James Mawson: Erik Sebusch from CMEA Capital is in many ways an archetype for what is potentially the future of some of the corporate venturing communities. He has been both an LP for UPS, he has been on the GP side for UPS corporate venturing. He has now gone over and does the investor relations and some of the strategic partnerships for a venture capital firm, CMEA. He, in many ways, was the perfect moderator for what I was interested in for this session, which is looking at how the next generation of venture syndicates will be formed. The old stereotype where the VC would lead a round – the round would be primarily led by VCs, or being involved with VCs, has started to disappear. We have seen angels, we have seen universities, endowments/charities, we have seen corporates and universities becoming much more active.
I will leave Erik to say a bit more about this area. What this panel is designed to show is how do you start to deal with different syndicate members who don’t necessarily have a classic VC, pure financial return objective? If you are one or two strategics in a round that is one thing; if it is an entire round made up of strategics that is another thing, but when you have multiple, different parties with vested interests about different lengths of time that they can hold and what they are aiming for, it becomes more complicated. This is a new wave of deals that have started to have been done over the past few years and will become increasingly important.
I will turn over to Erik for a great panel. Thank you very much. [Applause]
Erik Sebusch (CMEA), standing at podium: Thank you everyone. As James told us I was with UPS and their corporate venture capital group, their LP group, investing in private equity and venture capital, then now I have moved to a venture capital firm, I am a partner there. My primary objective is to manage our strategic relationships with the firm that stemmed out of large investments from large corporations and now they have evolved over the years to 1.3 billion in assets under management, seven funds and now have a lot of institutional investors which make up a family office of high net worth individuals, state pension plans as well as a lot of those corporates. I try to make sure I foster those relationships as best as I can.
I will get right into introducing the group here. You have their bios, but I would just like them to introduce themselves, what their position is and where they are going. I would like to accomplish – here are a few different viewpoints, some new syndicate members that will be the future of venture capital deals. Ladies first, please.
Cédriane de Boucaud (Disruptive Capital Finance, sitting far right): We invest in disruptive technologies; I think everybody here knows what that means and also disruptive situations where it might be distressed businesses or M&A, buy and build. We have done a lot with corporate partners, which is great. Our portfolio now is primarily early stage technologies and we are looking to do buy and build in the early stage VC companies within one sector. We have a pledge fund now of about 200 million that will be invested in buy and build for young companies.
Peter Cowley (Martlet, sitting right middle): A bit about my background: engineering, computing, worked for a corporate for a couple of years in London in the ‘70s, five years in Bavaria and then came back to the UK. I have been entrepreneurial for about 30 years now. About 10/12 years ago I was involved in property development and charity governance, then about seven years ago in angel investing, mentoring. The reason I am here and James has invited me is because I set up and run something called Martlet, which is a corporate angel, which is a rather unusual model compared with the rest of this room. I will tell you more about it later, but it is an operating arm of 1 billion sales turnover engineering company based in Cambridge. I am both an active angel investor and run the Martlet corporate angel.
Mathew Mead (NESTA Investments, sitting left middle): Let me start by introducing NESTA and then I will introduce myself. NESTA is an innovation agency based here in the UK. You may be familiar with other models like Sitra in Finland for example. NESTA was created about 15 years ago as a public body here in the UK, but very recently became an independent foundation. NESTA does a combination of different things, so we do policy and research work, we do grant programmes and we do investment work. In both the grant programmes and in the investment work clearly links with corporates and alignment with corporate agendas is very important.
My personal background is in venture capital, so I have been in venture since 1995. I was at 3i for 15 years here in the UK and did some stuff in the US as well. My responsibilities at NESTA fall into three areas. The first is managing a £25 million venture portfolio that we have of assets based primarily here in the UK. The second is the sort of CFO role, but oversight of our £340 million trust that supports our activities and the investment of that trust. The third is the creation of an impact fund; investing to achieve outcomes, not necessarily to maximise return. We can talk a bit more about that later on.
