1. Leavers of Economic Policy General Business / Entrepreneurial Environment Demand Side Support –i.e. “Investor Ready” Support for Angel Groups / Training (supply side) Taxation Incentives Co Investment Funds nelson@nelsongray.com

2. The Principal Funding Gaps Equity (cash) Gap Knowledge GapSkills Gap Need to fix all & together

3. Contributory Factors to the Equity Gap On the Demand Side - Entrepreneurs: - Insufficient Concept Development. - Poor Proposal Presentation. - Management Inexperience. On the Supply Side – Angel Investors: - Inadequate personal wealth. - Inadequate investment skills. - Insufficient knowledge of new technologies. - High transaction costs – cash & time. On the Support Side – Lawyers, Accountants, Tech Transfer: - Major knowledge and skills gaps.

4. Evolutionary Approach 1 Key initial issue is building - –Capacity – volume of investment available –Capability - skills – ‘investment readiness’ – deal flow Once these are addressed policies move to –co-invest with the experienced networks that emerge. Capital for long term growth –Preventing market distortions Unintended consequences of legislation 1 The Role of Different Funding Models in Stimulating the Creation of Innovative New Companies. What is the most appropriate model for Europe? A study for the European Research Area Board. www.technopolis-group.comwww.technopolis-group.com October 2011

5. Scottish Angel Investing – 1996 - 2010 1996 €3m of Angel Investment. 2 Angel Groups 2010 €61m of Angel Investment 1. 20 Angel Groups UK Government  Tax incentives  Financial Regulation Scottish Government  Education (exits)  Groups  CoFund ERDF  Groups  Education  CoFund 1 Annual report on the Business Angel market in the United Kingdom: 2009/10. Colin Mason and Richard T Harrison, May 2011. 25% of UK Angel Investing 1 8% of UK Population

6. “The Scottish market is distinctive - deals are larger, there is more co-investment activity, more follow-on investing and larger investee companies. This is attributable to the different institutional structure and organisation of the market in Scotland – notably the greater prominence of Angel groups and presence of the Scottish Co-investment Fund”. (UK Department of Business, Innovation and Skills, Annual Report on the Business Angel Market in the United Kingdom: 2008/09, Colin Mason and Richard Harrison, June 2010)

7. Scottish Co Fund 2004 Annual report on the Business Angel market in the United Kingdom: 2009/10. Colin Mason and Richard T Harrison, May 2011

8. Some General Issues: Need Evolutionary Approach. Educate the Market –Demand, Supply and Advisory sides –Create Investment Partners for CoFunds –Group Investment Structure favoured Who are the “experienced” angels? –Few have been through the full cycle more than once Governments cant handle the “Lemons” (Failure) Public sector conflict of interest – “exits” v “Jobs” Objective - Creation of a Local Investment Community