The Bioeconomy in the UK: An Investor's Perspective

This roundtable discussion was organized by The Bioeconomy Cluster Builder (BCB), a joint undertaking by IBioIC, KTN, and Scottish Enterprise. It is funded by the European Development Fund.

KIM CAMERON: Welcome to this Bioeconomy Cluster Builder (BCB) webinar considering the bioeconomy from an investor's perspective. Together with colleagues, I am responsible for the BCB project, which is a three-year ERDF [European Regional Development Fund] funded collaboration between the Industrial Biotechnology Innovation Center (IBioIC), KTN, and Scottish Enterprise. It exists to support the delivery of the National Plan for Industrial Biotechnology of £900 million turnover in the sector by 2025, with 200 companies active at that time.

The main aims of the project are to raise awareness of the benefits and applications of industrial biotechnology, particularly in those sectors that are less familiar with biotechnology. And we realize that innovation is all about connection, so we're connecting people and resources to develop new and existing value chains, encouraging utilization of Scotland's bioresource feedstocks.

To do this, we run targeted workshops and awareness-raising activities, like this event. We provide innovation support to organizations using tools like the KTN Innovation Canvas. We also signpost companies to appropriate funding opportunities.

We created this event in response to requests we get from early-stage businesses and SMEs who often ask us what investors look for, how best to approach them and what their selection processes look like. Today's webinar brings together a range of voices and perspectives from the venture capital, angel investor and public sector communities. Our speakers bring a wealth of experience and insight which I'm sure will prove valuable.

Our first speaker is Michelle Kinnaird, Head of Investment Management at Scottish Enterprise.

MICHELLE KINNAIRD: Thank you Kim. I'm going to give a general overview. Scottish Enterprise [SE] works alongside a lot of the investors that you will hear from. I'm going to take you through the strategic context of what we do at SE, the ways we provide support and guidance, and then finish up with some examples. I tried to choose a few different examples just so that you can see the different stages in which we can help.

Jobs (new, good, green), net zero, and place (regional growth, national place-making) are our goals. Net zero is at the heart of everything we do, and moving the bioeconomy forward is integral to that. We are set within government, but work with industry and academics and often our deals bring the three together.

From an investment point of view, we want to work with universities and research institutes. What are we looking for? Quite often we are looking for platform technologies that will make a step change in how we manufacture. We work all the way from early-stage but also provide support through scaling and delivery. Support includes investment as well as awareness, training and advice.

If we don't need to invest, we won't; we won't displace other investors. But when we do fund, with that comes portfolio management and stimulating the market. It's about making the market work better and putting the right people in contact with each other.

Since 2003, ₤624 million has been invested. Since March, ₤420 million has been awarded to 340 companies. We've had a really good year, with income of ₤241 million, with a couple of large exits.

We are here to build the economy in Scotland, and we do that alongside some of the people you will hear from today. But the key thing for us is re-leveraging that private sector money. If we can put a small amount of money in, that makes a difference or gets a deal across, then that's where we come in.

We have a guidance website with funding advice, grants, and guidance on accessing finance. So, there are a lot of nice pointers and reference points. We also have resources for finding business support in Scotland and beyond, with information on navigating EU funding programs, and advice for identifying the type of funding you might need and building a business plan.

To give some idea of what we look for in investments, we need businesses to effectively provide an executive summary or teaser that gives a really good feel for exactly what difference your product or process is going to make. What is unique to the competition that's out there? Have a good elevator pitch, it's a good way to hit home why what you have is unique. And don't be intimidated by putting together a pitch deck, business plan, and financials. The difficult stuff is the science, we'll help you with the rest.

Some of the companies we've worked with include Proteus, New Wave, CelluComp, and Oceanium. All the companies are at different stages. We invest in many different businesses across different sectors, but the key things are around growth and making a difference.

Our investment approach is primarily small-to-medium enterprises with growth and export potential. We co-invest with private sector investors such as angels, corporates, banks and venture capital (VC). We make sure that the public sector investment is not above 50%, and we are very much a gap investor with no displacement or crowding out. We are looking to balance commercial and economic returns. We will invest on fully commercial terms, with the same conditions as investors like Archangel, and take all the same rights. However, we are doing it to benefit the economy of Scotland and the company needs to have a significant operational presence in Scotland.

We are a very patient capital partner if need be, and we understand that there are inflection points. We are looking for value-based businesses committed to fair work first and are operating in the greenest carbon-efficient way.