Tony Stanco (NCET2, sitting far left): I am the Executive Director of the National Council of Entrepreneurial Tech Transfer in Washington DC. I am a securities attorney. I worked for about six years at the Securities Exchange Commission. I joined George Washington University after that. I worked for software government policy and since then at the National Council of Entrepreneurial Tech Transfer, which started at GW and spun out.
We are an organisation of about 200. We search universities in the US; it is about 7 years old. It started with NSF (National Science Foundation), NIH (National Institute of Health) and DoD (Department of Defence), the Association and the Conference. There is a huge push on the Government side now to commercialise its $40 billion of research dollars that it spends at the universities and so we are an organisation to help transition that research into start-ups, so commercialise it for start-up.
There are a few tabs here. We do basically three things: one is a database of university start-ups. It is on a map. These are US start-ups that started at university; some of them are around the world, but the majority of them are in the US. That is the map and we have a list of those – this list is since October last year. We have about 1,500 on this list now. We are going towards the 6,000 that came out of the universities over the last 20 years. This is the kind of information you find on it. It is basic information with contact information.
The other thing we do is education, both formal and informal. On the informal side we do a lot of webinars to help universities create start-ups, help the faculty and students understand entrepreneurship of venture capital and we do a series with Jim, which is Global Corporate Venturing Webinar series. The have had IBM and we have Cisco coming up next week and we have a few others lined up – an open invitation to talk to Jim to have your own venture fund on that.
The third thing we do is the conference and that was the first thing we started with and that is what I am going to talk to you about last. As we said, we do it with NSF and NIH, who are the major funders of university research. We have usually three corporate panels that want to work with universities, so an open invitation. For that, Jim is organising those panels next year at our conference.
Erik Sebusch: Thank you very much. On the far side we have the university, then we have the foundation, then we have your angel/corporate investor and the pure VC. We will get a little bit of a perspective. I know that is not the full inventory of syndicate members that we are going to see in the future, but at least this is a small subset of it that you are going to get an idea of what they are going to be looking for and what their needs and wants are.
Ladies first. I would love to hear from a venture capital perspective, being a pure venture capitalist on this board, what is it you are looking for in your syndicate partners as well as what do you want out of the corporate venture capital syndicate partners?
Cédriane de Boucaud: First of all we have two corporate partners in our portfolio, one being Coca-Cola Enterprises and the other the venture arm of the chemical company called DSM. Both have worked out beautifully, which is great, but the key thing has been expertise. DSM has helped us scale up our technology with a drug delivery company. That was very helpful to make sure we went from a technology that was working in a lab to using their chemical expertise in manufacturing to make sure we could scale up and demonstrate to the blue chip world that that works. That was very important for us there.
With Coca-Cola obviously manufacturing standards, operations and distribution was very important. We have to have and are looking for that expertise. In addition to that we obviously have to have an alignment. An alignment is not always easy between a corporate and a VC. We are looking for a return, but they are looking for strategic advantages and better margins for their own business. We have managed to structure it such that we are all benefitting from the bottom line and that is the common language we all have. That is essentially what we are looking for in co-investors.
It has gone well. I would like to see more partnership in our portfolio with other corporate ventures. I find it difficult – a lot of corporate ventures, as far as I have seen, have not been very risk taking. While I am very much a risk taker, I would like to see a little bit more from the corporate world and just to think a bit bigger alongside it.
One of the key things we are doing now, as we are specialised in clean tech, is we have seen a lot of young companies grow to a stage where they are generating revenues, but they really struggle to get sufficient size, sufficient funds, sufficient management and I don’t say the number of management, but quality management used. To attract quality management the larger you are the better your balance sheet is. What we are looking to do now is to consolidate some of these companies that you have all seen are popping out. There are lots of people in energy efficiency and waste treatment, etcetera. We are trying to consolidate that market. I hope that the corporate community will see that is exciting, that is very scalable and interesting for them in that we will see synergies with the corporate community.
Erik Sebusch: Tony, from a university perspective what should a syndicate group expect out of the university? What are the pros and cons of working with them? Why are they even in venture capital to begin with?
