They say money doesn’t grow on trees. Paul Atkinson, one of Scotland’s most successful business figures, might disagree.
The quietly spoken investor and entrepreneur reckons that hundreds of hectares of Scotland covered by fast-growing sitka spruce are an investment with strong roots.
Atkinson is the co-founder and partner of Par Equity, one of Scotland’s 19 angel investment syndicates, but he has also been one of the outstanding figures in Scotland’s recruitment industry over the past 20 years, especially in the field of IT.
He remains chairman of Head Resourcing, a business he set up in 2001, which was listed in the Sunday Times Fast Track companies, but spends the majority of his time at Par Equity, which operates from a converted mews house in Edinburgh’s New Town.
So when he says he is interested in forests, you get the impression this is a serious opportunity.
Par Equity has put ￡15m into a portfolio of twenty businesses, with a number of managed funds and partnerships where individual private investors each take a stake.
For example, there are 87 investors in Par Equity’s Technology fund, and 18 in the forestry partnership.
Timing hasn’t always been perfect because the ￡4.5m Par Innovation Fund was launched in July 2009 days before Lehman Brothers collapsed.
Recently the Par Syndicate EIS Fund was launched to invest alongside the angel syndicate.
“We have invested in 20 companies and the spread of interest is related to the knowledge base and skills of our investor group. We only invest in propositions we understand and where we understand the market and that understanding is often arrived at by working closely with our investor base," he says.
The portfolio includes companies, such as Ciqual, a mobile and smartphone software business offering customer insight; Covec, which is a technical textile and clothing business, in the south-east of England; miiCard, an online identification company; and PathXL, which is a digital pathology business in Northern Ireland, where Par Equity was lead investor in the company’s recent ￡1m funding round.
“PathXL is taking pathology digital. At a basic level, digitizing slides allows much more efficient processing of tissues or other materials requiring visual study, whether for education, research or medical purposes. The hot space at the moment is enabling automated screening for cancer. A pathology job involves staring down a microscope for long periods and finding cancer cells is like finding a grain of sand on a football pitch.
"It’s a very skilled job but microscopy has in some ways remained rooted in centuries-old technology.
"Digital slides, when combined with a computer system with the right algorithms, can help the pathologist to make surer and quicker judgments” says Atkinson.
"Our investment horizon is not just Scotland, although it is restricted at the moment to the UK, which is partly because tax breaks from EIS (Enterprise Investment Scheme) are restricted to UK companies and partly because, as handson investors, we want our companies to be within relatively easy reach" he says.
Ask Scotland’s angel community what is the hardest part of being a discretionary investor – and they will tell you that getting a successful exit is a rare feat.
So Par Equity is celebrating the sale of Simple Audio, its first exit. The Glasgow company has been bought by US-based hardware company Corsair in a multi-million deal.
The company, created by Peter Murphy with a team of world-class sound engineers in Glasgow, has developed what they call ‘the ultimate high definition digital sound system.
Andy Paul, president and chief executive, of Corsair, which makes audio technology for the computer gaming industry, said he has followed Simple Audio as a potential investment opportunity since 2010 and was impressed by their vision of digital music in the post-iPod era.
He liked the Roomplayer system which simplifies the playing of digital music throughout the home.
For Par Equity, and 42 of its 200 investors, the government-owned Scottish Co-Investment Fund, part of the Scottish Investment Bank, this is a major win.
“I can’t tell you what it went for but it was a multi-million pound return and the investors are very happy. We first started investing in Simple Audio in 2010, so we’ve only been in for two and a half years. In real terms we probably weren’t expecting an exit at this point, as in recent years five years and over has been typical for an angel investment.
"We’re also seeing potential acquirer interest elsewhere in the portfolio, so may have other exits before long!
“One of the most important things I have learned about angel investment is that you need to develop a portfolio, so that you are spreading the risk and one bad egg doesn’t ruin your whole investment. Deciding who the winners are going to be is very difficult. By 2008, when we started Par Equity, I had invested in 20 companies. Several had gone bust but I’ve got a better than 35% internal rate of return across the board.”
The creation of Par Equity allowed Paul and Robert Higginson, who is an IT industry veteran and an angel investor on his own account, to pool their portfolios and add a permanent management process to look after the companies more effectively.
They quickly found they needed the capability to raise external money from other individual investors interested.
This required FSA clearance to cover the regulation of dealing with discretionary investors.
Andrew Castell, a corporate financier and former insurance industry executive, joined a few months later to add the corporate finance and investment banking sheen on the team.
