Where business angels fear to tread

Where business angels fear to tread

What a great wheeze. Take one of Scotland’s most prominent business angels to his nearby church and have him pictured looking up at an ornate cherubim. Cliched? Cheesy?

Well, not when the local place of worship is the stunning Rosslyn Chapel, which opens its new visitors’ centre in 2011, and the person in question is Nelson Gray who was named European Business Angel of the Year in 2008 by the European Business Angel Network in recognition of his work in developing the angel investing community across developing nations.

Last year 130,000 visitors made the trip – or pilgrimage – to Rosslyn Chapel, many inspired by Dan Brown’s blockbuster The Da Vinci Code which reaches its hard-to-believe dramatic denouement near the beauty spot.

The chapel, founded by the St Clair family, and its strange and wonderful story, remains a major tourist attraction for Scotland and the sleepy Midlothian village of Roslin.

But Nelson Gray, a large-framed individual in his early fifties, is a less obvious attraction, although from his home at Firth House, you can see the rooftop – with the temporary roofing now gone – of the historic chapel.

Yet tea at Gray’s home in Roslin Glen is a port of call for many fledgling spin-out business people seeking sage advice on commercialising their ideas or innovation.

Here, alongside his bonhomie, Nelson dispenses a wealth of knowledge about Scotland’s angel investment community and how important it is to our success.

He sees the future actions of an economic development agency intrinsically linked with continuing to foster and develop ties with the angel network.

As the former fund manager for both East of Scotland Investments, Strathclyde Investment Fund and an executive director of LINC Scotland, the Scottish Angel Capital Association, he is well placed to comment on the need to encourage more investors to step up to the plate.

Angel investing is a welltrodden path for Scotland’s successful entrepreneurs looking to use a proportion of their cash to help create businesses for tomorrow. LINC has played a significant part since 1993. Scottish Enterprise stated recently that since 2003 more than £400m of risk capital has been leveraged to help young companies, with £138m from ERDF (European Regional Development Fund) and Scottish Government and a further £280m through private sector partners, much of this angel investment.

“There are risks involved – no doubt about that,” says Gray. “Angels must be prepared to lose all of their initial investment if a company goes pear-shaped, but the rewards on success are two-fold; a significant return on investment, and fantastic satisfaction from supporting Scotland’s new entrepreneurs.” BQ Scotland managed to persuade Gray to make the early morning trip to the chapel for its photo-shoot. After a quick tour, Gray’s conversation turns quickly to the news that two growing Scottish technology companies have recently been sold.

Edinburgh-based Mobiqa, experts in mobile ticketing run by Nick Rankin and Ronnie Forbes, has been bought by NCR, while Mpathy Medical, founded by Dr James Browning and backed by Archangels and Scottish Enterprise, has been sold for £22m to a Danish company.

“The point is, it is not selling off,” says Gray. “It’s allowing the companies to go to another stage of their development. So if you look at something like Mobiqa, it’s been a start-up and an R&D company that has developed great intellectual property. It’s now beenbought by NCR. I don’t see that as a loss to Scotland – or a sell out. What we’ve established is a new R&D presence in Scotland for a global company, and they will continue to develop that and provide more jobs and access to a global market. I think that’s a good thing and it shouldn’t be seen as a negative in any way.

“Money goes back into the angel network and into Scottish Co-Investment Fund that then gets put back into the next series of start-ups. I think Mpathy Medical is the same. You have a company which angels put in something like £5m and Scottish Enterprise has put in a bunch of cash. They have doubled their money. The Archangels are getting back £11.8m and Scottish Enterprise £4.2m. That money will get recycled, both out of the angel community and the Co-Investment Fund.

“We need companies going through that cycle, both to provide the money for the next generation of new companies to build our entrepreneurial experience, to inspire new entrepreneurs to have a go, and to encourage more people to become investors.

“I think the R&D base and the jobs will stay here in Scotland but the link to another international company accelerates the growth far faster than any amount of cash would have. You need that global reach.” Nelson Gray has been involved in a large number of SMEs at senior level including roles as owner manager, non-executive director, mentor and investor, both privately and on behalf of regulated funds.

He says: “I started Gap Fund Managers in an empty room with no telephones and built a staff of 12, based in two offices, who with funds of £15m, invested in 53 companies across the central belt of Scotland over a four-year period.” These funds were the first in Europe to receive ERDF support and set a new precedent for the use of structural funds to support early stage equity funding.

“The EU refers to these types of program as ‘financial engineering’, which may sound a bit dodgy,” he says, “but has eventually lead to the hugely successful Scottish Co Investment Fund, a model now being copied around the world.” Since 1996, Nelson Gray has investedpersonally in 21 companies.

