Meet N4 Partners - a brand new force in early-stage business investment

The firm recently appointed Gordon Merrylees, the former head of entrepreneurship at the Royal Bank of Scotland, to help manage the fund and select candidate companies. 

Merrylees left RBS last year after a 36-year career, having created some 12 ‘entrepreneur accelerator hubs’. N4 Partners was set up in 2020 by four former employees of Clyde Blowers Capital.

It manages funds on behalf of institutional investors from Europe and the US, with a focus on industrial. 

We spoke to Merrylees and N4 Senior Board Executive and Partner Allan Dowie about their plans and ambitions for the new fund.

The basic point, both Dowie and Merrylees emphasise, is to help early-stage companies achieve the funding they need to take their businesses onwards and upwards. If they are successful in picking the right companies to invest in, the companies concerned could end up making a very significant contribution to Scotland’s economy. 

There is no doubt the early-stage space is crying out for funding, they say. They point out that angel syndicates, which specialise in funding young companies, have increasingly tended to direct their attention and their funding towards companies that are further on in their life cycle – well beyond what one would normally think of as early-stage companies. This has left something of a gap as far as the next stage of funding for early-stage companies is concerned.

There is no shortage of candidates for the fund’s investment committee to consider. Merrylees points out Scotland punches well above its weight as far as university spin-outs are concerned, accounting for some 20% of the UK’s total spin-out universe of companies. 

Plus, both Merrylees and N4 have extensive, UK-wide networks that can help to put them in touch with early-stage candidates for the fund. 

Candidate companies that are promising enough to be considered by the fund will generally already have reached the stage where they have some patented products or are in the process of acquiring patents. 

“These will be companies that have probably not yet reached the point where their products or services are revenue generating, but they will be reasonably far advanced on product development,” Dowie says.

N4 expects to raise between £3 million and £5 million for the fund from potential investors. It expects to make investments averaging around £300,000 to £400,000 per opportunity and would expect the fund to be fully invested within 18 to 24 months. 
Investors will recoup their money when the fund achieves an exit by selling its shares in early stage companies, once the company has matured sufficiently. This would normally be three to five years or so after the initial investment. In all, N4 expects the fund to invest in perhaps 15 to 20 early stage companies. 

Merrylees says the fund could also be interested in participating as and when the companies it invests in reach the point in their development cycle where they are going for another round of funding. 

“We are confident there are more than enough high quality start-up businesses across Scotland and the UK to provide us with the kind of candidates that we are looking for, as far as this fund is concerned,” Merrylees says.

As a Glasgow-based investment house, N4 plans to concentrate much of its efforts on identifying Scottish-based early-stage companies in which to invest, but it is not ruling out looking at opportunities UK wide. 

“The challenge for us, as it always is with these kinds of funds, will be to find ways of picking winners with a fair degree of accuracy. With a good investment committee, which we certainly have, there are more than enough sources out there we can draw on to find high quality candidate early-stage companies,” Merrylees says. 

These sources include the top Scottish and UK universities, many of which have well developed spin-out arms working at commercialising innovative new discoveries made by staff and students. 

They also include well established entities such as the Scottish Ventures Fund and the many accelerator programmes for start-ups.

On the latter point, Merrylees notes that in July this year Scotland’s First Minister, Nicola Sturgeon announced a major investment of £42 million into creating seven new tech scaler hubs across the country. The contract was awarded to the Edinburgh-based firm, Codebase. In awarding the contract, Sturgeon said that Scotland aims to provide one of the most supportive environments in Europe for tech start-ups and scale-ups at all stages of their development. Codebase is a tech ecosystem support organisation active in 27 hubs across the UK. 

While this latest investment by the Scottish Government is tech-focused, Dowie and Merrylees emphasise that their fund will be sector agnostic with a focus on early stage companies across multiple sectors. 

Key factors for N4 Partners when considering a company’s eligibility for benefitting from the new fund will include factors such as the strength of the management team and the commercial potential of the products and/or services involved.

Merrylees points out there are now around 180 accelerator programmes running in the UK. The importance of this can be seen in the fact around 57 percent of UK-based unicorns (i.e. start-ups who progress to achieving a valuation of US$1 billion) attended an accelerator programme before getting their unicorn status.  

“We have so many fantastic entrepreneurs in Scotland and many of them are hugely supportive of the great ecosystem that we have here in Scotland to encourage start-ups,” he says. 

“Scottish Edge, which runs competitions for start-ups to apply for funding up to £150,000 is a great case in point. It has awarded some £20 million in funding already and supported 524 businesses, creating 2500 jobs. Small, fast-growing businesses can make a tremendous contribution to the Scottish economy. If they are supported in their early growth phase,” he concludes. 

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SERIAL CHAMPION OF NEW BUSINESSES

Gordon Merrylees (Image: Gordon Merrylees)

Gordon Merrylees’ appointment at N4 was announced on August 11 this year. He is the former managing director of entrepreneurship for NatWest, Royal Bank of Scotland and Ulster Bank. 

During his 36 years at RBS, Gordon worked with and supported countless entrepreneurs, early-stage startups and high-growth SMEs as he led and, ultimately, accelerated the bank’s support programme for UK businesses, culminating in the launch of the bank’s first in-house Entrepreneur Accelerator programme and the subsequent creation of 12 UK-wide accelerator hubs. 

Under Gordon’s leadership, the UK’s largest free business accelerator network supported over 60,000 entrepreneurs which benefited from over £400m of investment. 
Despite Gordon’s departure from RBS last year, the programme continues to form a core part of the Bank’s proposition to SMEs today.