The team was then joined by Paul Munn who brought a wide range of strategic, operational and transactional experience from his corporate background.
Par Equity is regulated to run its managed funds. Angel investors are classed as professional clients and are expert enough to be self-advised about the risks involved.
As part of Par’s investor sign-up process, angels need to prove they have the required skills and experience and also that they have at least 500,000 of investible assets which doesn’t include the house or pension fund.
Like Scotland’s other angel groups, Par Equity has quite a number of companies making losses, a few walking wounded, and a few great success stories.
“That’s the way it works, what you are trying to do is minimise the losses,” he says.
“You get better at spotting problems earlier and you get the right people in. The technology companies we invest in are high risk – and high potential.”
Par Equity’s model is to deploy management expertise and resources into the portfolio companies as well as capital.
Business failures can be dressed up in various ways, says Paul, but generally it all comes down to the management and the decision-making.
“You can very easily come too late to market, or too early to market. Mobiqa was early to market, which is why it took so long to realise its potential.
“Fortunately, they had investors who were able to keep funding the business. It wasn’t huge amounts of money but a steady flow. Happily, our patience was rewarded.”
One of the hardest decisions for angel investors is when to call time on a failing business.
“We’ve pulled the plug on two Par Equity companies: one because the product wasn’t working as stated on the tin, and the failure of the team to deal with the engineering challenges. It was the right decision.”
Par Equity is also running a property fund that is buying distressed buy-to-let assets, mostly in the central belt, from the banks.
Par Equity has steered clear of bioscience and drug discovery which requires tens of millions for testing, but is interested in med-tech appliances, hardware and software devices for the healthcare industry.
“We started buying forestry assets because our investors were interested in an asset-based, relatively low risk investment with tax planning benefits. On the risk profile, it is at the opposite end of the spectrum from providing venture capital to technology companies.”
The Par Forestry Partnership, which is the first vehicle for investing in woodlands, has bought a forest at Stonehill, near Crawfordjohn, off the M74; also 450 acres of new land for planting 265,000 spruce trees Ravenscroft in Ayrshire; and another site at Longrigg, near Armadale, in West Lothian.
“It’s a good investment because there are not enough trees being planted in Britain and the Forestry Commission doesn’t have the money to do all that needs to be done. Without investment, it isn’t going to happen.
"Scotland is a net exporter of wood pulp for paper manufacturing because the trees here are more suitable for pulping as they grow quickly in our lovely Scottish climate.”
Paul Atkinson studied physics at university – not the normal subject for a recruitment boffin.
“I suppose I have a bit of an odd mix of career," he says with a smile. “Physics is a good grounding for lots of things. It means understanding the basic principles of life. And from these basic principles you can usually take it forward."
He was an engineer for a year working for Phillips but his first sales job was an applications specialist with Millipore Corporation, now Merck Millipore employing 10,000 across 67 countries.
Although he was selling technical and scientific capital equipment, he had to understand the applications before he could present a proposal or a costing.
“It was a sales role but a heavily technological sales role,” he says. Later on, when Paul was advising on hiring sales people, this understanding of employing properly technically-conversant people was paramount.
"Hiring sales people is probably the most difficult thing a company has to do. Sales people are normally the best at selling themselves, so it is quite easy to mislead or miscommunicate experience and ability.
“It’s also hard to get the balance between someone who really understand the science, the market and the customer and have the drive and energy to take it forward. People with both sets of skills are difficult to find," he explains.
Was he driven by the monthly sales bonus at the end of the month? "Well, money is important but it is not as important as success. Anyone who says that money is not important is probably kidding themselves or trying to sling a line. To me, success is more important. If you deliver to people what you’ve promised to deliver, then you get paid for it.
“The money follows the success, rather than the other way around. Repeat business is always far easier than finding new customers.
"It is a lot less costly hanging onto your existing customers then finding new ones. You are always looking for repeat business or long term business. It is difficult to build a business when you are signing one-off contracts."
He had joined Millipore Corporation in South Manchester but his territory was West of England and Scotland.
His customers included Motorola, National Semiconductors, Hughes Corporation in Silicon Glen right down to Plessey Semiconductors, in Plymouth on the south coast of Devon.
His next role took him into selling hardware and software into the IT industry and he was working with Data Translations which sold data acquisition, image processing and an early kind of Ethernet and mini-networking equipment for the emerging personal computer.
