Having noticed their potential and backed the likes of DirectID, Aveni, and Gigged.AI — companies who are all making waves in Scotland and beyond due to their innovative ideas and technologies — it’s fair to say that Par Equity, the Edinburgh-based venture capital firm, is one of the major players in Scotland’s tech venture capital landscape.

But it’s taken continued evolution to get the VC firm to the influential, heavyweight position it’s in today. As Andrew Noble, Partner at Par Equity, said: “We’ve evolved Par Equity over time — there’s no doubt about that. Both in terms of our business mission and philosophy, but also in terms of our investment strategy.”

Back in its early days, the firm directed investment towards generalist tech companies. Now, fifteen years after the company’s founding, its investment strategy is far more honed: it’s driven by IP-rich, high-growth potential B2B tech companies based in the North of the UK, especially companies across HealthTech, ClimateTech, and IndustrialTech. This strategy is evidently working, seeing as its portfolio has raised over £410 million as of March 2023.

And it’s how the firm has evolved — and is still evolving — its business philosophy that’s just as interesting as its growth in strategy. Specifically, Par has been doing lengthy internal work to ensure it’s operating in a progressive and positive manner, including gaining B Corp status — the globally-recognised gold standard for aspects like sustainability and social responsibility.

To learn more about Par Equity’s multifaceted evolution thus far — and how, as a VC, it’s aiming to lead by example for both other VCs and its portfolio companies — DIGIT sat down with Andrew Noble, as well as Lucy Kelly, the firm’s Operations Manager who has been steering its ESG (environmental, social, and governance) efforts.

A Developed Investment Strategy

In order to fully discuss Par Equity’s interconnected evolution, we need to turn back time to the late ‘00s.

In 2008, Paul Atkinson, Robert Higginson, Paul Munn, and Andrew Castell — four esteemed businesspeople, ranging from serial entrepreneurs to serial technologists — noticed a curious dichotomy regarding angel investing and venture capital.

For those in need of a quick reminder: angel investing is where individuals provide early-stage businesses funding out of their own pocket in exchange for equity, usually offering tailored advice and mentoring along the way to support the leaders of the business.

Venture capital firms, meanwhile, make far larger investments in early-stage businesses and startups — and have a dedicated, professionalised process for guiding the businesses towards profitability and a worthwhile return on investment.

In terms of the dichotomy itself, the group of four dug into the return profiles of angels and VCs. They discovered that, at the time, the amateurs (read: the angel investors) were outperforming the professionals (the VCs).

The group then began to consider how the discipline and rigour of a venture capital-led organisation could be married with the angel investment ecosystem, thereby realising the full benefits of both approaches. This, ultimately, acted as the raison d’etre for Par Equity’s founding.

Once the firm was established, however, a little work was needed to guide Par Equity’s unique investment strategy.

“Originally, the thinking was, ‘we’ll set up a fund and we will cornerstone it with fifty to a hundred individual investors who have capital and very specific skills within certain areas,’” Noble explained.

But, amid the weight of the Great Recession, setting up this kind of fund proved difficult.

“They managed to get all the individual angels in, but then struggled to raise the institutional capital — and these angels wanted to do deals. So what came as a sort of extension of that was that we had an angel network; a really well-informed, deep-pocketed angel network,” noted Noble.

“Those angels operate on an execution-only [a term Par Equity uses to mean “self-advised”] basis — many of them also invest into our discretionary managed funds, and they invest alongside our funds on identical terms. We really think this turbocharges our model, because that community really helps us across the main touch points of the venture capital process,” he continued.

With the hybrid investment model, Par Equity began by investing in generalist tech companies at pre-seed and seed stage, given the checks that could be written at the time, and what the market was suggesting would be a wise decision.

One instance of such a company is ICS Learn, a provider of online learning courses in the UK.

“We did a really interesting turnaround on a company called ICS Learn, which is a distance learning business — in fact, the oldest distance learning business in the world, set up originally in the late 1800s,” explained Noble.

“That business was going to the wall. We saw an opportunity within that and we turned it around and ended up selling that to private equity five or six years later.”

Another example is Aircraft Medical — a medical devices developer and producer that was particularly involved in the video laryngoscope market. Par Equity invested in the company in 2011, and by 2015 it was bought in a $110 million (£72m~) acquisition.

“A lot of those early-stage investments have done very well for us,” Noble indicated. “Equally, we’ve had some investments that haven’t worked so well, too.” Venture capital investing is, of course, never without its risks.

But it was Par Equity’s successes that enabled the firm itself to grow, and later sharpen its focus on what and where it was investing in.

“We tried to drill down on where the opportunities lie — and what we discovered with our network, the experience of the network, the experience of the team, the profile of companies that we like to back, it all pointed towards B2B, IP-rich companies,” he said.

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What’s more, while London continues to be a major location for attracting talent and capital, the North of the UK has a robust and often underappreciated pipeline for bringing about innovative, cutting-edge tech companies.

“Interestingly, when you profile the universities across the UK, and you look at which universities here are truly world-class in research and development, there are about 16 of them — and eight of them are in the North of the UK, in our patch.