Our Scottish Co-Investment Fund (SCF), Scottish Venture Fund (SVF), and Energy Investment Fund (EIF) are all managed internally. The SCF and SVF are equity and the EIF is a combination of equity and loans. We have the Scottish Loan Scheme (SLS), and we have 30 companies with debt in SLS. Quite often, when companies are first coming out and they're innovation phase, they need to make sales and we invest in their sales force. We also have some funds we're invested in: Management Buyout at the other end and the Scottish European Growth Co-Investment Programme. We also had the Early State Growth Challenge Fund, which was COVID-specific. When we looked last year, early stage was really suffering in Scotland and a lot of the startups and spin-outs were not happening. So, we put extra money into it. We listen to the market and figure out where we can help.

If you're starting out in your journey, and you need to find smart money that will help you open doors into particular sectors or geographical markets, I think you need to make sure your investor base is evolving as you grow as a company. There's no one way to grow a business, and in the bioeconomy what we find is sometimes the disruptive applications—especially if it's a platform application—the plan might be to go into paint but along the way the decision is made that there are more like-minded people and opportunities in food. Sometimes in the bioeconomy it takes companies time to find their feet.

For high-growth startups, fundraising and associated activities make up a lot of that early work. There's initial funding, seeking external startup funding, forming investor ready teams, completing investor ready business plans and securing financing. At an early-stage bioeconomy startup, you might feel like you spend more time speaking to investors and fundraising than you do advancing the technology. There needs to be a balance as you move forward with teams and build out leadership and board.

One company we have invested in is Celtic Renewables, which produces acetone, butanol and ethanol from whisky waste. Together with Zero Waste Scotland, we have been a long-term supporter. Our equity in the core business is ₤2.4 million and there is also ₤11 million invested in its first plant through a special purpose vehicle investment.

Horizon Proteins is another company we are invested in. They produce protein and yeast products for the aqua and animal feed industry. Another company, CelluComp, is developing and commercializing Curran^® extracted from root vegetables.

CAMERON: Thanks, Michelle, that was a great overview of Scottish Enterprise and your open approach to working with businesses in the bioeconomy.

We are going to move to our next speaker, Marta Chrusch, business development and regulatory manager in Bioenergy New Businesses at BP. Marta has over 14 years' experience in biofuels with BP. Prior to BP she worked at a number of universities and angel/early-stage investors evaluating technologies, working on spin-outs, and raising early-stage funding.

MARTA CHRUSCH: I work at BP's Bioenergy New Businesses, the commercial arm of gas and low-carbon energy at the company, and we work very closely with BP Ventures.

BP has a presence in over 70 countries, and we look for scalable solutions that we could potentially roll out in many countries. We have a very large and diverse workforce across the globe, so we have people with very different ideas and expertise. We have significant operating cash flow, which we distribute to our shareholders. Many of our employees are shareholders, so there is a direct link between what we do and the success of our employees. We are a significant oil company, we have a huge upstream production, which will remain. But what is less known is that we are also a huge renewables company. Right now we have over 14 gigawatts of developed renewables, and this is the part of the business that we are growing.

As you might have noticed in the press, last year we announced a new ambition to be a net zero company by 2050 or sooner and also help the world reach net zero. This means we need to tackle around 450 million tons of emissions—basically 55 million from our operations and then 360 million from our upstream oil and gas production. Most importantly, these are absolute reductions. We also aim to reduce the carbon intensity of the products that we sell by 50% by 2050 or sooner. This is a huge task and very challenging because it's basically reducing the emissions of everything we sell in half and increasing the renewable content of the energy products.

To achieve that, basically our strategy is built around three focus areas of activity and three different sources of differentiation.

The main focus areas are: low-carbon electricity and energy (building scale in renewables and bioenergy and looking at our position in hydrogen and carbon capture and storage), convenience and mobility (finding solutions for customers including those at the heart of what BP does), and resilient and focused hydrocarbons. We will still retain some hydrocarbons, but focus on the best hydrocarbons that drive capital and cost productivity.

The main sources of differentiation that we see to achieve this strategy would be integrating energy systems (and finding the best digital solutions for that); partnering with countries, cities and industries to find the best solution in each of these locations (finding the best energy mix and energy portfolio); and of course this would be all underpinned by digital and innovation. None of these things can be achieved without digital and innovation.

Our 2050 ambition is far off, so we need to have interim, focused targets. Just to show you some of our aims, in particular the aims in renewable energy, our 2030 aim is to grow from 14 gigawatts of renewables to 50 gigawatts in renewable energy–a significant increase in our trading position in renewables; increasing the gas portfolio and basically getting a significant share of the hydrogen market, both blue hydrogen and green hydrogen. The main focus is on providing low-carbon energy.

In the bioenergy space, we aim to significantly increase production from current production, not just in road fuels market, but also in biofuels markets.