He’s the first to admit that not all have been winners. “Some have been horrendous, all have been learning experiences, a few have been sufficiently profitable to make me stay in the game,” he says. Nelson Gray’s father set up a debt recovery and sheriff officer’s business in 1948. He worked in the family business from an early age, usually during his holidays, although didn’t join full-time, studying instead at Strathclyde University before qualifying as a chartered accountant in 1981.

“My initial role as a partner was to modernise the central administration, finances and technology to move it into a modern service industry,” he says.

“And I had to break down many preconceptions about the business, hiring quality management in the areas of finance and computer technology.” Gray set up separate service companies to attract the appropriate staff and over the next decade develop a computer network linking the 12 offices. The company built its own bespoke software solutions to handle high volume transactions. By 1992 the business employed more than 350 people with annual profits of £2.5m. He sold the enforcement business in a management buyout, but retained the debt recovery side which continued to grow. From Edinburgh, he developed a national service covering the UK.

This business was sold to Otto Versand, based in Hamburg and the largest mail-order company in the world with a turnover of 25bn deutschmarks, which had recently acquired the British mail-order firms Grattan and Freemans. Gray remained as managing director for two years but resisted a proposed move to Warrington and was given the Alan Sugar treatment. After being fired, he decided he wanted to assist Scottish businesses. Among the first was Optos, where the then chief executive Douglas Anderson was establishing an accounting system, recruiting his first accountant. Gray became an investor; Optos is now a leading Scottish retinal imaging company – listed on the stock market – that is preventing people from going blind.

With this under his belt, Gray worked alongside investment teams at Scottish Enterprise (subsequently Scottish Equity Partners) and became involved with Excell Biotech Ltd, a biotechnology manufacturing company based in Livingston. “We rescued it out of receivership,” he says. “I organised the initial funding, the partnering agreement with the Moredun Research Institute, and initially acted as managing director. I saw my job as keeping one of the founders locked in the laboratory manufacturing product and the other founder locked out of the office selling it.” Excell was acquired by QBiogene Inc of Canada and eventually built a state-of-the-art manufacturing plant for stage three clinical trial product in Livingston.

Today Gray maintains his interest in life sciences through his involvement with Antoxis, a drug development company. He says: “Initially my appointment was to be a non-executive director and represent a group of business angel investors, but I was appointed chairman.” The roll-call of companies tapping into Nelson Gray’s expertise is as long as your arm. He worked at board level with Obvious Solutions, a recruitment firm providing enhanced selection by employing video-based interviewing – eventually sold to Stepstone, a Norwegian-listed company. He was on the board of Clydebank-based Clyde Broadcast for four years as they built radio stations for the BBC and commercial radio broadcasters such as Virgin. He advised Edinburgh-based Allander Print Company which has been in existence for ten years and had a turnover of £3m, and the buy-out team for McGowan’s toffee, the iconic confectionery brand set up in 1902 which had changed hands several times. He was a board member of the Entrepreneurial Exchange for seven years, helping to shape its corporate governance structures which have allowed it to continue to grow and adapt to the changing needs of its members.

Meanwhile Gray’s advisory work has taken him all over the globe, delivering seminars in 14 countries, including Russia – all the way to Vladivostok – Chile, India and the United States. He delivered a set-piece speech on angel investing to a United Nations Economic Commission for Europe (UNECE), he has spoken at the Inter America Development Bank in Washington, the Organisation for Economic Co-operation and Development (OECD) in Paris, and helped former Soviet weapons scientists find ways of commercialising their research in the civilian market. But at heart he loves helping companies see the wood from the trees. “I was involved with the board of Memex Ltd, based in East Kilbride, after securing its initial funding,” he says. “The company provides software-based intelligence systems, primarily for police and security services. Turnover was around £7m a year. It has an international customer base and applies great technical complexity in many of the systems.” David Carrick, Memex’s chief executive, says Gray’s strength is that he asks the simple questions that were often difficult to answer, and does not accept the first answer. Gray says: “I often say that a company’s technology might be world-beating but the customer has to be able to understand its commercial benefit. It’s what it does that’s important when pitching, not how it does it.

“Throughout my business life, I have tended to look at things from a slightly different point of view from the others around the boardroom table. Following the sale of my own business, I became an angel investor, mentor and fund manager and my over-riding belief for each business is that it must thrive by selling products in the right markets at the right price.” “I have never been afraid to ask any question, however simplistic, and I keep asking for things to be put in the simplest of terms.

I have sat on the board of some outstanding Scottish-based businesses with world-leading technology but, as a nonscientist, I expect matters to be explained in plain commercial language, getting away from the jargon. “Ultimately, this helps define the strategic direction of any businesses with the key questions: ‘What are we here for? And what’s the business that we are in?’ These remain the constant backdrop for each and every one of the businesses and organisations that I have been involved with.” And, as an angel, Nelson Gray still has a lot of work to do in helping Scottish companies reach for the stars.