London gets its own technology fund

Recognising the lack of a sufficient pool of venture capital funds that invests in seed and early stage companies, the London Development Agency and the European Regional Development Fund is contributing a total of £15 million to the newly formed London Technology Fund (LTF). The LTF fund will be a specialist fund dedicated to technology entrepreneurs from the 40 universities and colleges as well as independent London-based entrepreneurs wanting to form their own technology start-ups.

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The managing director of LTF will be Dr. Tony Diment, who has wide experience in similar venture capital programmes at Cambridge Research & Innovation and 3i. The funds will be managed by Company Guides Venture Partners (CGVP), whose chairman, David McMeekin, is also chairman of London’s £50 million RVCF (regional venture capital fund) called the ‘Capital Fund’ (CF), which has so far made 38 investments in (SME) companies ranging from software to retail. Initially, it has been limited to investing only £250K , which, for most technology based start-ups, is not sufficient.

When asked how the two funds will be positioned, David McMeekin, said that both funds will have separate management teams, with their own mission and investment criteria. Of course, it would be prudent to pass any enquiries to the most appropriate fund. He added that while the Capital Fund is positioned for SMEs in all sectors at any stage of development, the LTF will only invest in technology companies at the earliest stage of development. The LTF will invest up to £1.5 million in a series of milestones in any one company, on a one-to-one matched basis, i.e. it will only invest alongside other investors. This can result in a total investment of £3 million per company.

Unlike prior matching funds, which relied on the entrepreneur and their advisors to find the matching VC funds, LTF will work with entrepreneurs via ‘investor readiness’ programmes to help them create business plans, build the initial management team and prove that the technology works. It will also assist entrepreneurs in finding matching funds, with which it will invest alongside.

LTF has already established a panel of other early stage investors including corporate venture funds, which includes some leading software companies as well as VCTs and other VC funds. This assumes that the fund has found a compelling value proposition that it believes in the first place.

If for some reason private investors are willing to fund the whole project, then the LTF will not attempt to compete with them, as it is there to help fill the equity gap – having said that, McMeekin says it is not a social fund. Asked, what would happen if some politicians try to influence an investment decision, or where the money goes, he stated that there are strong rules in place which will not allow this, as the funds have to be professionally managed on a normal commercial basis.

The LTF expects a strong deal flow from its network of leading accountants, lawyers, corporate finance houses, banks, as well as technology transfer offices, entrepreneur networks and industry contacts and consultants. In order to streamline the investment process, the LTF has set up a web based screening system, which will alleviate some of the paperwork (www.londontechnologyfund.com).

It has also designed a programme, which will limit the overall due diligence costs, which could eat up a fair chunk of the original investment. The due diligence fee will mostly come from the investment it makes.

The Chilli perspective
The London Technology Fund is part of a wider programme that will support technology entrepreneurs in terms of their ‘investor readiness’, prior to seeking proper R1 venture funds. We like the idea that the LTF is connected with the other programmes that will provide access to the recently formed ‘proof of concept’ funds.

These funds will become very critical as most of the current University Challenge Funds are now drying up, and there is very little possibility that there will be another round of University Challenge Funds which have not been able to sustain themselves with enough endowment to sustain themselves.

Unlike other prior funds which required the entrepreneur to find the matching fund partners with their own resources – a very time consuming and frustrating experience for many early stage entrepreneurs – the LTF is willing to help the entrepreneurs, assuming they have a compelling proposition, in seeking out the matching partners.

This will take some of the frustration out as it will stop the ‘chicken and egg’ syndrome faced by many start-ups, who were told that they were eligible and entitled to government backed funds, but only if they can find matching private or VC investors.

Whether the size of the total LTF fund will be sufficient to meet the vast size and array of technical and scientific entrepreneurs in the London region remains to be seen, but this is a good start and we hope that they will be followed by other similar funds in the not too distance future.

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