His territory was the North of England and Scotland - but the 'North' started in Birmingham! “This was when I had the first PC at home. It was a green screen, IBM Personal Computer XT, that ran from a floppy discs. My first job in IT was in the era of the floppy disc,” he says.
“I was selling memory' cards for image processing for Digital’s PDP-11s. 4k of memory at the time was a hell of a lot of memory.”
Digital sold the PDP-11 through the 1970s and 1980s and it became a standard minicomputer for general computing, scientific, educational and businesses.
Its capabilities made it useful for banking and factory automation. For a club-level squash-player with regular matches, there was an arduous amount of travel and after nearly three years he felt jaded doing 60,000 miles a year in is company car.
“I started looking round where there wasn't so much travel. And by accident at one of the computer exhibitions at Olympia I bumped into the new sales directors of Computer People,” he recalls.
Computer People was then fairly small but is now part of the Adecco Group, one of the top three recruitment businesses in the world.
“I joined Computer People in Manchester but one of my first clients was the Bank of Scotland at Sighthill in Edinburgh. I was hiring analysts, programmers and project managers, for them.
"It made sense when Computer People opened their Edinburgh office that they offered me the job as the first permanent recruiter in Edinburgh.”
He moved up to Scotland in 1987 along with his friend Martin Mutch, who runs Rocela, the IT consulting business.
Paul also sits on the board of Rocela. The modernising banks were looking for IT staff with cobol software programming knowledge for their IBM mainframes, the famous MVS – Multiple Virtual storage system, and MVS/ XA.
The adage that no-one ever got fired for buying IBM was at its height.
“The industry was very different to what it is now. There was a big shortage of these kinds of skills in the UK – and in Scotland. Yet the same kind of skills are still required today. There is still a lot of IBM Cobol applications around requiring support and expertise.”
Within a year of arriving in Scotland, Atkinson was running major advertising campaigns recruiting IT people for Bank of Scotland, Standard Life, Royal Bank of Scotland, British Telecom in Glasgow, and General Accident in Perth.
“These were big advertising campaigns at the time, requiring full page, full colour adverts in the broadsheet newspapers and in the computing magazines.
"I guess I got the reputation for being the guy who could fix big recruitment problems. If you wanted to hire 50 cobol programmers, I was the guy to go to. A lot of the recruitment then was advertising driven with full-page colour adverts, branded by the client.”
Today all of this is on the internet. “I was headhunted to set up the Scottish office for business called Trident Computer Services in 1990. I ran this as the regional director working with clients such as General Accident and IBM. This business was ultimately bought out by a business which these days is known as Parity” While he gained valuable experience running a bigger show, he didn’t enjoy the new company’s approach.
This was when his first entrepreneurial leap was made with two others, placing IT guys in posts in the Middle East, in Abu Dhabi, Dubai, Bahrain and Qatar, but it all went badly awry. This bumpy learning experience was never lost on Paul Atkinson.
“We got the clients but we didn’t translate it into business fast enough and we quickly ran out of money. I was the only one who put hard physical cash into the business and without doing enough homework. I should have asked for a lot more information on my partners and also engaged with decent lawyers to check things and draw up the right investment agreements. I was young and business-naive at the time and didn’t ask the right questions. If I had, I wouldn’t have invested.”
These were the early scars that have helped make Par Equity “Today you are spending thousands on legal fees to ensure that the diligence is being done properly. It is very different now.”
In 1994, he became a headhunter for the Royal Bank of Scotland, working with a number of contacts, including Patrick Philips, who is now a Par Equity investor.
He hired over 100 people in that year alone. But the dotcom boom was gathering pace with IBM looking over its shoulder at Microsoft and the other challengers and hired Paul Atkinson as a consultant looking at how to change the method of recruiting.
IBM was moving headlong into providing sevices rather than simply shifting computer hardware and software.
They needed some help with the best approach to bringing the right kind of talent onto client projects.
As part of this project Paul also spent some time investigating the approach used in IBM US.
“IBM had a CV processing centre in Charlotte, North Carolina, that was processing 500,000 CVs a year. They had a huge scanner scanning them, then a bank of humans checking for all the mistakes in the scanning. They called it ‘verification’ but it was soul-destroying job. Thank goodness, no-one does that these days.”
Atkinson’s American sojourn made him think about creating his own IT recruitment business. He was introduced to Gordon Adam by Jan McCartney, who became Martin Mutch’s wife.
Jan had joined Career Care, which is now Bright Purple Resources, while Gordon Adam was running the IT business for Search Recruitment.
