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Set out in this document,
in Question and Answer form, is a statement of the commercial
and operational policy of 3EN concerning issues such as:
- Why the fund was established
- Who provided the capital
within the fund
- Who are the target recipients of such
funding
- How you should approach the process of obtaining
support from 3EN
- What operational and financial constraints
will be applied if an investment proceeds
The responses are by definition non-exhaustive, but will
form the basis for internal and external communication
of the operational strategy of the fund.
Through consultation with local business multipliers,
the business community, and the investee companies themselves,
other issues and queries will inevitably emerge to which
reasoned responses will need to be developed.
However, this will occur in parallel with the continuing
evolution of 3EN, and be incorporated within the emergent
communications strategy.
> What
does 3en Ventures mean?
> What
are the issues within Basingstoke and Deane which have
prompted such a new fund?
> For
whom is 3en providing funding?
> What
are the goals of 3en?
> What
are the operational principles which underpin 3en?
> How
will the investments be structured?
> What
is 3en's investment horizon?
> Who
are the target investments of 3en?
> What
are their investment characteristics?
> What
are 3en's investment requirements?
>What
are the stages through which any potential investment
must pass in order to secure investment?
> What
will happen to investments which fall beyond target
exit date?
> How
will investment management work?
> Does
this mean that 3en will be active in the management
of its investments?
> Why
should I work with 3en?
> Long
term I can see the advantages, but why should I start
working with 3en now?
> The
most important issue is cost of capital; will I get
cheaper capital from 3en than its competitors?
> Investment
standards - community and environment
> Can
you give me a summary of the key advantages of working
with 3en?
What does 3en Ventures mean?
3EN was so named on the basis that its principal goal is encouraging
entrepreneurial enterprise within the Basingstoke & Deane
(B&D) area. Its focus is principally upon early-stage businesses within
the technology sector, and therefore the name encapsulates
both its goals and the investment posture that the fund will
adopt.
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What are the issues within
Basingstoke and Deane which have prompted such a new
fund?
Following extensive analysis by B&D of the local
venture capital marketplace, and parallel detailed
consultation with technology entrepreneurs, it was
identified that there was:
A lack of "Small-Sum" Risk-Capital, An absence
of VC appetite for Early-Stage/Startup Businesses, and, a
shortage of Management Mentoring and Support.
The situation was especially acute for technology businesses
which had developed their product or service to market readiness
- but had yet to achieve a sustainable income stream; accordingly,
such businesses were often failing for the want of relatively
small amounts of capital.
Consequently, B&D determined to support the real advantage
the area offers entrepreneurs in terms of skill base/cost
of operation - with the direct provision of both risk capital
and management support.
Hence, for the first time in the UK, a Council has both
established and capitalised an investment fund and appointed
Innvotec Ltd - a highly experienced independent fund manager
- to identify, make, and manage its investments.
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For whom is 3en providing
funding?
The new fund - 3EN Ventures - will focus exclusively
upon pre-revenue technology businesses, and will offer
access to risk capital of up to£75,000.
3EN's target sectors include software, IT and IT services,
telecoms, new media, electronics, and other technology sectors
with similar cash-flow characteristics.
Hence, its core aim is to assist in the transformation of
innovative technology into sound, high growth businesses.
Those eligible will include both existing limited companies
- and equally entrepreneurs who have yet to form a company.
There may be some initial sales revenue, however funding
from 3EN is not aimed at businesses that are already well
established
For most projects, the aim will be to enable them to reach
the point where they can attract Venture Capital funding
on a larger scale or "second round financing".
Critically, 3EN is focused on supporting new businesses
either which originate within the B&D area or which can
show economic benefit to the area.
Hence, 3EN will only support new businesses which have a
significant B&D link.
This focus does not preclude businesses which arise partly
from outside the B&D area but there must be agreement
to centre the business, post investment, within the B&D
region.
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What are the goals of 3en?
The three key and declared goals of 3EN are:
- To attract new and emerging entrepreneurial
technology businesses within the B&D region - by
offering access to risk capital within an investment
model which is both
focused and expert;
- To offer such investments access to highly targeted management
resource - to underpin commercial performance, and thus
enhance returns;
- To achieve for B&D total blended
returns in excess of 20% IRR - cash to cash.
