NorthStar Equity Investors ltd, 2006
NorthStar Equity Investors Ltd is authorised and regulated by the Financial Services Authority
How do you get funds?
Northumbria University, 3 May 2006
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NorthStar Equity Investors ltd, 2006
Contents
� Introduction
� Funding Path
� Funds
� NSEI Activity to Date
� The NSEI Team
� Contact Details
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NorthStar Equity Investors ltd, 2006
Who are we?
Experienced professionals with £33m to invest in North East based technology propositions
� 6 technology investors
� investing in technology companies at all stages - from concept to growth
� over £5m invested in 76 companies to date
� leveraging significant private sector investment
� FSA regulated and independent
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NorthStar Equity Investors ltd, 2006
Two dedicated technology funds for the North East:
£10m North East Proof of Concept Fund (“POC”)
To finance the development of early stage technologies into attractive prospects for further investment.
£23m North East Co-Investment Fund (“CoIF”)
To promote the development of high growth technology businesses in the region and to encourage co-investment from other public and private sector investors.
NSEI Funds
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NorthStar Equity Investors ltd, 2006
Funding
Initial
idea
Proof of
Concept SeedGrowth
Exit
Grant Funding
Tax Credits
Industry– HEI
collaborative
schemes
EC Framework
< £2m £5-100k £100 – 500k £500k - £ millions £ 10millions
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NorthStar Equity Investors ltd, 2006
Funding
Initial
idea
Proof of
Concept SeedGrowth
Exit
Grant Funding
Tax Credits
Industry– HEI
collaborative
schemes
EC Framework
POC loan
R&D grant
Business Link
Personal funds
Family and friends
Seed fund
Angels
SFLG
R&D Grant
< £2m £5-100k £100 – 500k £500k - £ millions £ 10millions
DANGER
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NorthStar Equity Investors ltd, 2006
Funding
Initial
idea
Proof of
Concept SeedGrowth
Exit
Grant Funding
Tax Credits
Industry– HEI
collaborative
schemes
EC Framework
VC
Bank Finance
Selective Finance Initiative
Angels
Capital markets
Private equity
Bank finance
Trade buyer
POC loan
R&D grant
Business Link
Personal funds
Family and friends
Seed fund
Angels
SFLG
R&D Grant
< £2k £5-100k £100 – 500k £500k - £ millions £ 10millions
DANGER
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NorthStar Equity Investors ltd, 2006
Funding
Initial
idea
Proof of
Concept SeedGrowth
Exit
Grant Funding
Tax Credits
Industry– HEI
collaborative
schemes
EC Framework
VC
Bank Finance
Selective Finance Initiative
Angels
Capital markets
Private equity
Bank finance
Trade buyer
POC loan
R&D grant
Business Link
Personal funds
Family and friends
Seed fund
Angels
SFLG
R&D Grant
< £2k £5-100k £100 – 500k £500k - £ millions £ 10 millions
NSEI
PoC NSEI
CoIF
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NorthStar Equity Investors ltd, 2006
Early Seed Stage
Business needs working capital to…..
� Staff up
� Finalise product / service
� Develop marketing campaign
� Develop routes to market
LAUNCH PRODUCT AND MAKE FIRST SALES
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NorthStar Equity Investors ltd, 2006
Growth Stage
Company has revenues but still needs capital to fund growth….
� Provide liquidity
� Invest in plant and equipment
� Employ more staff
� Fund new developments
� Open up new markets
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NorthStar Equity Investors ltd, 2006
Getting Rich
Business is profitable and growing, now you want to crystallise your gains and your investors want an exit.
