Evaluation of the Scottish Co-Investment Fund (April 2009 – December 2013): final report to Scottish Enterprise

The aim of the evaluation was to assess the extent to which the Scottish Co-Investment Fund (SCF) has influenced the early stage risk capital market in Scotland and to demonstrate the effects investment through the fund has had on the invested businesses. The SCF is funded by the Scottish Investment Bank (SIB) with support from the European Regional Development Fund, and provides equity funding to eligible businesses. The evaluation covered investment through SCF in the period between 1st April 2009 and 31st December 2013 (referred to as SCFII).

The primary evaluation research comprised: analysis of fund performance data; consultations with stakeholders and investment partners; and a survey and in-depth analysis of the performance of a sample of 49 SCF-invested businesses.

The evaluation found that the rationale for intervention through the fund remains valid, with all interviewees considering the SCFII to be addressing a valid ongoing and structural market failure in the supply of risk capital for start-up and early stage businesses. In terms of the performance of the fund, it was considered too early to draw substantive conclusions. This is because investments were anticipated to exit in the period 2017 to 2020. The fund invested £45.5 million in 149 businesses, and levered private sector investment of £74.5 million. The investment received by the businesses consulted was considered instrumental in sustaining and progressing their growth. Overall, the evaluation concluded that SCFII has the potential to generate significant economic impact at the Scottish and UK levels, based on the identification of high levels of additionality, minimal displacement and strong actual and projected export performance. It is estimated that the businesses in the research sample have generated £31.4 million of net additional GVA, with projected net additional GVA to 2025 estimated as being £290 million.

The report sets out a number of recommendations, including: that the SCF should continue to operate as a partner-led co-investment fund on the Market Economy Investor Principle (MEIP) addressing structural issues in the equity (risk) capital market in Scotland; that SCF and partners should continue to work to accelerate and secure successful exits and to take appropriate action where exits appear unlikely; that the role of the business angel needs to be acknowledged and promoted; to continue to carefully select and develop angel syndicates; to consider the case for increasing the ceiling for the SCFII contribution and deal size; and being aware of and responsive to innovations such as crowdfunding.