Braveheart chief calls for £10m hi-tech debt funding

ONE of Scotland's leading angel investors is calling for Holyrood to make an emergency multi-million-pound debt fund available or risk losing a generation of early-stage technology companies.

Geoffrey Thomson, chief executive of Perth-based Braveheart Investment Group, which backs fledgling, mainly technology, businesses , told The Scotsman that some of the country's brightest prospects were "really struggling", with high net worth individuals unwilling to invest and banks refusing to offer loans.

"It's very, very worrying," Thomson said. "These companies are the lifeblood of Scotland for the future, and there are some wonderful businesses out there that just need that last bridge to get to significant revenue but without that capital they'll really struggle."

Braveheart, an early investor in both Wolfson Microelectronics and Optos, was formed in 1997.

Thomson said the climate had never been as bad, worse even than the bursting of the so-called "dotcom bubble", when investors fled the technology sector after valuations of internet companies collapsed.

"The dotcom bubble was one particular sector, but this is a much more severe depression and a much longer-lasting downturn. The situation now is that everything is down and I think we're in for a long haul."

There had been a "steadily diminishing" appetite from investors – typically wealthy individuals – who felt "beaten up" by the poor performance of investment on the London Stock Exchange, Thomson noted. Meanwhile, banks had become unwilling to lend except on "severe" terms.

Thomson said that where banks are offering debt it was on terms that "makes the hair on your neck stand on end", including in some instances demanding a percentage of an eventual sales price on top of loan repayment.

Braveheart has asked companies in its portfolio to modify business plans to reach a "cash neutral" position as quickly as possible, but warned being too frugal can jeopardise the company.

"By cutting back too much, by the time your technology comes to market you've lost your competitive advantage."

After holding preliminary discussions with Scottish Enterprise, Thomson is talking with other Scottish angel investors and plans to appeal directly to Holyrood for the establishment of a debt fund of up to £10 million to provide bridging finance through the current funding crisis.

John Waddle, the chief executive of Edinburgh-based Archangel Informal Investments, said banks were "very difficult to deal with at the moment", with some companies facing the withdrawal of existing terms and requests for personal guarantees on loans.

"In terms of an emergency debt fund, it would be great but if it is going to happen it has to happen quickly and it has to be clear how to go about receiving the funds because if you spend a great deal of time negotiating with someone then you don't get it then you'd be better off going to someone else."

BACKGROUND

SCOTLAND'S technology sector suffered a string of setbacks this year including the collapse of quoted micro-screen developer MicroEmissive Displays.

That prompted technology entrepreneur and investor Ian Ritchie to warn that other struggling firms in the sector could suffer a similar fate.

Recent figures from the Edinburgh Pre-Incubator Scheme – a joint venture between Edinburgh University, Scottish Enterprise and the European Regional Development Fund that focuses on nascent tech firms – revealed a bumper year for seed funding.

However, the banks' reluctance to hand over cash resulted in not a single penny of debt financing being made in an Epis company that launched during the 12 months.