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Thursday, April 30, 2009

Venture funding: some deals for April

There were a few interesting business funding deals and almost deals in April. Here are a few:

HyTrust, a virtualization start-up, launched its flagship product Monday with $5 million from its backers, VentureBeat reported. Trident Capital led the round, which included participation from Epic Ventures. HyTrust’s launch partners include VMWare, Symantec, Cisco and Citrix, the publication said. The start-up aims to enable the broader adoption of virtualization software by companies, by cutting down on security risk and aiding compliance.

Teradici, a Canadian start-up that is developing chips to deliver a PC-like experience over a network, said it completed a $17 million Series C round of venture funding. The investors included the venture arm of Telus, as well as Alloy Ventures, GrowthWorks Capital, Skypoint Capital, BDC Venture Capital and Alta Berkeley Venture Partners, Teradici said in a press release.

Facebook’s chief executive, Mark Zuckerberg, after a board-level conversation, has declined a funding offer that would value the social network firm at $4 billion, VentureBeat reported. VentureBeat, citing sources, said the company rejected the funding because it doesn’t need it.

Twitter is talking to big Internet companies about forming partnerships with them, but not looking to sell itself, a Twitter investor and board member, Fred Wilson, told the Bits blog.

Stoke, a mobile broadband start-up, has landed $15 million in a fourth round of financing, VentureBeat reported. New investor Net One Systems, Japan’s leading networking and systems integration provider, provided money as did previous investors, including Reliance Technology Ventures Limited, Sequoia Capital and Kleiner Perkins Caufield & Byers, VentureBeat said.

FreeWheel, an online video advertising broker, has nabbed $12 million in a third round of funding, VentureBeat reported. Funding for the start-up, founded by former DoubleClick executives, was provided by Foundation Capital and Battery Ventures.

Friday, April 24, 2009

Investors are Still Keen to Invest

We may all be mired in economic uncertainty, but if you’re looking for funding, there’s no need to be unduly discouraged by the current slowdown. Getting funded has never been a pushover, but the current economic uncertainties don’t seem to be stopping the right people with the right product.

In recent weeks there have been a plenty of upbeat messages from funding groups - it’s just that the reassuring words tend to be couched with more caveats these days. One venture capitalist told me that business plans were being scrutinised more closely in 2008, especially market forecasts, growth estimates and profit margins. As he succinctly put it: “The dumb money has long gone. The smart money is still there. We back favourites, not the long shots.” Or as David Giampaolo of Pi Capital says: “We are still looking at plenty of deals – but we are in no rush”.

So if funding is still available for the right people with the right ideas – even if they might have to wait longer and it costs them more – how can you make sure you’re first in the queue? One thing to bear in mind is that VCs are looking for more than just a good product, and a compelling business case: it’s also about how you structure your company, how you make it responsive in changing times, and what people you surround yourself with. The latter is often the hardest for entrepreneurs. You know you need someone on your team who’s done it all before – but where do you find them?

For some start-ups, the answer lies with one of the biggest growth areas in the UK in recent years – organisations offering management consultants, business advisors and non executive directors to help young businesses to grow and thrive. It’s not surprising that so many of them are successful – nor that so many are successfully finding funding themselves – since in the main they’re owned by people with a long track record in business advice.

Hiring a non executive director or a business advisor can be a daunting task, but approach it in the same way as you would hire a new employee. Ask them about their experience, to make sure it’s relevant, and establish what they expect to be able to contribute. Start them on a definable task, to see if your ways of working are compatible, and measure their results carefully against their fees. If you feel comfortable with the advisor, and you can see there’s a quantifiable benefit, involve them in more activities. Some advisors will be part of larger networks, offering specialist skills and experience when it’s required. There’s lots of information about what these experts can bring on sites like

Working with a business advisor or a non executive director isn’t just about what they bring to your business – it also sends a clear signal to the investment community that you’re serious about what you’re trying to achieve. It doesn’t guarantee success, of course – but at least you’ll be one of the favourites rather than one of the long shots.

By George Fletcher, Webster Buchanan Research

Learning from the academics

Accessing research skills is easier than you might think through business-university collaboration schemes. But beware - it's not 'free' R&D, and you need to be crystal clear about your objectives

If you're looking for first-mover advantage, you can't do much better than tap into the UK's research talent. Our talent base is up there with the best - a recent report shows that we produce nine per cent of the world's scientific papers and receive 12 per cent of all citations. But accessing academic research isn't simply a case of ringing up your nearest University, and it doesn't necessarily come cheap.