Tony Stanco: The universities are in two parts in the venture industry. One is in creating the start-ups, they have been doing that since about 2000 in a very directed way. Obviously Stanford and MIT have been doing it for a lot longer, but the rest, the whole 200 plus research universities since 2000 have been trying to create start-ups. That is an interesting thing to do, tech transfer through a start-up, because if you have had trouble working with universities it is because the incentives don’t allow it. Once the technology gets into a start-up then you don’t have that problem anymore. The start-up is usually a smaller research group that really wants to partner, really wants to take technology forward, really wants to work with the global corporate community.
We have an example; there is just one but it is probably typical in the sense that the Federal Government invests these $40 billion in research, so there was a company out of University of California and they had some research dollar from NSF, did some work on imaging technologies, ultrasound imaging. They had an SBI art grant, which is another government programme, of $2 billion to commercialise the research. They got some angel money and then sold to Siemens for about $25 million. That is a prototypical example of what the university community is trying to do on the start-up side.
Just this last year or two universities have tried to create accelerator funds based on the Y combinatory and the tech start model. It is only a few million dollars at a university, sometimes more, sometimes less and they put $50,000 to just get the team moving, get them out looking for customers of the lead start-up model and they want a partner. The global corporate community could be a great example of a partner there. They come in pretty early, or angels or anybody else. They want expertise, they want money, but they also want the connections and the ability to network.
Erik Sebusch: You put together a great consortium of a lot of universities, how many are there and also what did it take to get them to join up? What motivates them the most to join together and what are some of the difficulties of those that you have talked to that have not joined?
Tony Stanco: There are a lot of universities in the US, unlike some other countries; there are thousands, if you include the community colleges. There are only about 200 research universities that get 95 per cent of the $40 billion and all of those are part of our organisation and what motivates them? They have legislation, Bayh-Dole, that came out in the ‘80s. They were given the property rights to the research that they do under the Federal expenditures, but they have to commercialise that. They have been trying to do that through licensing. That didn’t really work that well and then when you had examples like Google and Netscape where people were making a lot of money on the start-up paradigm, people thought, "Perhaps we should try that". That is what they played since about 2000 and that is going pretty well. About 600 universities start-ups get created every year on that expenditure of the Federal Government.
It is a wave; everything is, right? You had some early adopters, you had some later adopters, but basically over the last 10 years – we have been around for seven – for about 10 years every university now is on board on start-ups because of the financial situation, the economic situation, they are pressured by governors and by the Federal Government to commercialise. There are active programmes.
Erik Sebusch: Mathew, from the foundation perspective what should syndicate members expect out of a foundation? What could you offer them? Could you tell us a little bit about what it is you are structuring and putting together?
Mead: Yes. The first place to start when you are talking to a foundation and there are several very large foundations that you will all be very familiar with: The Gates Foundation, Rockefeller, Wellcome here in the UK, Omidyar, Gatsby, the Sainsbury Foundation; there are a lot of very big foundations that are investing a lot of money. The first thing to get clear is from where is that money coming from in the foundation? Is that foundation assets that they are investing purely for return to fund their activities that they focus on, or is it in their outcomes part of their activity? You have to establish that first because they will think very differently and we think very differently when we think about how to invest our assets to produce the income to fund ourselves and how do we invest that income that we produce? We think quite differently. The first thing is to be clear about that.
The second is most of the investing activity that is done directly into end companies, into direct investments, is done for outcomes. It isn’t done purely for return; it is done for outcomes. Most foundations are very clear about what the outcomes that they are targeting are.
For NESTA there are a number of outcomes in our charitable objects, but ones that our fund is focussed on are around education, the ageing population and something that we call "sustainable communities". We work with corporate partners in lots of different ways across those themes because it is not just an investment perspective, as I said earlier. Quite often that conversation starts with a programme, with a grant programme or with a focus programme in a certain area. One of the themes within education is all about how do people learn in school today here in the UK? If you watch their behaviours out of school with digital technologies they learn in a very different way. How can you bring those two learning activities together in a comprehensive way? We are talking with corporates about that programme and part of that programme will be investing.
A long answer to your question, but it is a combination of be clear about the source of the money from within the foundation and then be clear about what the outcomes of that foundation are. Most foundations do see a lot of value in partnering corporates that can bring something very different to that syndicate.