� Float
� Sell to the trade
� Sell to a private equity house
� Buy out your investors and continue trading yourself
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NorthStar Equity Investors ltd, 2006
Types of finance
� Customers- order is best form of finance!- leverages other forms of finance
� Grants
� Debt
� Equity
� Others – joint ventures, licensing
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NorthStar Equity Investors ltd, 2006
� Pros:
� free money
� availability for ground-breaking ideas
� no comeback for “failure”
� Cons:
� administrative burden
� can take work in wrong direction
� no commercial discipline
� confused intellectual property position
DON’T SPIN OUT TOO EARLY
Grants
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NorthStar Equity Investors ltd, 2006
Debt
� Pros:
� does not dilute shareholding
� when business is good debt multiplies value
� may be best route for an existing business if not too highly geared
� Cons:
� have to pay interest
� bank debt not available without revenue and security
� when business is bad multiplies the pain
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NorthStar Equity Investors ltd, 2006
Equity
� Pros:
� does not need to be repaid only positive for cash flow
� improves balance sheet
� comes with management and strategic assistance
� Cons:
� dilution of your ownership
� investors must have an exit
� looking for big returns so business model must be scaleable
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NorthStar Equity Investors ltd, 2006
North East Funding
� seed capital – NEL Seed Fund (expected Q1/ 06) up to £250K
� angels – high net worth individuals looking to invest in early stage businesses
� BIG group - up to £250k
� Entrust Investor Forum
� angel matching fund (NEEMF) – matches angel investment (Entrust)
� SFLG – DTI backed loans up to £250k (RBS and HSBC)
� ONE R&D Grant
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NorthStar Equity Investors ltd, 2006
North East Funding
� limited number of specialist early stage VCs
�NSEI Co-Investment Fund
�NEL Capital NE and NEIF 3
�Others outside region usually sector specific
� standard bank finance should be available if there are demonstrable revenues and, even better, assets.
� other debt finance available e.g. NEL Insight Capital
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NorthStar Equity Investors ltd, 2006
Funding
Initial
idea
Proof of
Concept SeedGrowth
Exit
Grant Funding
Tax Credits
Industry– HEI
collaborative
schemes
EC Framework
VC
Bank Finance
Selective Finance Initiative
Angels
Capital markets
Private equity
Bank finance
Trade buyer
POC loan
R&D grant
Business Link
Personal funds
Family and friends
Seed fund
Angels
SFLG
R&D Grant
< £2k £5-100k £100 – 500k £500k - £ millions £ 10millions
DANGER
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NorthStar Equity Investors ltd, 2006
Becoming “Investor Ready”
� technology works
� credible definition of market opportunity and some market
traction
� IP position is clean and defendable
� management team identified to build the business
� strategy to take company to profitability
� credible projected returns to justify the investment
To attract further finance you must be able to demonstrate:
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NorthStar Equity Investors ltd, 2006
The Proof of Concept Fund
£10m commercial finance for the earliest stages of
business creation
� focused on science and technology businesses
� investments up to £60,000� maximum £90,000 for university pre-start projects
� invests via a convertible loan to provide flexibility
� exit via conversion of loan into equity or repayment of debt when a cash generating business is formed.
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NorthStar Equity Investors ltd, 2006
The Proof of Concept Fund
Facilitating…
� technology verification
� prototype and scale-up studies
� IP development
� market assessment
� product / service offering costing
� business case development
� proceed to incorporation and/or trading, and
� attract follow-on investment
Successful POC investments will…
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NorthStar Equity Investors ltd, 2006
People – most important
� a burning belief that your idea is going to take the market by storm
� passionate commitment to building a viable business
� understanding that it takes more than a good idea to create a profitable enterprise
� acknowledgement that one person (you) is unlikely to possess all the skills necessary for the business
� at later stages – track record.
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NorthStar Equity Investors ltd, 2006
Application Procedure
Proof of Concept Fund
� submit electronically via university
� down-loadable application form
� answer the questions – shortened version of business plan:
•Who are you selling to?
•What do they want/need?
•What are you selling them?
•How are you going to sell it to them?
•How much money are you going to make?
� follow the guidance notes on additional information
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NorthStar Equity Investors ltd, 2006
Proof of Concept Fund
Assessment Process
� face to face meeting(s) critical
� standard terms (1 deal a week!)