Particularly in bioenergy, there are four businesses that drive growth right now. We have significant biofuels and biopower production, especially from our assets in Brazil that produce ethanol and biopower. We are the largest biojet fuel supplier in the US. We supply biojet fuel at 11 airports in 4 countries. We have a partnership with startup Fulcrum which is commissioning its first plant in the US to produce biojet fuel. We also produce hydrogenated vegetable oils at our refineries, increasing our share of renewables in our existing hydrocarbons. Our target by 2030 is quite ambitious; from roughly 20 kb/d we want to get to 50 kbd by 2025 and then basically double that by 2030. The challenge is enormous and building this scale would require all of our resources and focus.

We can't do it on our own. We need innovation, we need fresh ideas from other industries, and we need new technologies. One of those levers for us to gain access to those new technologies is our BP Ventures program. BP Ventures has been investing in new, game-changing technologies for the last 15 years and accelerating innovations that grow different energy sectors. Those investments are really critical to us achieving net zero.

We invest in technologies that fit our strategies. Whenever we look at investing, we also think how does this fit our business. What can it make in terms of say, high growth, where it is a game-changing new technology and how it can disrupt technology. Our ventures team is one of the most active among energy venturing investments. We invest from seed funding to Series D funding. What is good about BP is that when we invest we basically follow up in subsequent rounds. This is very particular. We might take a bit longer to look at where the investment fits the strategy and so on, but once we decide we usually follow up in subsequent rounds. Another advantage is that we only invest if the business sees value. The advantage to a startup in this is that we connect them with BP's global business and that allows the startups to grow much faster and wider.

It is worth talking to BP if you have some great ideas, not just because of the funding, but because of our capabilities. We provide multienergy solutions so if you have good ideas it doesn't mean we are looking at just one energy solution, we look at a number of different energy solutions and we are trying to find the best fit. We have partnerships with companies that would also provide synergy not just in our industry but in other industries as well.

As already mentioned, we have global reach. So, if solutions might not fit in one location there might be other locations where the solutions could fit. We have significant operational expertise that could provide help to the startups in particular when they begin scaling. As you can appreciate, having been in the oil business we have significant expertise in large projects and distributed projects and all this expertise can be applied to the new bioenergy businesses. There are systems in place, there are operations in place, there are experts in place who can help scale up to get to the right safety level and move the projects wider and get the best value.

And we have a very large trading division to move products across the world to find the best optimization for the products and find the best value for the products. Our traders have over 12,000 customers in over 140 countries which provides even further reach. So, just to summarize, BP Ventures brings not just funding, but something more valuable–capabilities, network, global reach, and opportunities that allow game-changing ideas to scale up quickly and be successful.

CAMERON: Thank you for a great overview of BP Venture's capabilities and net zero ambitions. It can be daunting for smaller businesses to understand the perspective of large corporate investors, so it is very helpful to get a view of that.

We will move on to our next speaker, Cam Ross, Chief Operating Officer at Green Angel Syndicate. Cam and his team manage deal flow systems, due diligence and investment management. He has a wealth of experience in creating, commercializing and patenting new technologies.

CAM ROSS: Thanks, it's lovely to be here and hear such different presentations about different points that investors can get started in growing the bioeconomy. I'm going to share a different flavor. Green Angel Syndicate invests exclusively in companies that are fighting climate change. We are one of the largest angel syndicates in the UK, and I said the only one that fights climate change exclusively. When we look for an investment in a company there are three absolute requirements that we have. The first is that we must be able to invest in companies that have a positive impact on carbon dioxide or CO₂ equivalent in some way. Secondly, we want to find companies that have potential for good returns for our investment. And thirdly, because we are a syndicate and network of private investors, we think we can add value from our specialist members in getting involved in those companies. So, we don't just invest. We don't just write a check and walk away. We want to find companies that we can get involved in.

By way of background, to give you give you a sense of scale, we have just over 300 members. All of those members are high net worth individuals who are looking specifically into making investments in companies that are fighting climate change. We have 28 portfolio companies today. My team and I evaluate between 700 and 800 opportunities for funding investment every year and we end up making 15-20 investments per year. As you can imagine, there's lots of demand out there, lots of great companies with innovators and entrepreneurs out there looking to raise funds for their exciting dynamic companies that are fighting climate change. We typically invest somewhere between ₤100,000-1,000,000 per investment round.

We very frequently co-invest, so it was great to hear Michelle talking about Scottish Enterprise. We've co-invested with SE and many other organizations, particularly to do two things: target regional investments we want to make, and also target specialist investors who look at a particular slice of the green economy that we're particularly interested in as well.

Alongside our membership of 300, we also run a fund called The Climate Change Fund. The rules for that fund are really simple: when Green Angel members go through a due diligence process and filter down from the 700-800 companies down to the 15 or so that we make every year, the Climate Change Fund will invest alongside those members. So, the Climate Change Fund is a way for people to invest into this space but without having necessarily to take the time to take part in the due diligence, the investigation or filtering of those several hundred, down to a few.