Erik Sebusch: Peter, angel investing: some are saying that it potentially could be a bubble. One of our managing directors came into work and said, "It is official, we are in an angel bubble because my dentist said to me ‘I have made my first venture capital investment of $25,000 with a group of dentists’". At least in the Silicon Valley area there is a large outcropping of angel investors, super angel investors, and I am not sure if it is a bubble. I would like you to talk about what you would expect from an angel investor, or what should investors expect from an angel investor in the syndicate? How will they act? What is it their motivation is, as well as do you think it is a bubble and do you compare the UK to the EU?
Peter Cowley: Thank you very much, Erik. That is not quite what you asked me earlier on.
Erik Sebusch: I know you are capable.
Peter Cowley: The bubble bit is quite interesting, particularly with the crowd sourcing and things like Crowdcube coming online at the moment. I will come back to that in a moment. Some of you in this room will be angels, I am sure. Some of you will have done some sort of investments in family and friends, possibly even as fools, as the FFF goes. There is a lot of information in the media about angel investing, with some television programmes about it as well. The concept is – this is where it doesn’t really fit in with corporate venturing per se, at the early stage, because usually the sort of investments I get involved with and I did about 12 or 13 last year, so very active, is a much earlier stage, where the pre-money is perhaps a few hundred thousand, perhaps up to 2 million. A corporate venture probably – I was talking to somebody from Texas earlier on – wouldn’t even dream of looking at that level. If you take what the angels are looking for, they are looking for a bit of excitement. They are not just looking for a punt – some are, but most aren’t – they are looking to somehow getting involved and adding value.
They are putting a bit of money in. There are angel investors, and we will come to Martlet later, where we put £500k in last year as an "angel". There are a few that bumped into the EIS limit in the UK at £500k last year, but not many compared with California, where £500k is probably an entry level for a super angel for one investment. We are putting together rounds of a few hundred k, typically 3/400k first round. We will follow on perhaps once or twice with a pre-money of £1-2 million.
Do you want me to go on to talk about the connection with corporate ventures? Do you want a bit more information?
Erik Sebusch: Let’s go right to it.
Peter Cowley: There are a couple of examples here. So far in my angel history, which goes back about three or four years, I have never seen anything where a corporate venture comes in early. They come in later on. We have one deal in my portfolio which is quite well-known in Cambridge called Néal, which is Gaelic for "The Cloud", where it is an £8 million round, where DFJ went in – I don’t know if Max is in the audience, but IQ Capital and a group of angels put in £1 million plus. That is one round on about a £10/12 million valuation. Very unusual.
Generally angels go in, possibly with seed funds – again Robert is in the audience somewhere here – Imperial Innovations, Cambridge Enterprise, which is the tech transfer in Cambridge goes in. What we are finding is the corporate venture is getting later.
There is a good example which I didn’t invest in unfortunately, which is a great pity, two years ago, called Oval Medical in Cambridge, which was auto-injectors where there was a small angel round of about 300, then they put in another 500. The initial valuation was about £1 million two years ago. The corporate venture comes in putting it at a £10 million valuation. This is somebody in the drug field, of course, not the pharmaceutical company, but further down the chain. In terms of the connections, as I am sure the audience is aware, you need the angel to do the early stuff and take some of the risk out, then you can take over. We need you to feed on into the system strategic investments in the same way as we see them.
Erik Sebusch: We, at CMEA Capital, agree with a lot of that. What we are seeing from a corporate venture capital perspective in energy materials one side of our business, we believe corporate venture capitalists should come in early and we are bringing them in early. They are investing early. We are getting in really early. At least from our perspective in the United States we think that is vitally important on that side, just because of the technical nature, the need for pilot testing, etcetera. Then the life science side, from a formulaic and a chemical compound perspective we are bringing those corporate venture groups in early, not to invest, but definitely give mindshare and say "What is it you guys are looking for in the future?". Definitely on the IT side I do see much more of the later and there are some groups coming in earlier, but we don’t necessarily need them as much in the IT side.
