Business angels fly in to help blue sky companies

Sameena Ahmad reports on new moves to provide venture capital for smaller hi-tech start-ups
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The Independent Online
Scotland's Silicon Glen is getting a boost from a new fund to encourage high-technology start ups in Britain. 3I, the world's largest venture capitalist group and Scottish Enterprise are jointly launching a new seed capital fund at the end of July. 3I sees the fund as plugging a key gap in financing blue sky companies from their foundation, through the venture capitalist stage and eventually on to flotation.

Though the fund will initially be for just pounds 2m - with each partner providing half the cash - and will be initially limited to Scottish-based companies, 3I said that with a growing queue of unpolished companies unable to raise money elsewhere, the fund could grow fast.

Hazel Cameron, a senior investment executive at 3I, said: "If the number of phone calls we get from companies looking for just a small amount amount of cash - pounds 10,000 to pounds 100,000 - is any guide, I think this fund will grow significantly. This is just a taster to show our interest and determine demand. We see an awful lot of potential in the rest of the UK."

The fund highlights a rise in the number of business angels financing high technology businesses in the UK and filling gaps left by the banks and venture capital firms. A report out this week from Southhampton University concluded that there are around 18,000 active business angels in the UK, investing about pounds 500m in almost 4,000 businesses each year, but called on the Government to give greater support to the business angels and stimulate efforts to help more small businesses prepare themselves for outside investment.

According to Ms Cameron, this is one of the key reasons behind the UK's relatively underdeveloped hi-tech sector compared to the US. "We have so many good technology companies that never make it because they can't raise small money. These companies are not polished, they often don't have full management teams. They don't know the minimum amount of work needed to prepare themselves to attract investment."

Some of that expertise is coming to the UK, however. Hambrecht & Quist, a leading underwriter of European hi-tech stocks began its second European conference yesterday showcasing over 70 of the most promising of Europe's IT companies to fund managers. Josh Rafner, managing director of H&Q's international investment banking arm said that funding of IT companies across Europe was becoming more sophisticated as dedicated IT stock markets like the pan-European exchange Easdaq and France's Nouveau Marche opened up.

"People ask where is the Bill Gates of Europe and where is Europe's Silicon Valley. But I see a renaissance in the European IT sector," he said. "What has historically been lacking is good early stage financing and the entrepreneurial company building skills which have flourished in the US.

"There is more and more sophisticated venture capital available, stimulated by increasing access to public markets for high technology companies. Without an exit opportunity there is no early stage financing."

Mr Rafner said that there was a strong investor appetite from US investors in European IT stocks. "We have recognised the emergence of better companies, better technologies and better entrepreneurs," he said.