One company we've invested in is Nature Metrics, which is a fantastic business that uses DNA to create a score or ranking of biodiversity in a particular environment. What they do is take water or sediment or soil from a rainforest, river or lake and take that material and they apply it through their filtering and sieving systems and extract all the DNA of the plants, animals, fungus, spores, all of it, in that environment. And it's absolutely brilliant; nature-based solutions are going to form a huge part of how we tackle climate change and being able to measure biodiversity to make sure that it is not reduced, and is in fact enhanced, is a fantastic start to the toolset that we need to help our forests and rivers grow in terms of biodiversity. Green Angel Syndicate was a really early round investor in Nature Metrics. We've raised with them three times over the course of our three year history with them. In their last round, Nature Metrics raised just over £6 million as they've continued to expand operations.

We've also invested in Oceanium, as has Scottish Enterprise. This is a brilliant company based in Oban. They have a proprietary refinery system that takes sustainable, farmed kelp and produces plant-based foods and cosmeceutical ingredients that replace petrochemicals. They produce a bio packaging material that can replace petrochemical-based waterproof films for things like coatings on food products. Obviously there is a really high CO₂ impact from a company like that because they are replacing petrochemicals and using nature-based solutions.

The Scottish Bee company is a little less on the tech side and more on the bio side of things. We made an investment into them two years ago. They are a company started by Ian and Susie Miller; it is a company based in Livingston just west of Edinburgh. Essentially they have made a mission to increase the number of bees in Scotland by 20% in a relatively short time. We all realize the importance of bees for pollination and for our whole food chain. And what they have here is a terrific business model. They sell honey, they sell wax candles, they sell drinks with honey ingredients. And they are very good at explosive business in terms of growth and they are plowing profits back into training new apiarists to go out and increase the Scottish bee population, care for the countryside and improve the biodiversity and wilderness in Scotland. As we know, habitats are nature-based solutions and are absolutely terrific CO₂ sinks to allow us to contain our carbon output. It is a terrific company. And it's absolutely brilliant; nature-based solutions are going to form a huge part of how we tackle climate change and being able to measure biodiversity to make sure that it is not reduced, and is in fact enhanced, is a fantastic start to the toolset that we need to help our forests and rivers grow in terms of biodiversity.

And the final example here is a company called Better Origin. The company takes food waste and turns it into animal food. Stuff that would typically have gone into landfill and produced dangerous methane gas as it decomposes is instead turned into feed for black fly larvae. Those black fly larvae are grown in semi-automated way. What comes out is black fly larvae feed which is fed to chickens and it substantially improves the birds' health because they are eating fresh food and it improves the farmers' margins. It's a win-win-win: CO₂ saving, better animal health, better margins for farmers.

The final point I wanted to make was to come back to the way I started and say we have specialist members in our syndicate that look to use their background and skills to help companies grow. Bernie Bulkin is the ex-chief scientist at BP, Caroline Halliday spent many years as advisor for national trust in Scotland, and Pierre Castel who has a finance background, particularly in green finance. These are pretty typical of our 300 members. We attract people to the syndicate who want to invest and use their specialist skills to help our portfolio companies grow.

CAMERON: Thanks Cam, that was a great overview of Green Angel and some fascinating examples of companies you are working with.

Our next speaker is Marc Leduc, Investment Manager, BASF Venture Capital. Marc took up his current role in 2017 after working in a range of positions within the organization spanning back to 1999. He holds a PhD in polymer chemistry from Cornell University and an MBA from the University of Oxford.

MARC LEDUC: I'd like to give an introduction to BASF and its venture capital landscape and how investing in startups is part of BASF's open innovation approach.

BASF is a global chemical company. We're active in 90 countries, we have over 240 production sites globally. BASF employs more than 110,000 people who work to contribute to developing solutions to our customers in many sectors. Last year BASF generated sales of just below €60 billion. BASF activities are grouped in 11 operating divisions that are themselves organized in 6 segments.

In our chemicals segment, we have petrochemicals and intermediates. They supply the other segments. This is where the raw materials come into the BASF value chain. The materials segment is composed of performance materials and monomers. Its portfolio comprises advanced materials and their precursors. So things like polyurethanes, polyamides and biodegradable and compostable polymers. The industrial solutions segment consists of dispersions and resins and performance chemicals. This is a mixed bag segment where my colleagues in these divisions work on for example additives for fuel or lubricants polymer dispersions, plastic additives, oilfield chemicals, solutions for mining etc. This is a complicated segment. The surface technologies segment comprises the catalyst and coatings divisions. The portfolio serves mostly the automotive and chemical industries.

