
A: Many of them tend to be serial entrepreneurs who are keen to invest in the next generation of SMEs and get excited about having a range of investments.
Q: Have you ever made any major investment mistakes?
A: Yes! But when I worked for the big corporates, mistakes used to go against you. Now it’s refreshing to have the freedom to learn from those mistakes as you go along.
Q: What do you look for in a company?
A: We look for people who are passionate, have staying power and don’t dwell on their mistakes. It helps to be a people person and develop a good business culture. They need to really understand their product, know the journey ahead and be able to execute the plan. They should be absolutely driven and a good leader.
Q: How does it work/what’s the process?
A: We usually recommend putting in a call to our chairman by way of introduction, after which entrepreneurs are welcome to submit a short business plan summary for our consideration. We’ll then discuss the opportunity at our monthly meeting and, if we’re interested to find out more, we’ll invite the business to pitch at our next one. We normally invite companies to do a 20-minute pitch which may result in an investment offer before we circulate the opportunity to our members to see which of them would like to invest. It’s not like Dragons’ Den though, it’s much more relaxed.
Q: What advice would you give to businesses looking for funding?
A: Build a team and spend it wisely. Make sure you get a good mentor and always give something back.
Find out more, including how to apply for funding of between £10,000 and £3 million, on the Equity Gap website.