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  • Ian Ritchie : Scottish Business Insider

Funding situation for start-ups much improved since 1984


WHERE WERE YOU when Insider was founded back in 1984?

Well, I know exactly where I was because I was also founding a new enterprise in Scotland: my first company, Office Workstations Limited (OWL), was busy developing its business plan and raising risk capital from the then newly emerging Venture Capital (VC) industry in Scotland and London. Our team had formed and we started trading in Spring 1984, the same time as this magazine.

Indeed our company was actually featured in Insider in the ‘Worth Watching’ column in the May 1987 issue. We had pioneered an exciting new technology called ‘hypertext’ – the online, interactive, technique for delivering electronic documents which pre-dated the World Wide Web (for more, see my TED talk at http://bit.ly/1otPUAY).

A key customers for our technology was the Ford Motor Corporation in Detroit who commissioned our tiny company to build them a comprehensive interactive electronic manual system to be delivered on specially built Hewlett-Packard hardware called the Service Bay Diagnostic System.

The article concentrated on the fact that although we were Edinburgh based, most of our customers were in the USA, and were serviced from our sales and marketing office in Seattle. We went on to gain significant market traction and the company was successfully sold to Panasonic on December 1989.

After OWL I decided to help others to start their technology companies and over the last 25 years I’ve been involved in over forty such start-ups, mostly here in Scotland, often as non-executive Chairman. So I can report from personal experience on the various changes in the climate for such start-ups over the years.

The early enthusiasm of the first VCs wore off a bit around 1987, suffered badly in the recession of 1992, but recovered dramatically during the dot-com bubble of the late nineties – a time when technology investors lost all of their senses.

I remember around 2000 attending an investment conference in Cannes, hearing an expert explain that although every single company on NASDAQ would have to grow faster than Microsoft had done to justify their market valuation, he still rated them a ‘buy’. That was the point that I knew the lunatics had taken over the asylum.

Start-up companies were claiming that their brand new businesses were worth many millions. So much wealth was wiped out in the subsequent dot-com bust in 2001 that lots of VCs found it very difficult to raise any further funds, and this was compounded when the banking crisis of 2008 closed down much of the financial world – including floatations, mergers and acquisitions, needed by VCs to achieve returns on their investments. As a result, VCs are today becoming an endangered species.

Fortunately in the mid 90s the UK Government launched powerful tax incentives – the Enterprise Investment Scheme (EIS) – to encourage individual private investors or business angels, and this has had a dramatic effect on the supply of early stage risk capital in the UK.

In 2003 Scottish Enterprise reinforced this by launching a fund which co-invests side by side with other investors, including syndicates of business angels. Since then we have seen the population of Angel syndicates in Scotland grow from three to nearly twenty – the largest concentration of angels groups anywhere in the world.

So thanks to EIS and the co-investment scheme we in Scotland today have a relatively healthy supply of early stage risk capital, although follow-on funding is another story. Still, a much improved situation compared to 30 years ago when both I, and Insider, got started.


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