Co-Investment
About this good practice
o The Scottish Co-Investment Fund (SCIF) is funded by the Scottish Investment Bank (SIB) with support from the European Regional Development Fund and provides equity funding to eligible businesses. SCF invested on a pari passu basis with one or more of 29 accredited private sector investment partners. The SCF contributed from £100,000 to £1m on a £ for £ basis in investments with Partners with a total value of up to £2m and with the SIB contribution not exceeding 50% of the deal value.
o SIB co-invested with angel investors or syndicates or with other qualifying investment funds. Angels are individuals who invest their own money into new or early stage companies. Differently from other investors they take a hands on approach to investment and are responsible for the investment decision. Syndicates are groups of angels who come together to make larger investments, although the individuals still make their own decisions on each investment.
The main focus is on young and growing SMEs who are facing the challenges of the “Funding Gap” These companies tend to have willing investors but are still some way short of the investment they need to fully achieve their potential. The scheme also aimed to demonstrate that investment in these types of company could be successful and attract in more venture capital.
The fund is not sector specific but restricts certain categories such as: Real estate; personal services; Retail, Pubs, clubs, Banking, nuclear decommissioning
Expert opinion
Co-Investment brings together public and private funds to offer much needed support to young and growing SMEs. Benefits are created by connecting an investment bank and business angels. First and foremost, companies get more funding by the pooling of resources. Secondly, the use of public funds is supported by the angel investors who actively contribute to the management of the companies invested in and therefore increase the likelihood of successful business management. Therefore, the practice generates a win-win situation for SMEs, business angels and for the use of public funds. The activities could have replication value in other contexts as well.
Resources needed
The SCIF is funded by the Scottish Investment Bank (SIB) with support from the European Regional Development Fund and provides equity funding to eligible businesses. The Scottish Investment Bank (SIB) is Scottish Enterprise’s investment arm. SIB contributes to partners due diligence costs
Evidence of success
By 2008 report the SCIF was the Fund had invested some £28 million in 100 companies (of which 8 failed). A key metric is to attract in additional funders. SCIF an additional £2.43 for each £. £1.42 was from accredited partners, £0.96 from other private sources, and £0.06 other public sector funds
From 2009 to 2015 139 businesses benefited from investment totalling £45.5m made through the SCF matched by £74.5m of Partner investment
Since 2003, 240 companies have been supported
Potential for learning or transfer
Co-investment is an efficient way to deliver funds as it uses the qualified angle partners due diligence process with the reassurance that experienced angel actively contribute to the management of the companies invested in. There is a low overhead cost as all proposals to SCIF are pre-screened and have investment already committed. The process of investment approval of funds from SCIF is very fast and mainly procedural as the SCIF follows investment judgement of the accredited partners.
This co-investment approach was designed for a conventional funding approach and applies equally to alternative financing platforms akin to "Crowd Platforms"