TRI Capital Ltd - Chairman’s Report - 14 February 2006
Although my report covers the period from the commencement of trading in November 2004 until December 31st 2005, it is easy to forget that the origins of our business lay in a series of meetings organised by Scottish Enterprise Borders (‘SEB’) during 2003, and from which a number of us emerged to progress the idea of creating a Borders based ‘Angel’ group. Apart from SEB and those present and most directly involved, assistance in our creation was gratefully received from members of the Archangel group, from LINC. and from the steady advice given by Stuart Hendry of MBM Commercial, which has continued through a number of deals and other issues.
During 2004 a series of meetings took us through the process of choosing our structure, setting up the company, providing the initial capital and creating a Board. In all of this somewhat tortuous process, and since, we have hugely benefited from the enthusiastic assistance provided by Andy Purves, as Company Secretary, Gillian, Maxine and others of their colleagues at Andy Purves Ltd. I was surprised, and honoured, to emerge as Chairman of a Board which then consisted of Gavin Stevenson, David Pratt, Stuart Richardson, Malcolm Crawford and myself. Tricapital Ltd was officially launched in November 2004, and the big debate then was whether we would find enough businesses requiring finance to create a worthwhile interest for members, and at the same time, provide any meaningful support for business development in the Borders. Both these objectives were, and remain, our prime raison d’etre.
We did not have to wait long for some answers, as once we had joined LINC, and they realised that we were a well organised group, they, and others, began to send us Business Plans. It was soon clear that the range of businesses requiring finance was considerable, and also fascinating in the detail of what they were aiming to achieve. We tentatively began investigating the more likely opportunities, and it would be wrong here not to pay tribute to the administrative contribution of Malcolm Crawford during our formative months. Malcolm, amongst more mundane administration, introduced Tricapital to an Archangel interest in LAB 901, a pharmaceutical research company based in Bilston Glen. LAB 901 were, in May 05, to become our first deal with six Tricap members investing a total of £45K , this sum being added to the substantial sums raised by Archangel members.
In June, thanks to Gavin Stevenson’s connections, we became involved in the refinancing of Murray Allen Cashmere, a traditional Borders textile manufacturer based in Innerleithen. On this occasion, eleven Tricap members contributed £91.75K towards an overall package of £310K in a deal ably led, under some time pressure, by Douglas Needham of Ashleybank Investments. A side benefit to Tricapital of this deal was that it helped to introduce our first real influx of Club members whom, along with others who have joined since, we most warmly welcome.
Throughout summer 05 Andy was kept very busy circulating a never ending stream of business plans, many of which were considered, and in some cases followed up with great enthusiasm, by our hard working members. Well illustrating the pain and gain of an Angel syndicate however, not all activity was successful, and a number of investment opportunities were investigated in great depth and over several months before we, or sometimes they, decided not to proceed with a deal. Our monthly meetings became busier as number attending increased and we outgrew the smaller facilities of Andy’s office in favour of the roomier setting of Melrose Rugby Club for meetings and for the growing number of more professional presentations required from potential investee companies.
Autumn 05 brought our first truly Tricapital led deal when we agreed to take a shareholding in Ectopharma, a Edinburgh based pharmaceutical research company, whereby twelve Tricap members contributed £80K in conjunction with the Scottish Co-Investment Fund to make up a total subscription of £160K. This deal was quickly followed by another in December, this time led by Joe Scott-Plummer, when fourteen Tricapital members subscribed £115K towards a total support package of £260K for Outerlight, a Dalkeith based business developing high quality computer games.
I think we could give us ourselves a small pat on the back that, from a more or less standing start, Tricapital members have themselves contributed to date £330K spread over four deals in which an overall total of at least £770K was raised, and up £1.7M if one includes the Archangel members investment in LAB 901 in the total. At least some of our activities have directly benefited the Borders, and I am confident there will be more in the future. We are currently investigating potential deals with four companies, at least two of which are expected to be Borders based. The sums required are growing all the time – this year already some £450K is in prospect from Tricapital members towards financial support of around £1.5M for these businesses alone.
But it is early days to expect all these deals to come to fruition, and there are certain to be problems which will beset the businesses in which we have already invested. We should remind ourselves that ‘Business Angel’ activity never has been, and never will, be a bed of roses. That said, Tricapital has succeeded thus far at least partly because so many members have enjoyed the insight it provides into an extraordinary range of interesting businesses, and the opportunity given to investigate and discuss these businesses within a group of like-minded people. That group now comprises some nine Core members and twenty Club members, with valued support from Andy and Gillian. Each monthly meeting now brings new members, or new guests, who for one reason or another may wish to join our ranks. Today in particular we welcome Ashleybank Investments as our newest Core Member, and warmly thank their Finance Director and representative Douglas Needham for his own interest in, and support for, Tricap’s activities.
Overall we have had a very busy year and this activity inevitably comes at a cost – and our administrative needs and costs, in spite of the generous rates charged for their services by AP Ltd, have been far greater than originally envisaged. You as Core Members not only provided the loan capital but, assisted by LINC’s donations and a one off marketing support payment from SE, have continued to meet the funding costs of the business to the extent that they are in excess of our income from members subscriptions and deal fees. We do not aim to make large surplus’s, and Tricap’s finances at the year end remained healthy in the circumstances. However, conscious of the ever rising cost of administration, we are now looking at ways of increasing our income stream from other sources rather than relying on the continuing generosity of Core Members.
Your Board, which has worked remarkably well together since its formation, are conscious of the importance of creating an effective business structure, to reduce risk for our members as much as possible, and to maintain a proper sense of corporate governance in all our affairs. To that end we are, as you know, consulting MBM with a view to making amendments to the Core Members agreement and the Tricapital Articles of Association to ensure a practical corporate framework is in place, which adds value to the sound operation of the business.
As I have emphasised before, Tricapital is intended to be an ‘involving’ business. Andy is a very able administrator of our affairs, but not intended to be a formal gatekeeper. We must therefore ask those of our members with the time and interest to carry out much of the ‘donkey work’ in connection with our investment activities, be it initial research, deal handling or post deal follow up. Many of those present, and some Club Members, have contributed greatly to this process, being able to introduce much needed specialist knowledge for the benefit of our investment decisions. I should especially mention Stuart Richardson who has put a great deal of effort into such tasks as developing Tricapital’s logo and a number of other promotional activities, including the development of the Tricap website. John Burgon, ever enthusiastic, has brought his considerable knowledge of what makes businesses tick, to bear on several companies, and we are hugely indebted for his commitment and interest. Not everyone who started out with us has stayed, and sadly during the summer the Board lost the enthusiasm and ability of David Pratt, when he left to help develop his own family interests. To help fill the gap left by the departure of David, and of Malcolm Crawford, we asked Joe Scott-Plummer to join the Board, and I give my personal thanks to Joe and to other Core members, including in particular our Vice Chairman Gavin Stevenson, for all the wise counsel and support they have given me during the past year and longer - and also for the part they, and all of you in different ways, have played in the creation of Tricapital into the credible and, thus far, successful group which it has become.
Robert Dick - Chairman