The stereotype of European venture investing is that there is plenty of innovation in the region but entrepreneurs lack committed investors with the time and resources to follow their portfolio companies to a profitable exit.
Light Blue Optics, a UK-based maker of holographic display projectors, has grappled with many of these issues as it seeks to turn the fundamental physics developed at Cambridge University into a listed company.
Holographic laser projection had been considered theoretically possible for about 40 years, but creating the holograms needed large amounts of computer power and algorithms able to show multiple versions of an image that the human eye and brain could average into a single image.
Started in 2004 by four post-graduate engineering students working on these holographic algorithms, Light Blue two years later gained $2.5m (€2m) seed capital from a combination of angel investors, public-funded National Endowment for Science Technology and the Arts (Nesta) and UKlisted private equity company 3i Group.
The following year, in October 2007, Light Blue gained $26m in the largest series A round for a European technology company for five years and has filed 32 patents for its algorithms, of which eight have so far been granted.
The round was led by Germany-based Earlybird Venture Capital and Capital-E, a Belgium-based early-stage investment fund backed by electronics research group IMEC and the Flemish government. 3i and Nesta participated in the round as well as the series A extension last July for $15m.
The series A extension was led by Germany- based industrial conglomerate Robert Bosch’s corporate venturing division.
At the time, Claus Schmidt, managing director of Robert Bosch Venture Capital (RBVC), said: "The company [Light Blue Optics] impressed us with [its] potential to create and capture a new product category of mobile, energy-efficient, interactive displays. [Its] proprietary technology will open up entirely new applications and revenue opportunities in markets such as consumer electronics."
Light Blue subsequently launched its Light Touch projector at the start of the year at the US Consumer Electronics Show, with Microsoft, Foxconn and Toshiba manufacturing the product.
Chris Harris, chief executive at Light Blue, said the advantage of adding RBVC was its contacts book, helping with introductions and brand endorsement.
He said Light Blue’s next milestone would be to show proof of revenues, with Light Touch potentially having applications in electronic menus or at the point of sale, as the projected image can be touch-sensitive. Light Blue’s financial results for last year showed a net loss of £6.8m ($10.1m) on revenues of £77,000.
Harris was a former entrepreneur-in-residence at 3i after being president of UK-based Plasmon, an optical storage technology that sold its assets last year to Alliance Storage Technologies.
He said finding financing for Light Blue had not held the company back "but maybe we have been lucky as there is a gap in the £2m to £10m investment range".
This "gap" follows the withdrawal of a number of European venture investors, including 3i, which sold its portfolio to Encore Ventures late last year. However, Light Blue said it regarded 3i as a committed investor despite the sale as the investment director transferred to Encore and it had backed the company until the strategic decision to leave venture capital investing was made.
Simon Cook, chief executive of UK-based DFJ Esprit, which backed secondaries fund manager Encore’s acquisition of 3i’s venture portfolio and so co-owns Light Blue, said: "European venture funds are successful relative to the US but the gap is in the mid-range where we need fewer but bigger VCs. The number of VCs has shrunk from 1,600 in 2000 to 550 now, but European investors can enter at 40% of the valuation of US venture deals and capital efficiency is higher here."
The initial market estimates for Light Blue’s type of projector is about $1bn within five years and the company said it planned to float on a stock exchange to provide additional funding and an exit route. To add experience, last summer Light Blue hired Paul Goodridge as its chief financial officer. Previously he had been director of finance at semiconductor company CSR for eight years, managing its migration from venture-backing to initial public offering on the London Stock Exchange and entry into the FTSE 250 index.
However, Hendrik Brandis, managing partner at Earlybird, who also chairs Brussels-based trade body the European Private Equity and Venture Capital Association’s venture committee, said: "The venture capital funding chain is only as strong as the weakest link, which is the IPO as an exit.
"There are few IPOs as the after-market on stock exchanges is poor and the EVCA is working on creating joined-up financia markets. However, China venture capital has gone from zero to the same size as Europe in five years."
Fact box – Light Blue Optics
Launch: 2004
Funding rounds
Date Round size Participants
July 2006 Seed $2.5m 3i, NESTA, Cambridge Capital Group
December 2006 Seed extension $1m and business angels
October 2007 A $26m Earlybird Venture Capital, Capital-E, 3i, Nesta
July 2009 A extension $15m Robert Bosch Venture Capital, 3i, Earlybird Venture
Capital, Capital-E and Nesta
Key people: Chris Harris, chief executive; Paul Goodridge, chief financial officer.
Founders: Nic Lawrence, director of product management; Edward Buckley, vice-president of business development; Peter Mash, systems architect; Adrian Cable, chief technology officer