By Scott Wright

A MIDLANDS-based asset manager has underlined its commitment to increasing its investment in emerging Scottish companies, as its chief executive praised the support available to the start-up community north of the Border.

Mercia Asset Management has invested nearly £30 million in Scottish businesses to date, the bulk of which has gone into digital, software and medical technology enterprises.

And the company is keen to do more deals in Scotland, declaring that its investment can fill funding gaps for small businesses and in turn help create jobs in local supply chains.

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Mercia recently took part in a £9.7 million investment round – alongside other existing investors – in Dxcover, a Glasgow-based clinical stage diagnostics company for the early detection of cancers that spun out of the University of Strathclyde. Other recent investments include £4m in Dundee-based Broker Insights, £2.8m in University of Edinburgh spin-out Invizius, and £1.3m in SnapDragon, the Edinburgh online brand protection specialist.

Mercia chief executive Mark Payton said: “We have invested something like £28m into 14 companies [in Scotland]. We would love to do more.

“We don’t physically have a Scottish office – we basically operate [in Scotland] from our Newcastle office and in the fullness of time that is something for us to consider. We are looking at growing our position there.”

Mercia currently has £1.4 billion of assets under management, having started with £30m of AUM when the firm was established in 2014.

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Its investment activities in Scotland are predominantly focused on Edinburgh, Glasgow and Aberdeen, and the universities surrounding them.

Mr Payton said: “The majority of our activities are broadly around Glasgow and Edinburgh. With those two regions, we have a relationship with Edinburgh University, Napier University and Strathclyde, so we have done a few spin-outs and investments in clusters and incubators like the Rosslyn that are around there. Those are sweet-spot territories.

“The sort of businesses that we look at are predominantly digital, software, and more broadly med-tech. Those are businesses where we can say ‘we can bring something to this, not just capital’. We can help them grow their businesses.

“We know that in a more challenging economic environment like the moment we can help them in their entirety, or we have enough trusted co-investors with us that we can support those businesses.”

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In Aberdeen, Mr Payton noted, Mercia’s investments are largely in the life sciences and oil and gas sectors and include an oil and gas software provider. He noted that Mercia typically backs companies with “relatively modest” investment needs of between £20m and £40m in total, which “rules out” most drug development because of the large amounts of capital such ventures require.

Mr Payton added: “We are not a company that invests funds lightly. We take a long-term view as we back businesses that are, or have the potential to be, leading lights within the sectors they operate.”

Mr Payton said Mercia was set up to channel investment outside London and throughout the UK on a regional basis. It currently operates from 11 offices.

Most of the capital is deployed through Enterprise Investment Schemes (EIS) and Venture Capital Trusts (VCT), which offer tax breaks to investors. EIS funding is typically placed into companies in the early stages of their development, with “ much larger cheques” written for VCT investments, which are often needed for companies to scale up. The bulk of capital provided in Scotland is venture capital.

“It is not unusual for our EIS funds to invest and then our VCT to come on the back of that,” Mr Payton said.

Asked how the current economic climate was affecting the market, Mr Payton said businesses that seek large amounts of venture capital investment are currently “struggling” to find co-investors, adding that there are signs of “retrenchment” by overseas investors when it comes to committing to the UK.

However, he said the market is more “buoyant” for companies with more “modest” investment needs.

Mr Payton added: “The thing that I have a strong regard for in Scotland is the interaction of key universities such as Strathclyde and Edinburgh in particular. Their interaction with the broader tech hub community…is very admirable.”