� conversion terms standard/flexible
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NorthStar Equity Investors ltd, 2006
Proof of Concept Fund
The Sponsor’s Role
� ensuring project is a potential investment candidate
� helping with preparation of application
� guiding through application and investment process
� providing assistance through the project
� helping raise further finance
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NorthStar Equity Investors ltd, 2006
POC Unique features
� will invest pre-start
� will fund both commercial and/or technical POC
� high risk acceptance
� timescale - months not years
� write off unsuccessful projects
� convertible� encourages fast growth equity culture
� debt finance bad for newcos
� strengthens balance sheet, adds credibility
� state aid compliant
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NorthStar Equity Investors ltd, 2006
The Co-Investment Fund
£23m equity fund for technology based SMEs
� can invest up to £1m in any business
� attractive co-investor for VCs, angels and corporates
� flexible to lead or “follow” investor syndicates� minimum 30% private sector investment in any round
� target 45% COIF commitment to any investment
� all investments made on a pari passu basis
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NorthStar Equity Investors ltd, 2006
Activity to date…
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NorthStar Equity Investors ltd, 2006
Over £6m invested in 70+ technology based propositions
Activity to date
Proof of Concept Fund
� received over 150 applications
� invested in 73 deals worth over £4m
� leveraged over £5m of private follow –on funding
Co-Investment Fund
� received over 100 proposals for investment
� completed first 5 venture capital investments
� 3 further investments close to completion
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NorthStar Equity Investors ltd, 2006
Activity to date
Wide range of technology activities covered:
Data
Biotech / Healthcare
Energy
Engineering
Environment
Process
Chemical
Nanotechnology
Materials
Hygiene
Digital
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NorthStar Equity Investors ltd, 2006
Case Study – Virtual Sea
� What is the market for motion modelling
� Who uses it?
� What do they need that is not currently available?
� What are the routes to market
£18K POC project to address these initial questions
Results from this project informing the development of both the business and technical case.
Computer modelling of vessel motion in response to changing conditions – Teesside University
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NorthStar Equity Investors ltd, 2006
Case Study – ROAR Particles
� Increased sensitivity means that more info can be gained from partial prints
� £90K Investment (in pre-start)
� Single step powder production – further IP
� Development of range of particles/powders
� Market research
� Validation of technology by police forces
Company now raising investment and entering market.
Tagged nano-particles for fingerprint detection
Professor Fred Rowell - Sunderland University
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NorthStar Equity Investors ltd, 2006
Caspian Learning has developed unique eLearning
applications for computer-based tuition.
Our POC fund invested £60,000 in Caspian Learning.
The company secured a total of £800,000 in a follow-on investment round.
InRotis Technologies has created new technology in drug
development research.
Our POC fund invested £90,000 in InRotis Technologies Ltd.
The firm secured £2m from RAB Capital in London.
Other Examples - POC
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NorthStar Equity Investors ltd, 2006
Other Examples - COIF
Comesys – has developed technology for acceleration pedals in
commercial vehicles incorporating an innovative non-contact sensor technology.
Our Co-Investment Fund has invested £237,000 in an overall funding
round worth £800,000.
Durham Pipeline Technology – advanced pipeline inspection equipment.
Our Co-Investment Fund has invested £250,00 in an overall funding
round worth £839,000.
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NorthStar Equity Investors ltd, 2006
The Team…
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NorthStar Equity Investors ltd, 2006
Dr Richard Exley - Richard spent nine years with VG
Instruments/Fisons Plc and then six years at the University of Sheffield
as IP Manager before joining a venture management company as
Technology Transfer Manager.
Dr Alex Buchan - after completing a PhD in Microbiology, Alex spent 3
years in the City of London as a stockbroker before moving into a series
of commercial roles in Biotech companies.
Dr Michelle Cooper - Michelle spent five years on spin out and
licensing initiatives from the University of Manchester before joining
Codeworks where she helped companies develop their digital media and
IT business proposals.
Jennifer Temple - Jennifer has 6 years experience in the private and
voluntary sector and provides PA and administrative support to POC.
The Team - POC
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NorthStar Equity Investors ltd, 2006
Marion Bernard - Marion has 12 years debt and equity finance
experience including 6 years with 3i (Newcastle/Technology) and 2 years
managing an early stage equity fund.
Gerry White - Gerry has worked in early stage technology venture
capital for the last 24 years and has experience in all phases of fund
management, including management of a £9 million seed corn fund for
nearly 6 years.
Alasdair Greig - Alasdair spent 9 years in risk management before
joining Cambridge Gateway, a £35m early stage technology fund where
he was responsible for the Fund’s technology investments.
Clare Lawson - Clare has 8 years experience in the private
consultancy sector and provides PA and administrative support to CoIF.
Sarah Richards - Sarah has held a variety of PA and marketing roles and
provides marketing support to the NorthStar Equity Investors team.
The Team - CoIF
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NorthStar Equity Investors ltd, 2006
Contact Details
www.northstarei.com
0191 211 2326
1 St James Gate
Newcastle upon Tyne
NE1 4AD