The nutrition and care segment consists of the care chemicals and nutrition and health. They serve the growing and increasingly sophisticated demands of the fast-moving consumer goods industry. Here we would be talking about additives for cosmetics, additives for detergents and cleaners, vitamins and so forth. Agricultural Solutions segment, which is also an operating division on its own, aims to further strengthen its market position as an integrated provider of seeds, crop protection and digital solutions.

Innovation is really key for the chemical industry and BASF is taking this seriously as indicated by our more than €2 billion R&D budget. At BASF, about 10,000 employees worldwide are involved in R&D. Last year we generated about €10 billion in revenues from products that have been launched within the last five years. These are products that have directly resulted form our R&D activities.

BASF operates three global R&D divisions. We have a process & research division located in Germany. We have an advanced materials division based in Shanghai, and we have bioscience research based in the US. Together with our development units in the operating divisions, they form the core of our global know-how network.

Since the people here are more in the bioeconomy, I thought I would walk you through what our colleagues in our bioscience research division do. The bioscience division works in five areas: crop protection, white biotechnology, seeds and traits R&D, vegetable seeds R&D and toxicology.

Our white biotech division basically uses the power of microorganisms for industry production. Colleagues here would be working on two platform technologies: fermentation and biocatalysis. They would use a combination of these two to produce new products and solutions in sectors like chemicals, enzymes, performance biologicals, and biopolymers.

One example would be the development of enzymes that help animals better utilize phosphorous and excrete less phosphates into the environment. So the colleagues would use a combination of computational approaches and high throughput screening to develop the new enzymes.

The research and operating divisions are the core of our R&D activities, but we can't do this alone. We've heard this from BP and for us it's the same. We have to work with external partners to get new technologies. BASF maintains an extensive network of global academic relationships. We have many thousands of collaborations with various academics worldwide and we operate several post-doc centers as part of our academic research alliances with top universities. We also work with industrial customers and startups. There are many ways a corporate can work with a startup. One is through corporate venture capital.

BASF started venture capital activities back in 2001. It currently has 14 team members globally. We invest in Europe, North America, South America and in Asia, with a particular focus on China and India. We also have a representative in Israel. We invest from a $250 million fund that is evergreen. And we take minority shares with tickets of around $1-5 million in startups in Series A or B stage of development.

It's not terribly surprising that we focus our investment activities in this sector. Our interests are very broad. To simplify this I can split our investment interests into two buckets: sustainability/new materials and new business models/artificial intelligence/digitalization.

We'll be looking at financially attractive investment opportunities that also have a strong strategic fit to our existing or future activities. Sustainability/New Materials investments we have made include [renewable product makers] Lactips, LanzaTech, and P2 as well as bigrep, a filament additive manufacturer. Investments with disruptive potential in AI/digital farming include IntelliSens.io, a developer of AI-based solutions for the mining industry and RE'FLEKT, a company working on industrial augmented reality.

CAMERON: Thank you Marc, it's really valuable to get a sense of BASF's structure and the vast range of sectors and technologies you are engaged with, so many of which have relevance for the bioeconomy.

Our final speaker, Sarah Hardy, is director and head of new investments at Archangels, a prominent angel syndicate at the forefront of early-stage investing in Scotland. Sarah has extensive international experience in managing early stage opportunities in healthcare technology.

SARAH HARDY: I would like to start by saying investors aren't scary and we are very keen to engage with companies at any stage. Investors ask lots of questions because we want to understand your business and we want you to succeed.

We are an angel syndicate based in Edinburgh. We invest in early-stage companies based in Scotland. We are comprised of just over 100 members who all have a passion for growing companies in Scotland. One of our core business pillars that underlies our strategy is to give back and use our network to help the next generation of entrepreneurs. Other things that are important are making money, but also having some fun.

I'll go through some of our key investment criteria. We have a rigorous investment philosophy. We invest early; we like to invest in IP-rich, deep-technology, life science companies that address large market opportunity with high growth potential and international sales potential.

Defensible IP doesn't necessarily mean a filing, but there has to be some barrier to entry where it can't be easily replicated or there is a first-mover advantage to help investors. We want to provide investments in the most innovative companies to really bring the capital to help fund growth at that early stage. We typically invest through EIS [Enterprise Investment Scheme] to maximize investors' opportunity here. Officially, we invest around £50,000-£2,000,000 in the first round, but I have to say I don't think I've seen us as low as £50,000, I don't think opportunities of that size come along very often. The typical first round investment is around £1,000,000. But unlike other syndicates, we like to lead our investments because we really like to roll up our sleeves and get involved. We really like to use our domain expertise to do due diligence and use our network.

When we first invest, we very much look at what is the cost of the overall opportunity. We don't just look at needing £500,000 now, we look at what we think it's going to cost you to get to a sustainable business for an exit. Sometimes it's easier to say why we don't invest! Say you might want £1,000,000 today but within 12 months you're going to need £80,000,000 to build a factory or buy a windfarm and do something more capex intensive.

