For their latest release, the Brighton-based FatCat Records are issuing a compilation of some of the finest demo recordings they've handled in their near two-and-a-half decades in existence, This is an egalitarian move which represents, says the label's co-founder Alex Knight, 'an opportune moment to reward and release and bring to life some of the best of the demos we receive'. This compilation focuses on the work of alternative indie-rock artists, but there are plans in place for follow-ups centred around contemporary electronic musicians, as well as contemporary composers and classical work.

'It's just to cement and confirm how important it is that people trust us with their music and want us to be involved,' says Knight, who notes that some of the label's greatest successes have come from demos. One such group was Animal Collective who were playing to 25 people in small New York venues before their recommendation to Knight brought about the release of 2004's Sung Tongs which launched their career as enduring experimental artists. Another was the composer Max Richter.

Pallas Athene

One further celebrated FatCat demo signing came from much closer to home. 'Before we signed Frightened Rabbit we had a three-year conversation going on, having received a four-track, handwritten CD-R of theirs,' explains Knight. 'The recordings were raw to say the least; they recorded it in Scott's kitchen with one microphone. It was all played live, the drums, guitar and vocals were all contained within this recording on one microphone, but we heard something within those four songs that truly excited us. The conversation took three years of refining songs, refining recordings, refining a way to make it work, before it became an album [2007's Sing the Greys].'

FatCat's connection to Scottish artists has been well-documented, and more recently included Honeyblood, C Duncan and PAWS. Only weeks after first hearing of Frightened Rabbit, FatCat were introduced via demo to their countrymen The Twilight Sad, and suggested that both groups – who knew nothing of one another – check each other out. It was the beginning of a beautiful friendship between two of the defining bands of modern times in Scotland. 'We've got a very rich history of signing bands from demos and bringing those artists into the mainstream and into a career,' reflects Knight. 'We welcome people giving us their music and looking for feedback, and looking for us to work with them.'

None of the above – in fact, no serving FatCat artist – features on the compilation, although a number of the 11 artists who do have a profile of their own, including delightfully ramshackle DIY pop group Cowtown (from Leeds), the raw post-rock of Brighton's Love Among the Mannequins, and the propulsive C86 pop of The Leaf Library. Other highlights include the Stereolab-like Lightning Bug and the frosty Canadian electronica of Pallas Athene. All of which is far removed from FatCat's origins as a record store focused mainly on club music; that shop opened in Crawley in 1989 and subsequently moved to London, before closing to be supplanted by the label in 1997.

'We knew a lot of record companies, we knew a lot of artists, and we were in a very particular position in terms of stepping into the world of record labels,' says Knight now. 'It felt like an interesting moment to start something new. We started off in one particular, narrow scene, which was Detroit and Chicago house music, but as you explore that world and meet people who make music, you start having these little adventures into their references, whether they be American jazz, early electro or bands like Neu! and Kraftwerk. With our first few releases we wanted to create a label which could put out any style of music, and as wide a series of releases as possible, so we couldn't be pigeonholed into a particular sound, genre or style.'

The first key to their success, says Knight, was Sigur Rós. 'I went out to the first Iceland Airwaves festival, which at that point was in an aircraft hangar in Reykjavik Airport. I was invited out to play records and meet the bands, checking out the Iceland scene, and the first band on the first night was Sigur Rós. It was unlike anything I'd ever heard, they reminded me of instrumental post-rock – Mogwai, Godspeed, the whole Constellation scene coming out of Canada – but they also had something else: there was a sense of complete isolation from everybody else.

Subsequent years have also brought releases from artists including Múm, Vashti Bunyan, Nina Nastasia, Dustin O'Halloran and Shopping, and to talk to Knight about then and now, he's refreshingly free of tales about how it was so much better in the olden days. 'I don't see things as being worse,' he says. 'I see that times change, the industry changes, and you have to adapt. If you think in negative terms about what's going on, I think you get stuck, you get lost, you get left behind. You have to keep a really positive attitude and try and welcome the changes. Even if not all of them are in the best interests of small independent record companies, there's always a nook or cranny that opens up and gives you hope about what can be achieved. I've been doing this for a long time, and these are exciting times.'

The Brought to Light compilation is released by FatCat Records on Fri 12 Jul.