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What
are the operational principles which underpin 3en?
The principles which drive 3EN's operational focus are
threefold:
That transaction costs need to be tightly controlled - to
avoid a lack of proportion.
That 3EN performance will be enhanced by clustering together
similar businesses - in order to exploit synergies and help
control costs.
That by continually networking on behalf of the investee
company, both second round investment and potential exit
routes can be identified - to the benefit of the company,
its shareholders - and ultimate fund returns.
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How will the investments be structured?
Clearly, a very different sort of fund was required - with
an attitude to risk, reward, and operational support that
was original, focussed, pragmatic and cost effective.
Accordingly, given the size of investment and the need to
keep transaction costs under tight control, it is likely
that many of the investments, which need to be within limited
companies, will be in the form of unsecured debt.
3EN will enjoy the right, but not the obligation, to convert
this debt to equity when timing is appropriate.
To this end, 3EN plans to use simple, transparent and largely
standardised legal documentation, which will both speed the
process of investment and help ensure the costs of transaction
are not disproportionate to the size of capital being disbursed.
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What is 3en's investment horizon?
3EN is an open ended or "evergreen" fund, but clearly,
there needs to be a clear exit route and an equivalent exit
horizon for any investment undertaken by the fund.
Thus, in normal investment conditions, most investments
will have a target exit horizon of between three and five
years, although in certain circumstances, 3EN, in conjunction
with the entrepreneurs in the businesses, may consider a
much earlier exit depending upon market conditions, and commercial
opportunity.
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Who are the target
investments of 3en?
The target Investments of 3EN are a group or "cluster" of
local early-stage technology businesses who have expressed
an interest in, and ability to, contribute to the on-going
success of the technology sector within the Basingstoke
and Deane area.
Critically they and their founders will enjoy both the technical
expertise and motivation, but will lack the ability to raise
sufficient capital to move the business on to the next stage
of its development.
Hence, we ask our potential investee companies to commit
time and resource to help develop a detailed and well thought
out approach to the profitable growth of their business -
which in turn, will help ensure that the business exhibits
the necessary operational characteristics for future success
to all stakeholders.
The target investee companies will be selected based on
a detailed analysis of the market sector in which they operate;
the intention is to derive as much commonality and synergy
as is possible across what will be a portfolio of co-operating
companies, benefiting over time from a commonwealth of shared
skills and interests.
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What are their
investment characteristics?
Concept
We look for businesses with innovations or services that
are at the leading edge of their field. We also look for
a breadth of applicability, emanating from an individual
or team who have the capacity to generate a continuing stream
of innovation. Because of the inherent increased risk of
funding pure research, 3EN will focus its finite resources
on the commercialisation process.
Market Need
We look for businesses whose products or services meet a
significant and acute customer need. We can work with you
to establish whether there is real market demand, and whether
it is of sufficient scale to support creation of a fully
commercial product.
Sustainable Earnings
We look for business models where the added-value of the
product or service is much greater than their cost. This
offers 3EN potential returns which are commensurate with
the level of risk.
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What are 3en's investment
requirements?
Businesses must be early stage -although near revenue
if a start-up -or alternatively, require risk capital
in support of a management buy/spin out. Typically,
such businesses will need to demonstrate:
- Technology with clear and demonstrable user advantage,
with product at prototype / beta-testing stage;
- A defensible market position based upon intellectual
property rights, and a scaleable business model;
- A motivated and committed management team with the drive,
focus, and ability to develop a realisable value platform,
and,
- The potential to achieve an exit for investors within
four to six years.
3EN Ventures will consider investments of up to £100,000,
potentially through multiple funding rounds, and will typically
seek 20%+ IRR's and 2.5 X capital on exit.
3EN are happy to invest alone or with co-investment partners;
3EN will also work alongside the technology transfer companies.
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What are the stages
through which any potential investment must pass in order
to secure investment?
Our process is straightforward:
Business Appraisal:- We will review your business plan.
If it is of interest, we will contact you to arrange to meet
your management team.
Investment Approval:- If we believe your business may be
suitable for investment we will proceed with formal due diligence.
