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Interim review of the Scottish Co-Investment Fund III and the Scottish Venture Fund III


The Scottish Co-Investment Fund (SCF) and the Scottish Venture Fund (SVF) were set up in 2003 and 2006 as pan-Scotland funds to be managed by the Scottish Investment Bank (SIB). They are to increase the supply of early stage risk capital to small, innovative, Scottish based companies. They are delivered in slightly different ways, although both operate on the co-investment principle with the co-investors taking the investment lead. Both Funds are capitalised through Scottish Enterprise’s (SE) core budget and by the European Regional Development Fund (ERDF). The Funds operate under the Market Economy Operator Principle (MEOP) to ensure that they comply with State Aid regulations. The purpose of the review, of Phase III of both Funds, was to support their re-approval. Although SE Board approval runs until December 2018, the current rate of investment meant that the Funds would be fully drawn down before then. There was also a further ERDF award available. Accordingly, evidence of the Funds’ performance was needed both to gain SE board approval and to support the ERDF application.


The methodology involved desk research, data analysis and a series of face-to-face and telephone interviews with SE staff, investors and investees.


The key finding from the interviews was that the two Funds had been very effective in providing investment capital that would otherwise not have been available. They had also been very effective in growing the investor base within Scotland. The involvement of SIB in the Funds was seen as giving investments a “seal of approval”. A number of concerns were expressed, including such things as: a feeling that too much money was going into follow-on rather than new investments; a perception that SIB’s involvement in follow-on was not always necessary as the money could be raised elsewhere; the need to have an explicit exit strategy: and the limited capacity of some Angel Syndicates. However, the review highlighted that these concerns need to be interpreted in the context of funding interventions that are meeting their objectives. It was also noted that some of these concerns seem to indicate the need for a more effective communications strategy (with investors, investees and stakeholders) as they are often based upon misconceptions of SIB’s role and its need to act in a way that was MEOP compliant. In terms of economic impact, it was estimated that the impacts of the Funds to date are relatively modest. However, this is to be expected given the early stage of many of the investments. Over a ten year time horizon the Impact Ratio (net GVA per £1 of SIB support) was estimated to be 10:1 for SCF and 4:1 for SVF: an average of 6:1 for the combined Funds. The two Funds are forecast to create 1,100 jobs over ten years. Although the Cost per Job (£60,000) seems high, this should be seen in the context of the type of high value jobs that are likely to be created. There are also other benefits, such as additional investment in innovation and Research and Development and increased exports. Once the Funds have been realised, the Impact Ratios will increase and the Cost per Job will fall. The overall view was that the Funds were very effective.


A limited number of recommendations were made, including that: SIB should review its communications strategy with stakeholders, investors and investees and ensure that policy and procedures, and any changes to them, are made explicit; consideration should be given to formulating an explicit exit strategy from investments that is communicated to stakeholders as appropriate; consideration should be given, when making follow-on decisions and where other private sector funding may be available, to making its operating model (including operating oin a commercial basis) clear to stakeholders, investors and investees; and consideration should be given to the potential for assessing performance of the companies invested in through the various Funds since their inception, to determine their longer-term impact upon company growth.

Author Scottish Enterprise
Published Year 2018
Report Type Research
  • Sectors
    Digital markets and enabling technologies
  • Enterprise
    Support to existing/growth businesses