In fact, with some 200 technology departments at around 50 universities in the South East alone, it can literally be a case of sticking a pin in a UK-shaped map. And when you do find that elusive expertise, somebody is probably going to have to pay for it, since universities are becoming more and more aware of their commercial value. The good news, though, is that there's a host of schemes available that can help you navigate your way round and gain funding.

The UK has always had a good track record of collaboration between its research base and industry. A study by Warwick University showed that UK universities generate one spin-off company for every EURO 25m of research budget (as compared to one per EUR 87m in the US). They also disclose one invention for every EUR 2m (compared to EUR 3m in the US) and form one spin-off for every 13 disclosures (29 in the US). Technology transfer success can't just be measured in the number of spin-offs, however - starting an ill-conceived spin-out that crashes and burns is far worse than striking a licensing deal with an established company.

Brian Graves, director of engineering technology transfer at Imperial Innovations, which floated on the AIM market a year ago, says: '[The success of spin-outs] is one measure. But having a good flow of Intellectual Property into the business is also a key factor, as well as being able to find the appropriate route to commercialisation. Another key to our success is investment activity and getting exits around our investments, and finally, building up a licence portfolio that generates a good revenue stream.'

Graves says 'brokering activity' - building relationships between business and academia - is a relatively new activity for Imperial Innovations. And while Imperial covers a wide range of subject areas, the company is particularly focused on two: incubating low-carbon technologies with funding from the Carbon Trust, and recycling technologies funded by the Waste and Resources Action Programme (WRAP).

'This is an important route of access for the [small and mid-sized business]. We can help in developing their business strategy, help with marketing requirements, IP protection issues - anything that's necessary in getting the technology into a fit state for commercialisation.' Graves points out that Imperial Innovations tends to get involved later in the research cycle, for example in Proof of Concept trials to develop technology and bring it to market as a product.

The London Development Agency supports four Proof of Concept funds which divide the capital's 24 universities into groups, one led by Imperial. These provide funding of between �5,000 and �25,000 and are intended to feed into the g2i programme. Another government-funded research programme is the Knowledge Transfer Partnerships (KTPs). Formerly known as the Teaching Company Scheme, KTPs celebrated their thirtieth anniversary last year and are currently responsible for more than a thousand projects where knowledge, technology and skills in various sectors are transferred from academia to businesses. With an average project size of �60,000, businesses with less than 250 employees should expect to contribute a third of this cost.

Aside from these government schemes, the London Technology Network provides access to over 6,000 academics from diverse research centres in the South and East, from Cranfield University to Cambridge. It's also responsible for the London arm of the Innovation Relay Centre, which collates research projects from Universities around Europe. Peter Reid, chief executive of the LTN, says: 'If companies are adopting new technologies they often need external help, which is often available in universities. University departments are either developing new technology or new applications for it and are involved in design, influencing how a product looks so consumers want to engage with it.'

The LTN, like many of the universities themselves, has a structured process for enabling companies to interact with academia, starting with a technology audit of their requirements. Reid says companies are sometimes unclear about what they need, or how a university might be able to help. 'Our job is to help create a market, so first we help businesses understand what the problems are that universities can help them address.'

LTN holds networking events focused on specific technology sectors - upcoming events focus on nutrition and health, grid technology and digital content - to help create these connections. It then passes a short statement of need to various university contacts, which come up with different ways they could help through consulting, training or skills transfer. Once a company chooses which offer it wants to take up, the LTN will also help in framing a contract.

Those who have been involved in business-university collaboration point out that it's important to clearly state the expected outcomes. Kevin Davey, director at The Innovatory, says MBA students can be particularly helpful for a small business and can arrive on placement while they complete a dissertation or carry out a project as part of their course. But he adds: 'It can be something complex and high-level they work on, such as developing a marketing plan or a patent strategy, but it has to be a clearly defined project with boundaries and measurement in terms of the outcomes.'

Ultimately, the key to success in any business-university relationship is to provide benefits for both sides. Graves says the days of companies expecting universities to provide skills or consulting for free are gone: 'There's a greater awareness now that universities deal on a commercial basis and it's all about finding a deal with fits for both sides. It's important to look for mutual inputs.'
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