Deal Completion:- If we are satisfied with our due diligence,
we will approve the investment, finalise the legal aspects,
draw up contracts for you to sign and arrange the advance
of capital.
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What will happen to investments which fall beyond
target exit date?
There will be no change in 3EN's investment policy when
an investment is held beyond target exit date, except
where specifically agreed in prior with the investment
itself e.g. an agreement to offer the business for sale
- or planned exit by some other means e.g. AIM flotation.
However, in the vast majority all instances agreement will
be sought with the investment itself as to identifying progressing
and managing an exit for 3EN, so that any capital gains within
the investment can be realised and thus available for reinvestment
through the fund.
Finally, and as a means of encouraging other routes for
all investor exits, 3EN will also provide a showcase for
second-round financing through regular Enterprise Forums
at which specific investments will present their business
case to an invited audience of professional investors. return
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How will investment
management work?
3EN Ventures will not adopt the role of passive investor;
its strategy is to add significant value by using capital,
financing expertise, and sector knowledge to increase shareholder
value and develop successful independent businesses.
Not all of the elements of the business model need to be
in place at the time of investment; 3EN may be able to support
the team as required.
3EN Ventures will also play a significant role in the exit
process.
Consistent with its entrepreneurial approach, 3EN Ventures
is an active investor in, and partner to, its portfolio companies.
3EN Ventures will normally have the right to a seat on each
company Board and seek to play a leading role in second-round
financing and other capital events.
Critically, 3EN will recruit and support a network of experienced
business professionals to act as business mentors, who will
in turn work closely with the management teams both pre and
post investment. return
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Does this mean that 3en will be active
in the management of its investments?
3EN will seek to add value through providing strategic,
and perhaps unusually, operational support to the management
teams in which it invests.
Additionally, 3EN will act as a conduit for external mentoring
where a skill gap is identified.
Finally, where any management team is not quorate, it will
seek to assist management in identifying and recruiting candidates
to address such gaps. return
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Why should I work with 3en?
3EN believe that there are real benefits and savings to be
made in concentrating on an investor who works closely
with and alongside its investments.
Additionally there are other operational advantages outlined
previously.
Ultimately is the entrepreneurs decision with whom they
wish to work, and we recognise and respect that they may
have specialist sources of capital suppliers with whom they
wish to continue to develop close trading relationships -
perhaps alongside building a relationship with 3EN.
3EN does not and will not oppose this, and will make all
efforts to accommodate such existing arrangements within
its plans.
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Long term I can see the advantages,
but why should I start working with 3en now?
There will be some immediate advantages - particularly
relating to support available for embryonic management
teams, for example the enterprise and mentoring initiatives
offered by the fund.
Critically, by building a relationship with the fund an
early-stage business enhances its ability to attract risk
capital and the same time, attracts interest and visibility,
which could be beneficial both in commercial and capitalisation
terms.
Most important is the opportunity to start building the
right structural and operational relationship for the future,
together. return
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The most
important issue is cost of capital; will I get
cheaper capital from 3en than its competitors?
This may occur from time to time on specific investments.
The 3EN view remains that for profitable development of
local early-stage businesses, investment from 3EN remains
the best alternative for technology investment.
Any short-term "deal" value lost in regard to
entry valuations set by 3EN, will more than offset by the
management support, sector focus, and realistic investment
horizon which underpins the 3EN business model.
Accordingly, although entry valuation is important in any
investment situation, 3EN believes that the combination of
capital and support which it offers is a very real differentiator
from its competitors. return
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Investment
standards - community and environment
While we are accountable to investors in our funds and
to all our stakeholders.
In all our dealings, we will be courteous, commercial, and
fair; we will also respect the needs of investors, the local
community and the businesses in which we invest.
Our standards are embedded in the culture of the Fund and
reinforced by our annual performance review process.
Those that oversee 3EN as a whole ensure that ethical standards
are maintained and that appropriate investment values maintained. return
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Can you give me a summary
of the key advantages of working with 3en?
Availability of "Small-Sum" Risk Capital - up to
£75,000.
Tightly controlled transaction costs - in proportion to
deal cost.
"Clustering" of businesses - in order to exploit
synergies, and control costs.
Continuing Management Mentoring and Support - post investment. return
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