Midlands investment group targets new Scottish businesses with Edinburgh office launch

The firm’s Scottish drive will be headed-up by investment manager Paul Devlin and the operation has already forged partnerships with Dundee’s Abertay University and the University of Strathclyde in Glasgow.

The firm, based in Henley-in-Arden, said its growth north of the Border strengthens its support for early-stage Scottish businesses, with the new office enabling it to “bolster its commitment to finding and investing in disruptive, scalable technology businesses in Scotland, which is largely underserved by later-stage investors despite its impressive variety of start-ups and spinouts”.

It will seek to bolster Mercia’s efforts to find and invest in “disruptive, scalable technology businesses in Scotland”.

The firm, which floated on the Alternative Investment Market (AIM) last year, said £2.7 billion of venture capital was invested in the south east of England in 2014. However, less than £300 million was invested in Scotland over that period, leading it to take steps to “address this imbalance”.

Mercia began life as a fund management business backing spin-outs from universities in the Midlands, initially attracting third party funding through tax-efficient vehicles such as the Seed Enterprise Investment Scheme (SEID) and the Enterprise Investment Scheme (EIS).

It raised £70m through its AIM flotation in December, having undertaken the listing to access funding from institutional investors, such as pension funds, for businesses which have grown from start-ups to more mature, revenue-earning concerns.

It continues to invest in start-ups, pre-and low-revenue businesses, through Mercia Fund Management (MFM), its third party managed funds, and expects to announce its first investment through its Scottish office at some stage over the next quarter.

MFM typically takes equity stakes of between 20 per cent and 40 per cent with its investments.

Mercia Technologies typically invests in more mature businesses from the MFM portfolio and other sources.

Chief executive Mark Payton said: “It has always been an observation of mine that accessing capital is tough, no matter where you are in the world or in the country.

“The further you get away from London and the south-east, frankly, the tougher it gets.

“Yet we are seeing a wealth of fabulous investment opportunities in Scotland. What you need to be is in Scotland to access to access those deals. That’s why we have opened in our office in Scotland and in partnership with Strathclyde and Abertay universities.

“Abertay is really interesting for us because a good third of our investments are in digital, and Abertay is one of the strongest digital universities in the country by quite a big way.”

Mercia now has 11 partnerships with universities across the Midlands, the north of England and Scotland, spin-outs from which account for about 50 per cent of all investments via its third party funds, managed by Mercia Fund Management.

While Mercia anticipates a strong deal flow to arise from its links to Abertay and Strathclyde, notably in sectors such as digital, life sciences, manufacturing and electronics Mr Payton insisted there are other sources of investment opportunities in Scotland.

He highlighted the digital sector in and around Edinburgh as particularly fertile ground.

And he said the company does not have a fixed pot of funding it is locating to allocate in Scotland, noting that Mercia has experience of providing capital of up to £20m to fund companies.

Mr Payton said: “I’m not a big fan of prescribed pots of capital – if a business warrants a certain size, then it gets a certain size.”

Mr Devlin, who had been running the LAUNCH.ed student company formation service at the University of Edinburgh, is looking to build a team to boost the company’s deal flow in Scotland.

He is believed to have a strong track record as an entrepreneur and as a supporter of early-stage businesses, as well as expertise in market and technology assessment, academic and industrial collaborations, company formation and IP (intellectual property) commercialisation.

Mr Payton said: “He is acutely aligned of what we are doing in terms of young early-stage businesses and that is exactly what his role is – to work across Scotland, not specifically just Edinburgh, looking for scalable businesses with high-growth potential.”