Investment is on the menu

Investment is on the menu

As head of the Scottish Investment Bank, Kerry Sharp provides the fuel for many of the country’s growing companies. Peter Ranscombe hears how the bank may now end up with more on its plate.

Kerry Sharp steps into La Bonne Auberge with her trademark grin. As she slides into one of the cushioned seats by the window to enjoy the Glasgow sunshine, her arms start to wave as she launches into a story about the latest progress at the Scottish Investment Bank (SIB), the investment arm of economic development agency Scottish Enterprise. With the smile and gesticulations, Sharp is immediately engaging – but that isn’t always the case.

“We recorded a video for YouTube recently, with me talking about the help that the SIB can offer to businesses,” Sharp explains. “Normally I’m all smiles and arms going, but as soon as they started recording I couldn’t do it,” she exclaims, her face going deadpan and her hands dropping down to the table to emphasise her point. “I felt sorry for the poor camera crew – ‘Kerry, can you smile please?’ they’d ask or ‘Kerry, can you just use your hand?’ but all of a sudden I couldn’t.”

Sharp doesn’t hit any similar problems as lunch progresses, as she enthuses about the changes being made to the SIB’s funds, which help to bridge the equity gap by providing match funding, with the bank investing alongside private sector players.

The-then First Minister, Alex Salmond, unveiled his vision for the SIB in 2009 but when the organisation was launched the following year it came under fire for being just a redressed version of three funds that Scottish Enterprise was already running – the Scottish Seed Fund, the Scottish Co-investment Fund and the Scottish Venture Fund, which all provided funding to fast-growing businesses in return for an equity stake.

Since then, Sharp and her team have been busy putting flesh on the bones. Within a year of its launch, the SIB unveiled the £113m Scottish Loan Fund, which is run by Glasgow-based Maven Capital Partners and which offers mezzanine loans of between £250,000 and £5m.

The bank also invested in a £47.5m venture capital fund for life science companies launched by Rock Spring Ventures – the investment vehicle run by Sinclair Dunlop, which has since changed its name to Epidarex Capital – and began managing the Scottish Government’s £103m renewable energy investment fund.

Sharp became head of the SIB in 2013, having been its acting head for the previous year. When she took over the role on a permanent basis, one of her mantras was about helping companies to get “investment ready”. She didn’t want to just invest money into companies but also wanted to make sure that businesses were ready to attract finance, ensuring they could articulate why they needed the cash and what they would do with it. Since it was launched, her financial readiness team work with over 400 firms every year.

Her aim of helping companies to get ready for investment was born out of experience. After studying accountancy at Glasgow Caledonian University, Sharp joined Bank of Scotland’s graduate trainee programme and spent six years learning about banking, from business and corporate through to structured finance and mergers and acquisitions. She then spent a further four years at 3i, the London-listed private equity investor, before joining Scottish Enterprise in 2006 and setting up its portfolio management function, keeping an eye on the companies in which the agency had invested the public’s money.

“3i used to invest in a lot of the type of companies that Scottish Enterprise now backs,” Sharp explains. “Then 3i changed its focus and began doing bigger and bigger deals, moving away from the smaller and medium-sized companies. So Scottish Enterprise stepped in to help fill the equity gap that had opened up, below about £2m.”

Such investments are reaping dividends. Independent research showed that Scottish firms raised £242m of early-stage investment in 2014, compared with £116m only two years earlier. Helping to fill that funding gap has been one of the highlights of Sharp’s time with the SIB so far, and she highlights two successful companies in particular.

“Over the past year there have been two really major investment rounds for two of the companies we’ve supported since their inception,” she says. “One of them was FanDuel, which raised US$275m (£176m), which was one of the biggest deals in Europe and the biggest recorded deal in the UK for 18 years. The other was Nucana Biomed, which raised US$57m (£34m) to fund research into anti-cancer drugs.”

The SIB is now simplifying its funds to make them easier for companies and investors to understand. The seed and venture funds are being merged with the little-known Scottish Portfolio Fund, a pot of money that rarely made it into the headlines but which was used to make follow-on investments in companies where Scottish Enterprise already held a stake.