Venture capital; everybody has seen the Kauffmann Report that it is a philanthropic endeavour. I am curious, Mathew, how do you manage the good aspect of your investment and the financial returns? Is it philanthropic purely?
Mathew Mead: There is this grey ground. Clearly a number of investors who invest for outcomes are doing it for philanthropic purposes. However, there are also a number of funded funds that are springing up in the UK and across the rest of the world that are interested in this blend between achieving outcomes and making a financial return. The financial return will never be the sort of financial return that a venture fund might promise. It might deliver it, but might promise, but typically they are looking for IRRs in the five/six per cent type area. The message that we have when we have been out talking to investors for our fund is, "We really like some of the outcome areas that you are targeting. We like the way that you are trying to develop the proofs of those outcomes being incremental" and we have to invest in organisations that also want to deliver outcomes and not just shareholder return. That combination can be a challenging discussion that you have with different organisations, depending on whether they are a not for profit or a for profit. There are a number of things.
At a minimum for a social enterprise to have real impact it has to be sustainable, therefore return does have to come into the equation. It is just a combination of the weighting that you have to think about. We are very clear that when we invest, it is to deliver outcomes, not to maximise return.
Erik Sebusch: Peter, corporate angel, tell me about that? Should you do that? Is it a good model? Should people copy it?
Peter Cowley: You will have to ask me in about three years’ time whether it is a good model or not, it is only a year old. Let’s just talk about what it is. Basically the concept was Marshall of Cambridge – you won’t have heard of – if you ask most people in the UK what Marshall is, they think paving slabs, which is a quoted company that does paving slabs. Marshall of Cambridge is a billion turnover, 4,500 person company, 100 and so years old. It is an engineering service business, so there are about three quarters of a billion of cars, retail cars, about a quarter a billion or so of aerospace selling to the tier ones and the tier twos and some other bits and pieces. It runs the airport in Cambridge and it has a land vehicle division. It is a family company. It is still run by the Executive Chair, who is the 80 year old, third generation and the new CEO is his son, who is 50 odd. It is run like a family company, although there is a governance body of great and good from the industry to give some level of independence. They invest in some Abcam which one or two of you in the audience will know – one of the early investors in that, David Cleevely, who again you might know, claims to have a 750 x so far on that. Marshall went in early as well. There is a bit of a history of that.
The reason it was set up was not as a corporate angel, which is money coming from the holding company. It is not coming from the family office or the family itself was, for other reasons than the ones that Justin put up on the board – some were the same earlier on, Justin from BP. Access to technology and new ideas is a very important part, but they don’t have to be synergistic. One of the rules when we set it up was that synergy might drag management time away from the operating companies. Another one was brand recognition, this business of Marshall not being known. It liked to be spread out, but there is the Marshall name. I don’t know what the long-term aim is there, but just to spread it out.
Another is innovation support, infrastructure support in the local area. The investments we have done have covered Southeast England and East Anglia mainly, but they are spreading out: we have a Loughborough one, we have been over in Northern Ireland a couple of times and in the end – this is down the bottom of the list, is some sort of IRR calculation. These are public figures of course, because it is a large company and the rate of return on the asset base is very small. In that respect my target if I have to meet this IRR isn’t too bad.
£500k gone out; 11 deals in the last year; they tend to be stuff that is engineering based or web software based, no biotech, but some med tech. The idea behind it is something that will seem pretty alien to the corporate ventures here because there is a level of altruism and other things which are strategic, but you can’t calculate to finances. That is a good start.
Erik Sebusch: Cédriane, you mentioned before that you have a pledge fund. I am not sure everyone in the audience knows what a pledge fund is, but could you talk to that? That aspect brings about the family offices that co-invest with you; can you talk about that, how they interact in a syndicate? Are they valuable, do they get out there and roll their sleeves up?