“So, what we’ve got is a dislocation of capital across the UK as a whole, but a really interesting pipeline of those types of companies that are in our sweet spot.”

It’s this continued evolution of its investment strategy over the last 15 years that’s helped Par Equity get to the position it’s in today: a venture capital firm with an angel network of over 200 people; a firm that’s backed 77 companies — 93% of which were or are in the North of the UK; and a firm whose portfolio has raised over £410 million.

Although Par Equity developed and iterated on this important front, another crucial aspect of the firm has been evolving — and continues to evolve — too: its philosophy.

A Deepened Business Philosophy

Last month, on 8 June, DIGIT exclusively revealed that Par Equity had officially become an accredited B Corporation.

For those who don’t yet know, becoming a certified B Corp is quite the feat: it broadcasts to the world that your business meets high standards of performance, accountability, and transparency on a range of important factors related to aspects like the environment and social responsibility.

What’s more, attaining B Corp accreditation is by no means easy: you have to answer hundreds of in-depth questions, varying from your employee inclusion policies to your carbon footprint, to receive a score that may or may not hit the needed B Corp threshold.

In fact, B Lab — the non-profit behind the globally-recognised B Corp certification framework — says themselves that it’s rare for companies to initially achieve the score needed to be deemed a B Corp.

Considering the sheer amount of work involved in becoming a B Corp — and how lengthy the process can be, too — it’s fair to say that Par Equity is taking its environmental, social, governance, and related efforts seriously, and this is but one example of how its business philosophy has progressed and deepened over time.

In 2021, Lucy Kelly joined Par Equity as its Operations Manager, specifically helping to drive its ESG-oriented initiatives and impact forward.

Speaking on the long — but undeniably worthwhile — process of becoming a B Corp, she said: “It was an amazing exercise because you have to go through over 200 questions across six themes: you’ve got governance, workers, community, environment, customers, and disclosures. It’s incredibly thorough and rigorous.

“You’re diving into all areas of the business, and you also have to involve the whole business — everyone in the team was bought into it.”

According to Kelly, it took around three months to get through the assessment and collate all the data points from the various members of the team.

After the application was submitted, there was then an almost nine-month waiting period to get through to the verification stage due to the immense backlog of companies trying to become B Corps.

On May 2nd of this year, however, Par Equity officially learned that they had become a B Corp.

Par Equity’s increased focus on its business philosophy, and having a broader positive impact, has been in the works for a while now; as Noble commented, “It’s something that we’ve tried hard to work on over the last four or five years.”

But why has a significant amount of thinking and time been dedicated to efforts like getting B Corp accreditation, helping launch and then sitting on the steering committee of ESG_VC — a pan-European project to improve the ESG credentials of early-stage businesses — or signing up and being members of the Investing in Women Code, the commitment to increasing the finance provided to women-led businesses in the UK?

One part of the answer is that undertaking and being involved with initiatives such as these is a core part of the team’s shared and individual DNA.

While touching on Par Equity’s diversity and inclusion (D&I) work — the firm has a D&I committee that meets quarterly — Kelly stated that “As a team, it’s as simple as it’s what motivates us. […] It’s something that’s core to Andrew, it’s something that’s core to me,” she said. “So there’s the personal side of it.”

However, there are the positive knock-on effects it has on the wider business ecosystem, too.

As Kelly said, “Having a diverse workforce, we know, is better — and there are better results from that. So longer-term for the ecosystem, it’s going to deliver better outcomes.”

One aspect both Kelly and Noble commented on is how, through these initiatives and actions, Par Equity can lead by example. And by leading by example, the firm can help its roster of portfolio companies to follow suit.

As Kelly mentioned, “We want to build amazing businesses. […] And we know that those with strong ESG credentials are seen as being less risky, more resilient, so they’re more attractive — the more we can help portfolio companies have those strong ESG credentials and build them in from the early stages where it’s much easier to do than at later stages, the better. But we can’t expect them to do it unless we are walking the talk.”

That said, Kelly and Noble recognise that this evolution of philosophy — and the work on the efforts that underpin it — is an ongoing journey, and is by no means over just because the firm has already made exciting headway.

“We, Par, need to look internally and say, ‘right, what are we doing to instil change? How are we thinking about that? What more there can we do?,’” stated Noble. “And it is an ongoing journey; it’s continuous improvement and continuously seeking to do the best that we can as a VC firm.”

Kelly concurred with this sentiment: “There’s always more we can do, there’s always more we want to do — so it’s very much a forward-focused journey.”

Par Equity’s Evolution Is Not Over

After sitting down with Kelly and Noble and learning about the ins and outs of Par’s journey thus far, it’s clear that, as a VC firm, Par Equity is certainly not one that’s fixed or stuck in its ways; it’s one that has continually evolved in so many different aspects.

As we’ve now seen, it’s the evolution of the firm’s investment strategy and its business philosophy that’s especially notable, not least due to the symbiotic nature of it. With the refining and intensifying of the philosophy, it then can have a consequent, positive impact on the business side — all while setting a further precedent for Par Equity’s portfolio companies, as well as other VC firms in Scotland and across the UK.

In 2023, Par Equity’s evolution is not over — and long may that continue.