South Yorkshire shows a new way of building technology companies
Published: 19th March 2009
Eighteen months ago, South Yorkshire Investment Fund (SYIF) launched a pilot Seedcorn Fund intended to show the potential of South Yorkshire to develop more high-growth technology companies.
Tony Goulbourn, chief executive of SYIF, said: "Early stage technology investment in South Yorkshire has been scarce, possibly scarcer than anywhere in the UK. We wanted to show that could change."
The pilot £4.6m fund would invest in early stage knowledge and technology businesses with high growth potential and would fill the gap left by SYIF loan and equity linked funds.
Initial research showed various options could be used to make the investment decisions and provide the appropriate support to the companies. This pointed to the need to initially pilot the fund.
Tony said; "We didn't want to just guess the right approach, instead we decided to test two different investment approaches to discover what would work best."
The first approach was to use an internal team providing small sums of money to companies and providing little help and support to each company.
The second approach was to use an external team, Enterprise Ventures (EV), who have a team specialised in developing early stage technology companies. EV would take a more selective and supportive approach, having fewer companies with higher ambitions.
The pilot has now finished and SYIF has been taking stock of the outcomes.
Overall the pilot Seedcorn Fund demonstrated that a great number of companies wanted investment, and that some of these could succeed given access to the right support.
Tony Goulbourn said "Our expectations have been exceeded, the region has a fantastic pool of entrepreneurial talent and brilliant innovation, but those teams have struggled more than elsewhere to raise backing. We have had hundreds of enquiries for investment. It will only ever be possible to back a small percentage, so we have to do our best to be selective."
The main lessons learnt from the pilot are:
- The pilot only ran for eighteen months, shorter than would've been required to enable the full impact to be measured.
- The Proof of Concept Fund which invested between £15k - £100k in convertible loans or equity was almost always insufficient to turn an idea in to a "Venture-investment-ready" proposition, or to allow the companies sufficient time to reach break-even. Follow-on funding was necessary if promising ideas were to reach fruition.
- The pilot has shown that the development of the management teams or the appointment of Non-Executive Directors was critical to the success of the investee companies, and that this required considerable support from the fund manager to achieve effectively.
Although, most of the business received investment just a few months ago there are some early indications of success:
Inertius has the potential to make large reductions in the cost and CO2 involved in making Aluminium and Titanium. This next stage in advanced metal production could bring some wealth back to Sheffield, a city built on innovating on steel production
Iceotope Ltd, a company set to transform computer servers, formed with help from the Seedcorn Fund The Fund took a proactive approach to getting involved in helping form and develop the company and rapid progress was made.
The company was started by a former Sheffield University graduate, and local entrepreneur, Peter Hopton "The support of the Seedcorn Fund was transformative", said Peter, "not just the money, but the help with finding the right people was crucial. My experience before was that raising risk money for new technology was extremely challenging."
Ensembli Ltd, a news service for the internet also received funding: "We were seeking to solve a very tough technical challenge- that's expensive so you need supportive investors", said Michael Wheatley CEO of Ensembli, "We needed investors with the confidence to invest before we had any sales. The Seedcorn Fund enabled us to bring in cash from two other investors to make the million pounds that was crucial."
Vidiactive has a medium term goal of getting its software onto TVs and set-top-boxes around the world. Chairman, Iolo Peredur-Jones, said "Bringing internet TV to the living room isn't cheap, it isn't something we could've attempted without investors who understood what we were doing."
Iolo, who started Narrowstep, Inc, an IPTV specialist listed on NASDAQ the American technology stock exchange, is enthusiastic about the potential. "Great businesses depend on investors who can be involved as the business grows. SYIF's Seedcorn Fund worked hard to get Vidiactive where it is today."
Ed French, SYIF Seedcorn Fund Manager said; "Naturally, with most of these investments only being a few months old, these companies still have some way to go before becoming profitable.
"Great people make all the difference, something the Seedcorn Fund has enabled. Each of these companies has hired 2-4 people, all of whom have experience making money from building technology businesses."
Tony Goulbourn concludes; "SYIF's Seedcorn Fund has filled a significant funding gap, benefiting business ideas which may have been seen as too high risk by mainstream investors and providing an engine for innovation in South Yorkshire.
"The EV team have experience of more than 50 technology companies over the past 7 years and we have asked them to manage the SYIF Seedcorn Fund until the planned start date of the Regional Successor Fund in October 2009 when there will be a of a bigger, regional Seedcorn Fund."