EIS Changes Create Opportunities

Following last week’s UK budget announcement regarding Enterprise Investment Schemes (EIS) we have had a lot of interest from high net worths who see this as a potentially interesting way of mitigating the 50% marginal tax rate. The new rules permitting companies with gross assets of up to £15m and up to 250 employees to raise up to £10m per annum will broaden the spectrum of suitable companies and more importantly bring development stage companies with good management and some tangible assets increasingly into the frame. We are looking at how we can structure a suitable product for investors which will allow them to utilize the annual limit (£400k) but spread their risk over a number of different investments. The regulations still require parliamentary approval and won’t come into effect until 2012 but we will keep you posted.

WeComm Exit

Last week the investors in WeComm, us included, sold the business to Opentext. As usual with these sorts of deals we can’t disclose anything about the terms of the sale but we believe the sale was a pretty good outcome for the shareholders. Opentext proved to be a forward-thinking buyer who could appreciate the strategic value of the technology that WeComm has developed since 1999 and the opportunity that the potential power of a design-once, deploy anywhere platform represents. We wish them good luck with growing the business into their significant customer base.

While we made some money on this investment, we have learnt first-hand why professional investors in Europe are so reluctant to go near early stage mobile software companies. Saying that, we are not discouraged from what we believe continues to be an industry which has extremely exciting prospects. Instead we bear some scars that will influence how we will approach the path to building valuable businesses in this area in the future.

Building a Tech Firm outside the US

Mark Suster wrote an interesting article recently about building tech. companies outside Silicon Valley. One of the themes that came out of this is that the risk appetite of the capital is different outside Silicon Valley than in it – ie. more focussed on established business plans/ monetisation etc. Clearly this applies to an even greater degree in Europe but it is interesting that a noted shortfall of European venture money is not solely a European issue. However the other point of his which I thought leads me down an interesting path is the regional breakdown of invested capital. If you exclude Silicon Valley & LA there are surprisingly few regions that represent more than 5% of the invested VC in the US. One of our core competencies is in helping companies expand into the US, initially as a sales operation but if the business progresses it may be appropriate to relocate HQ to focus on what we view as the best market for selling tech. into, raising capital and exiting. This, however, is best done when assisted with some locally based capital investment which comes with experience of backing big exits. While it has always been logical that East Coast relocation is the most practical – this certainly focuses the mind on where to move to if you want to maximise your chances of attracting the type of capital you’d want which is an essential bridge that you need to cross on the way to success.