Cédriane de Boucaud: Why have we decided on a pledge fund? First of all a pledge fund is effectively funds that corporates, family offices of pension funds will invest, will commit to us, but we invest on a deal-by-deal basis and the structure for us is we get a carry and investment management fee based on what we invest in that one deal. It is not a pooled fund. Why do we do that? One, my incentive is I don’t want to wait 10 years to have my carry and secondly a lot of these investors have been really frustrated in the last few years by paying 2 per cent management fees and 20 per cent carry. In a recession you have a lot of investors who are very nervous about investing and just don’t invest. They have put and paid a lot of money to investment managers that have simply not put that money to work. They just don’t like that anymore and they would like to see a lot more transparency in management fees. That is a bit of a response to that.
The other reason we are asking, or people want to invest directly is in the pension world you must have heard of Solvency II, where if you have direct investments in companies, your capital ratio requirement is lowered, so that means you have to have less liquid cash on your balance sheet. That is important to them.
The other reason we are doing this is because I am a venture capitalist, everybody knows in that in the US the chances of success of a VC backed company is a lot higher because there is a hell of a lot more capital in the US that people are willing to put in. You don’t really have that in the UK. It is starting to get a bit better, but it is still way behind the US. One of the problems is that if you have a VC firm and you have fund one and then you have fund two, it is very rare that you can reinvest in the fund one businesses, because there are all sorts of conflicts of interest. What we are trying to do now is to take the companies we have had in our first fund and just put a hell of a lot of money into those winners. The only way we can do that in terms of governance, etcetera, is by having a pledge fund. That has worked for us.
In terms of having the families on the Boards, it is very difficult. I had also some experience, good and bad, with angel investors, where some companies get so many angel investors that they are very difficult to manage, unless they have one or two representatives. You can have very difficult angel investors. When you go into a business that has angel investors or family offices with different incentives, you have to find a way from day one to make sure everyone is aligned. We tell our family offices that we will represent them because they just have to trust us with that. They can, of course, get involved, they can tell us "I would vote like this, I would vote like that", but at the end of the day we have the ultimate say, because we have to represent a large group of investors. They all know that from day one; they know exactly what our objectives are with these investments.
In my experience, I have been doing this for about 12 years, it is very important for us to have control. Democracy works sometimes, but if you have voters voting in too many directions and I am French, so I am feeling particularly pained right now, you don’t have a good result. You need someone that is taking the reins and is representing all these people.
Erik Sebusch: In the cases that family office individuals took the Board seat, what was the reason for them doing that? How did they act and play amongst the syndicate?
Cédriane de Boucaud: We probably wouldn’t have allowed it. We have one case, but that is where they were putting 60 per cent of the funds in. That has worked out well for us, because we are aligned, we know exactly what we are trying to do. Everybody wants to come out the other end with the same strategy within the waste sector, as an example. It has worked out quite well. It is tricky.
Erik Sebusch: Great. Let me open it up to questions. I have more questions here that we can continue on, but does anyone in the audience have any questions for any of the panellists regarding corporate venture capital, angel or foundations? Can each of you go down the line and let me know where do you get most of your deal flow? Where does most of your deal flow come from?
Cédriane de Boucaud: It basically comes from our investors, because they are out looking at the market as well. It comes from the management team of a particular company. I am looking for buy and build opportunities. If my management team knows their business well, they will be able to tell me who their competitors are and who is up and down the supply chain. I really count on them to identify potential M&A.
Peter Cowley: We have contacts primarily, belonging to five separate angel groups, a couple in Cambridge, London and business angels here and a couple of other ones, some cold calling, but that doesn’t work for anyone in this industry. If it is a warm introduction it is much better. I probably have to screen 50 or 60 a month and invest in one. That bit of the job is pretty tedious to tell you the truth. Plenty of deal flow.
Mathew Mead: The impact investment market in the UK is a pretty nascent market. The equity market is about £60/70 million market. It is a very small growing market. There are probably only a very small handful of equity investors in the impact investment world in the UK. Deal flow isn’t a problem. Increasingly there are more and more organisations and start-ups that are looking to get this blend between positives outcomes in areas like education and making a shareholder return. We haven’t done any publicity around our fund and we have a pretty deep pipeline already.
Erik Sebusch: Tony, obviously yours come from universities, but how do you, at least in your event if you want to talk a little bit about it, how do you filter through those? Is it every company or every idea that comes out of a university that is showcased? How do you filter through those?