So understanding the investor you are speaking to and what is their appetite, is a really important criteria to think about. We typically coordinate and work with partners. We generally invest £15-20 million across the portfolio each year, and on average we're putting about £10 million per company, but we do work with others. Unlike funds though, we are a patient investor. We don't have a time horizon. We find that the average time to exit for our companies is about 8 to 9 years. And that's getting longer as we see more ambition from our companies and companies want to go further.

We're not a fund. We've got a hundred-odd members, and currently a portfolio of about 20 companies, which is quite small. We have invested in 88 companies to date. We've been operating nearly 30 years, so we've learned our lessons and had challenges over the years, and we have a good track record of exits and returning investments to our members. One way that we are different is that we are sector-agnostic. When we're looking at our deals, we are looking at all deals in totality and comparing what we want to invest. We see about 200 applications which make our criteria; 78 we looked in more detail but we actually only do two or three deals a year. It is important for people looking for investors to know that they need to think about how to show investors their opportunity is exciting and is one they should take forward.

We have several companies in our portfolio that are at the edge of the bioeconomy, but hopefully that will change soon. We are talking to some exciting companies right now.

I will close with a few observations. You have to assume when you approach an investor that they are not a government or a charitable organization or a funder. They are looking at your business because they believe in your business model and ultimately want to make a return on investment. So you really need to help them. You have to provide comfort around the areas where they will be nervous; you know more than they do. They'll be nervous about problems they've had to date and track because they don't want to make the same mistakes as before. Help them understand the timelines, how you scale your business, how long will it take and how can you mitigate risk. And sometimes the jump between small scale-up to large scale-up is harder than people think. What is the end customer, how price-sensitive is your end customer? What perceived risks are there around the end product or solution?

There's also some other challenges this sector has witnessed to date around perceived risk and policy and regulatory challenges. I appreciate that we don't have a harmonized approach around all sectors or environmental regulatory frameworks and there are challenges regarding access to materials, but I think taking those risks into consideration in your business plan can help investor comfort. I think for us it's making sure you choose your investor who has the right appetite. Angel companies can't look at high capex, however we are interested in innovative opportunities like repurposing of facilities, repurposing of old laboratories and sites, which will be an opportunity for new companies. I'm very excited when I see Ineos going into Grangemouth, I think that's a positive thing. As old sectors change, we see that as an opportunity for businesses to take over labs.

As an angel syndicate, we're seeing unprecedented, unmet needs. And the difference we're seeing just now is that there is now a pull from the other side of the coin. We're seeing market forces are very much pulling for this. It's not just a nice to have–it's now essential. We think we've got a thriving and growing sector that is expected to continue to grow and a large, addressable market. And there are many innovative projects under development that we think will emerge as successful businesses—many of which are not developed as of now. From an investor point of view, the biggest change is seeing the willingness of customers and corporates to demand these technologies that don't exist to date.

We have already heard from BP and BASF. Unilever is another example, to meet their net zero ambitions they are taking products all the way from the start to scale. For all these companies to achieve their goals, people in this industry have to come forward with novel innovations and products. That's why we think this market is ripe to move forward. There's been a huge investment over the last decade in capitalization, R&D, and facilities and this is an opportunity for us to see how we can take them forward. We're excited about the future, and happy to engage with this community.

CAMERON: Thank you Sarah. That was a great overview of the investment strategy at Archangel and the opportunities you see in this sector. Let's move now to audience questions.

AUDIENCE: What is BP's view of the future distribution of green and blue hydrogen? Given that they are a fossil asset resource company, you might think they are biased toward blue but curious what their view is of green hydrogen?

CHRUSCH: We look at these opportunities on a case by case basis. Blue hydrogen doesn't fit every location; in some places there is simply no possibility to do carbon capture and storage. I wouldn't say we are biased toward natural gas simply because we have the natural gas. We have a strategy to grow our renewables portfolio, and green hydrogen is an area of growth. Most importantly, the decision would always be made based on how it fit our strategy in a particular location and what the hydrogen substitutes.

AUDIENCE: A lot of the new biobased technologies don't necessarily have a market yet and are looking to replace oil-based products that are far cheaper. As investors looking at a business plan for a product that still has to go through the cost and risk of scale-up, are you happy to take that longer view when there isn't a market?

KINNAIRD: We spend a lot of time looking at roadmaps. You see aspirations like BP for 2050 and the Scottish government's for 2045. We spend a lot of time doing horizon scanning to see what the gaps are on that path. We are quite long-term and patient as investors. We are often investing when others will not take that longer-term view, and we invest for where we need to be because that actually helps bring others along with us. We often invest a little bit earlier than some others and help prove that technology and help move it on.