Paul and Gordon hit it off and set up Direct Resources together, as 50-50 partners, in Carmondean Centre in Livingston.
Perhaps not the most illustrious address but the growing clamour for good IT professionals meant they soon moved into bustling Queen Street in Edinburgh and then 21 Charlotte Square in Edinburgh which is next door to the building that is now being lavishly refurbished as the headquarters of Scoban.
At last, Paul was working for his own satisfaction primarily with financial companies clients, such as Direct Line, the red telephone insurance and banking phenomenon that upset the staid car and home insurance market, helping to fuel growth.
“We were the biggest IT recruitment advertiser by some way. In the mid nineties we were spending over ￡1m a year on recruitment in the newspapers. We ran recruitment roadshows in lots of different cities across the UK and Ireland and even went to Australia to bring Oracle developers back for ScottishPower in Cathcart, Glasgow.”
The nearest and strongest competitor was Melville Craig, but they were more of a generalist, according to Paul.
Then, in 1999, Direct Resources was approached by Mastech Systems Corporation, listed on NASDAQ.
They offered to buy the business for ￡3.4m, which was nine times earnings. This was a nice deal, but more was to come very quickly. With recruitment starting to migrate online, a spin-out business called Recruitment Scotland.com had been set up in 1997 by four partners, including Gordon and Paul.
It was also going extremely well and was sold a year in 2000 after the Mastech deal for another ￡9m, this time to TMP Worldwide, the owner of Monster.com, and also purchaser of Melville Craig.
Paul Atkinson was now a rather rich young man, as were other recruiting experts in Scotland. It appeared, for a time, it was the fastest way to make a pile of money.
It was then that Paul began his involvement in angel investment. His first investment was in Learning IT, run by Duncan McLeod. This was a fast-growing IT training business and looked a certain winner.
It was sold to the Baxi Partnership, an employee-owned business, for a good return, although classroom IT training later faded in popularity as more was delivered online.
The second investment was in Mobile Active, which ran out of money, but led directly to the formation of Mobiqa, set up by Ronnie Forbes in 2002.
Paul was sailing off the West Coast of Scotland with Malcolm McPherson, the leading Scottish lawyer with HBJ Gateley, when he was introduced to Gordon Galloway, well-kent as one of Scotland’s leading and most successful angel investors.
As a result, Gordon, Paul, Mike Rutterford and Eric Young, both of Archangels, all backed Mobiqa.
Mobiqa developed barcodes for mobile phones, and with angel syndicate backing was also able to attract match-funding from the Scottish Co-Investment Fund.
When Mobiqa was sold in 2010 to NCR it provided a sizeable return for the Co-investment fund.
“The Scottish Co-Investment Fund has been a big boon for the whole angel industry. I talk to the Scottish Investment Bank people several times a month, we’re always speaking about deals and what is going on. It’s an excellent thing for Scotland.It increases the firepower for the industry and encourages people to invest more.” There have been some tough lessons along the way.
“I was a bit naive with some of my early investments. With others, I made a substantial investment in an engineering business that went badly wrong. We all lost quite a lot of money.”
This was all part of the development of Scotland’s angel community. In 2001, Paul still hadn’t finished with the recruitment business bug and set up another business, Head Resourcing, which had a turnover of ￡46m in 2011 and works with many of Scotland’s leading Financial Services companies.
This business started life as Active Executive, then a rebranding exercise came up with Corarus, which is Latin for ‘keeping rare company’.
As a down-to-earth Yorkshireman, raised on a farm, at Finningley, near Doncaster, he decided he wanted a name that was simple and described what the business did.
He found it in his sports bag. He was using a Head racquet for squash. So, bingo, the business became Head Resourcing. In 2004, he was able to buy back his old business, Direct Resources, which was then supplying a lot of IT contractors to banks and other financial institutions.
“It’s been a very good area for us to be in the last three years. When the world of full-time recruitment fell apart, there are still a lot of IT projects around. The increase in regulation has meant a boom in demand for IT expertise.”
Atkinson stepped down as Head’s chief executive in 2008 with Gordon Adam taking over, but he remains the chairman.
Head’s IT recruitment business, which at its peak had 500 working on contracts, is now run by Huw Martin, Lee Murray and Callum Lyle, while an international medical division, set up two years ago to place doctors, consultants and healthcare workers in posts overseas, is run by Anna Payne.
“I think that many in the NHS are finding their working conditions changing for the worse and the thought of working abroad in locations such as Australia and New Zealand looks increasingly attractive,”he says.