The three schemes are being rolled into a newly-rebranded Scottish Venture Fund, which will invest between £10,000 and £2m in match funding. The Scottish Co-investment Fund will continue to back companies alongside business angels, syndicates and other investment groups that have been accredited as partners. The co-investment fund is having its remit extended though, with the smallest cash injections now starting at £10,000 instead of £250,000 and continuing up to £1.5m.

“All of the investments will continue to be made on commercial terms,” Sharp insists. “This is the public’s money and so we need to invest it wisely. We are investing alongside partners and we are providing match funding to help bridge gaps that other investors can’t plug.”

As well as streamlining its existing funds, further changes could also be on the way at the SIB. Last November, [2014] First Minister Nicola Sturgeon told the Scottish Parliament that she would be establishing a Scottish Business Development Bank, an idea that was first mooted in 2013. Could the SIB have a role to play in offering debt alongside its equity investments?

“There’s an ongoing concern about a lack of access to debt funding in the market as well as long term and new equity gaps such as those I mentioned earlier,” Sharp says.

Kerry Sharp 02

“Banks are lending money but there are still a lot of businesses that are concerned that they don’t meet the banks’ criteria, particularly early-stage companies, those that are high growth and those that do not have sufficient security available.

“So, alongside Scottish Government colleagues, we’re looking at what more can be done and recent announcements have confirmed the government’s commitment to continue to support investment for growth and in establishing a Scottish Business Development Bank to secure increased funds to invest into Scottish companies.

Up until now, SIB has played a role mainly in the equity space but with the need for more diversity and continued challenges faced by companies seeking to raise debt, we’re thinking about whether there’s something we can do in the debt space as well. Crowd-lending is an interesting area that we’re looking at closely, as well as increasing our focus on direct support to companies in their fund raising.”

While the Scottish Government continues to look at the debt market for small companies, the SIB is already helping businesses in Aberdeen to tackle one of the other major economic themes running through the past year – the drop in the price of oil.

“Aberdeen wasn’t an area where a lot of companies were getting in contact with the SIB before because they didn’t need to – there was no funding gap for them,” Sharp says. “But since the oil price has fallen, we’ve had more and more companies coming to us to find out how we can help them. For some, it’s about helping to get them ready to take on investment, while for others it’s about helping them to apply to our investment
funds. We’ve responded to that increased demand by appointing a further member of staff in Aberdeen.”

The SIB is also working closely with other parts of Scottish Enterprise to bring more companies into its pipeline. Many of the fledgling firms working with the agency’s high-growth ventures team and the high-growth start-up unit could become the next generation of businesses that apply for funding from the SIB. Programmes being run to help companies include Start Global, which offers four months of intense training for technology start-ups and firms from other sectors to help get them ready for pitching and for investment.

When not operating in the world of high finance, Sharp is getting ready to take on another challenge – a triathlon. “It sounds very impressive when you tell people that you’re doing a triathlon, but less impressive when you tell them that you’re doing it as part of a relay,” she laughs. “I’m going to be doing the cycling leg of the race, which is about 12 kilometres.

Travelling, whether on two wheels or four, plays a big role in Sharp’s job. When she’s not working from her local Scottish Enterprise office in Kilmarnock, she divides her time between the agency’s sites in Glasgow and Edinburgh, and increasingly finds herself in London to have conversations with other players in the private equity and venture capital spaces.

“A large part of the SIB’s remit is to attract international investment to Scotland,” Sharp explains. “We’re making inroads into the equity gap below £2m, which remains with us, but there’s now also a second equity gap opening up between about £2m and £5m. Scottish companies are well catered for above £5m by private equity firms and organisations like the Business Growth Fund, which has a lot of money to invest. But if we’re going to plug that gap between £2m and £5m then part of that has to come through attracting new investors to Scotland. I can see us having a permanent member of staff in London soon to help with those conversations.”

But when it boils down to it, how can the SIB and other public agencies attract foreign investors to Scotland? “It’s a long process, but it begins with those conversations,” Sharp replies. “It’s about having an investor like us that knows the local market and can invest alongside new entrants. That’s one of the reasons why we’ve streamlined the Scottish Venture Fund, to make it more attractive to international investors. We need a diversity of supply – we need a variety of funds available to our companies to support their growth ambitions.”