There is also the size of the pie to consider. It's worth that longer-term investment view if it's going to make that massive change that is needed on the overall path to net zero.

LEDUC: We [BASF Venture Capital] are not an early stage investor. We invest where you already have proof of concept, but there are enough investors at the early stage willing to invest in technologies that don't have a market. The nature of disruptive technologies is that they don't have a market yet, and you have to create the market. Sophisticated investors understand this.

Standard VCs have a fund life, that's why they like to invest in digital because it's a fast path to market as you don't have that much capex. Chemicals require much more time to develop and bring to market. Corporate VCs will be more patient. We have an evergreen fund and are patient. We don't have a fund life. Of course we want to make financial investments that make financial sense, but we are very well aware of the challenges that startups face in the sector. I think overall, corporates will be more patient than normal VCs and willing to invest in companies developing a new market.

AUDIENCE : Is BP also investing in agri-food?

CHRUSCH: We don't invest in agri-food because we are not an agri-food company, but we are looking at natural climate solutions, like soil carbon sequestration. It's all location-specific—you'll see different crops and soil depending on the geography and climate. We don't have direct investments yet but we are looking at this area.

AUDIENCE: Cam, when is your next round of funding opening and are you charging SMEs to talk to investors?

ROSS: We don't fund in batches, we're always open for people to put in applications for funding. They can do it from our website.

And yes, we charge companies. We are a high-value service to help our companies grow, and like any investment structure we absolutely have a funding fee. We tend to align those fees with the ultimate growth of our businesses. In other words, things like options or equity in our companies as we help them grow over time. This incentivizes our members to help the company grow and incentivizes the companies to do the same.

AUDIENCE: What does it take for an SME to really stand out and capture your interest?

ROSS: The three things for us that are really big are big carbon impact or CO2-equivalent impact; potential for upside for investors; and companies in which our members can get involved to help grow. Out of the companies that walk through the front door, we look for opportunities where we can maximize these three categories.

It was really interesting to hear Sarah talk earlier about not just looking at these sort of initial funding requirements for a business but rather the long-term total capital requirements for expansion of the business as well. That is really important for investors in the early stage of a business that might need £300,000-400,000 now but down the road will need multi millions of pounds to scale. For an angel syndicate, we do not typically fund into those.

Another thing we will consider is companies doing things where we know people or companies we can work with to help them over their funding lifetime, continue to grow and graduate beyond us.

HARDY: I agree it helps to work with the right investors on a route to get to that vision when you don't have the funds to take it the whole way to market.

KINNAIRD: I would add that our typical investment tends to be around £2 million. We encourage companies to have their pitches and teaser in order to target the right investors for them. We're not a fund and we're always open but we do like exits because it means we get the money back and can put it into an earlier stage company. But if the situation is right for us to continue to move forward and continue, we do have companies at very different stages. A couple of years ago we had a company that was just ready to float, saying they were short of cash and there was a push for original investors to exit and we continued. We can't do that for everyone, and it's not appropriate for us to do it for everyone, but if it's appropriate and there's a need we can continue further than others that focus on the early stage.

AUDIENCE: Sarah, do you expect early-stage companies to already have patents secured or is that something that can be done after you invest?

HARDY: We're looking for a defensible barrier to entry and how you protect your position. I think this depends on a case by case basis. Ideally, you have a strong patent. If you don't have a strong patent, but you have know-how, does your business model have strong barrier to entry. If your business model is to outsource and scale up all around the country, do you have a way to protect that? So it's on a case by case basis.

LEDUC: I completely agree with Sarah. You don't need to have a patent. It depends on your business model. Yes, a great patent is best but if it's strong know-how, and you can show to the investor that you know how you can protect your idea, that's most important thing. If you don't protect your idea, and someone can just copy you, then your valuation is essentially zero.

KINNAIRD: Everyone has that worry, when they don't have a patent, but it is actually about getting a strategy together. Quite often when we are investing in the earlier stage, a part of that investment is for looking at that planning and strategy. That doesn't mean that you'll be filing a patent. It's about knowing if you are not going to file, then why and having a strategy. Make sure you are able to talk about it very clearly with your investors.

AUDIENCE: Can you talk about how comfortable you are providing funding for both equipment and revenue?

HARDY: I think it depends on the size of the round. From Archangel's perspective, where we typically put up £10 million per company, we do a lot with equipment and small-scale things but if it's large-scale, we're probably not the right funder for what your company needs.

LEDUC: We are similar at BASF Venture Capital. An investment doesn't need to be revenue-generating, but to scale up, we generally don't go above €5 million. That's the valley of death for companies in biotech, they need to find funding for scale-ups. This has been recognized by some funds. One is the European Circular Bioeconomy Fund addressing exactly that.

