Michael Lynch (pictured), co-founder and former chief executive of software provider Autonomy, has set up Invoke Capital in order to bring a “gun” to the venture capital “knife fight”.
Lynch, paraphrasing a quote from the film Untouchables, said this was a phrase – “bringing a gun to a knife fight” – widely used at Autonomy before its acquisition by technology company Hewlett-Packard for £6.2bn plus cash in October and that he would apply to help deliver success as a venture investor.
He said he was now bringing together the former senior managers and “bright” technical engineers from Autonomy to create a venture capital firm to invest in European start-ups.
While the team has yet to be revealed, Autonomy’s directors and executives from its 2010 annual report included: Sushovan Hussain, chief financial officer, Andrew Kanter, chief operating officer since 2001 and general counsel, Nicola Eagan, chief marketing officer since 2006, Stouffer Egan, chief executive of Autnomy in the US since 2002, Eloy Avila, chief technology officer in the US having joined in 2004, Peter Menell, chief research officer and senior technology officer since 2004, and Richard Gaunt, non-executive director and the other co-founder to Lynch.
Invoke’s website describes the firm as having “a new approach to unlocking the potential of fundamental European technology”.
Lynch said it would be looking to apply Autonomy’s own experience in taking fundamental university research and commercialising it to create the UK’s largest software company, with an acquisition value of $12bn.
Autonomy provided the best-ever returns for European venture capital and was responsible for spinning off the world’s largest video search engine, Blinkx, valued at $225m at its flotation in May 2007. (Lynch remains a director of Blinkx having last sold stock in May 2011 to hold 21.9 million shares.)
He said: “UK universities are the best in the world but the technologies on the bench rarely reach the market. Autonomy showed a way of doing this and [with Invoke] we have access to substantial sums of money and the people who did it.”
His first deal after leaving Autonomy was to join a £1.5m series B round for Featurespace, which spun out of research at Cambridge University. UK-listed university venturing fund Imperial Innovations provided half of Featurespace’s B round after it had raised seed funding in 2008 and a £1m A round in 2010, according to news provider Cabume.
Lynch said it would reveal more about its approach in three to four weeks but was looking to apply the lessons from Silicon Valley of bringing marketing and management to start-ups.
He added: “Our advantage is [the quality of research and development] R&D in the UK and our expertise is bringing marketing and international expertise to start-ups.
“The basic venture capital model has not worked in Europe, apart from by a few people, such as Danny Rimer [at Index Ventures] and Hermann Hauser [at Amadeus]. We know how it can work and while there are lots of social media companies what I know if fundamental technology of the sort that have become the only UK companies to have scaled into significant businesses, including ARM, Autonomy and CSR.”
Founded in 1996, Autonomy’s Intelligent Data Operating Layer software for processing unstructured information, such as emails, showed revenues of $870m, cash flow of $363m, cash of $1.1bn in the bank and had invested $135m on R&D in 2010, according to its annual report for the year.
Lynch said there was a virtuous circle in Europe now to support his strategy at Invoke. Autonomy has trained a large number of people and done large transactions, while there were now good examples of spin-outs from universities that now were required by the UK government to show the economic impact from its research.
Autonomy’s track record of successful technology acquisitions includes enterprise search player Verity (2005), compliance tech firm Zantaz (2007) and web content management provider Interwoven (2009). The three companies were bought for $1.3bn but delivered strong earnings per share and sales growth after their purchase. Autonomy, before its sale to HP, also bought speech recognition technology Etalk in 2005 for $70m, and the digital arm of data protection company Iron Mountain for $380m in 2011.
As Lynch said: “We were academics who learnt business, we were not financial engineers, so we understand the technologists concerns.”
He said given Autonomy success and its cash resources – Lynch made a reported £600m from the sale of Autonomy – there was plenty of people looking for funding from the UK’s Royal Academy of Engineers (where Lynch is a Fellow) or Royal Society (the world’s oldest science institution) as well as other research institutions and universities.
But he added: “Our issue is how to filter out the fundamental technology, not just find a better mousetrap.”