Tony Stanco: We start with the $50 billion a year from the Federal Government that goes into the research at the university. Then those are filtered down to certain ones that have potential, you get patents and then from there they are filtered down to the 600 university start-ups that get done every year by the number of universities. That is part of the screening. Universities also have entrepreneurial networks, so Facebook for example came out of just the students, that aren’t necessarily research intensive and owned by the university, but there is another branch to this flow sometimes if the university wants to bring it in. Then our filter, which is just recent, is building on this phenomenon of universities creating accelerated funds of a few million dollars. We are creating this year for the first time a showcase at a conference to filter from 600 to 100 start-ups that are nominated out of the portfolio companies of these accelerator funds at universities and then from there we are going to do an online virtual showcase by angels, VCs, corporate VCs, SBIR programme managers to get the 15 that will showcase at the conference. That is our pipeline.
Our conference is going to get it out to the angels, VCs and corporations and we are at the end of the funnel where the research ends into this very specific, accelerator type start-up that now has to join to the venture community.
Mathew Mead: This accelerator phenomenon is quite interesting because it is spreading across different vertical domains. The textiles and the Y combinators were quite broad originally and there are examples like Springboard in the UK that are adopting that model, but what we are increasingly seeing, because we do a lot of work with accelerators here in the UK, is that they are increasingly focussing on specific areas. There is one on high value manufacturing from Qi3, based up in Cambridge. There is one that is being looked at around the whole set of patents around Oxford. We are setting one up around education. There is one on sustainability. They are being increasingly used to generate pipelines of opportunity for different people. It is a really interesting thing to watch how it develops.
James Mawson: It is a great panel, thank you, Erik. I was going to give a data point and then as a perspective from the panel. The data point comes from Advec and they say that more than 50 per cent of successful venture exits have a non-traditional VC as part of the syndicate. I was interested from the panel’s perspective, do you think for the future syndicates will do better if they are more diverse, but equally that brings more challenges, so will that create more hassles for the entrepreneur and be more of a distraction for them? How do you think that the idea of having an almost monoline syndicate versus more of a broader one, the perspective that will help the entrepreneur or hinder them?
Mathew Mead: I’ll have a go first. Mixed syndicates are really interesting and they work really well when things are going well. In my previous career in 3i I had several investments which had a combination of angels, corporate investors and VCs in it. When they progressed well it was easy. When they hit roadblocks – and some of them had university in it as well, the different alignment of interest is very hard to keep. That is a challenge; we are putting mixed syndicates together – how do you keep that alignment of interest all the way through? When things are going well and everyone is on the same timeline, it is easy. There is real value when it is working like that, because different connections, different values can come in. When you hit road bumps it can get quite difficult to manage would be the only observation I have.
Cédriane de Boucaud: The road bumps are timing and how much each investor has available. Inevitably people have larger and smaller funds and if you continue funding the business one will get diluted and then people get a little bit anxious.
Mathew Mead: The specific deal I was thinking of hit some road bumps in 2000 and 2001, like lots of things hit road bumps in 2001. The corporate who had invested wanted to take the technology in-house and made a global offer. The university wanted to take all the researchers back to the university. The VCs were scrabbling around trying to find whatever they could find. Those alignments of interest are really difficult to bring together to find a solution.
Erik Sebusch: Syndicates will get even trickier now that you have sovereign wealth funds getting involved, you have public pension plans getting involved. Besides angels there are super angels, there are micro VCs, multi-family offices have individuals managing their direct investments. It is going to continue to complicate that syndicate and you will have multiple agency risks when a deal goes bad. It will be tougher to manage.
I am a big supporter of corporate venture capital. I believe when you have a corporate venture capitalist in it helps your probability of success in a sense if they have done their diligence and said, "This is the best technology in the basket of technologies I have looked and the similarity". You have to manage those; it will be trickier. They have given us a bit of an idea from their perspective and it is going to further get more diverse. We thank you for your time, your comments, much appreciated. Thank you everyone.
[Applause]
James Mawson: I want to add my thanks to Erik for leading a great panel; I really learnt a lot. Thank you guys.