ROSS: I'm going to mirror Sarah's response—for Green Angel Syndicate it depends on where the business model is and the maturity of the business.

AUDIENCE: I've had my ear to the ground, trying to gauge where investors are after Brexit and the pandemic and whether there is pent-up capital ready to invest or whether people are being more cautious. What is your view in Scotland or the UK overall for companies looking to raise £1-5 million from VCs and corporates?

HARDY: If you'd asked me last March, I would have had a different answer. But I think we've moved on. People are actively looking for new opportunities in the space. I think there is an appetite. People took a little bit off the gas last year. They focused on their current portfolio, and raised cash for their current portfolio or kept a little bit in reserve. But we've actually made two new investments recently.

I think work is continuing and there are a lot of new, big funds out there and a lot of capital. I can't speak for different sectors, but I think in terms of the gap, I don't think it's in the £1-5 million range, but very much in the £5-10 million range. At that point, you're too small for the very large raise. You've got your technology, but you're still working on some proof points. For me, the gap isn't the first bit of money, but the middle bit.

KINNAIRD: We've had a lot of international investors this year alongside us. I would say that last year, we did see spin outs and startups really struggling, and that's why our COVID response included both early-stage grants and loans. We didn't want to, three years from now, not have a pipeline coming through because then you don't have the innovation. We're also seeing quite a few businesses that probably should have been sold last year, so the M&A market is opening up. We've had a successful year, exit-wise.

AUDIENCE: Are there processes in place to ensure that the IP strategy evolves as the company scales? Is it left to the portfolio company to develop their IP strategy themselves after initial due diligence has been completed? And are there issues around third-party rights being considered?

HARDY: I think it's absolutely imperative that boards always keep an eye on IP strategy. It is integral for company success. For some of our companies, where we are really concerned about IP, we make it a condition that there is a separate intellectual property management group. I would not recommend going down a litigation route because it's not easy and you want to avoid that at all costs.

ROSS: The right partner helps a company expand in all areas of their business, of which IP is one, along with finance, product, and marketplace. But I wouldn't necessarily focus on IP to the detriment of the other areas. If a company is concerned about their IP strategy for the figure, then its partners will want to help. That's why they invested; they see competence, aim to support its expansion, and they want to see the return as defensible as possible.

AUDIENCE: I've worked with clients who have proven technology, and they want to set up sites to run a business to make money from that technology. One big problem is finding the sites, but even when we do, a big hurdle is getting the £100,000-1,000,000 it takes to find planning permission. Do you know of any funding streams that could help?

KINNAIRD: The way that we've seen it work is that there is an underlying technology that sits in a company, and the company is funded for the technology, including the first plant, and planning permission would be part of the overall equity round. I think bringing in a new investor specifically for planning permission on that first site would be very difficult.

LEDUC: I can't give a good answer from a UK perspective, I think every country will be slightly different. I can give an example from France, where the government is very supportive of startups, where a project to refurbish a plant was able to get a couple hundred thousand euros from local banks and BPI. For smaller projects there may be financing locally.

KINNAIRD: There are also opportunities for local agencies and councils to help with infrastructure and taking some of those costs away from the company. That can be through a technology park, as one example.

HARDY: I would agree, if you look at Scottish National Investment Bank, they are doing a lot of big infrastructure deals in the space. They're looking at planning and site infrastructure and helping the community. It's a good idea to explore and have as many conversations as you can with the relevant parties.

CHRUSCH: I would agree that you should build a list of the local community benefits, the job creation of the new enterprise. I would also say in terms of pure funding, you have to look at the whole plan. Doing piecemeal financing is not the most efficient way to do it. It's very expensive and you want the entrepreneurs building the business instead of spending most of their time raising funds.

AUDIENCE: Do you have a preferred TRL [technology readiness level]?

HARDY: No. We've invested in things at the concept stage, and we've gone up to scale-up, which ended up not working. I would say there is a bit of a fail fast mentality, but we have things at different stages across our portfolio.

LEDUC: It's the same for us; TRLs are not the deciding factor in whether or not we make an investment. It will be the quality of the team, the idea, and the market behind it. We don't invest in seed, so you could translate our investment focus into a TRL range, but I don't get hung up on that.

CHRUSCH: It's pretty much the same for BP. It depends on the market. If it's a potentially game-changing technology, we could go for an earlier TRL, but we don't invest in R&D. So if the technology needs R&D, it's probably a bit early for us.

LEDUC: One thing I would add is, that even though corporate VCs might not invest in R&D or early stage, that doesn't mean we won't listen. Because eventually, it will grow.

We have a deal flow of about 1,000 startups a year, and we invest in about six. That's the hit rate. But even if we don't invest, we make introductions to the business units. Sometimes this can lead to joint development agreements.