Ever since I came across Y-Combinator in December 2008 I have been looking into setting up a UK seed fund for startup and early stage companies. I will use this area of the blog to record my experiences and journey, as processes and discussions unravel, as I explore the issues involved in establishing investment capital for seed investment (Oldest posts of this section are at the bottom).
[Post 3]
Syndication is the answer (for me)
Now I am beginning to get somewhere. I’ve formed an outline of a investor proposal document and have linked up with someone from a VC boutique background and we are work on the proposal in more detail. ECF or EIS fund structures will have to wait for next year or beyond but now, investors can benefit personally by claiming EIS tax relief. The key focus of the investment syndicate that I aim to establish is to look for and work with businesses that have commercialization hard-wired into their DNA. Having seen so many business spun out of universities with an underlying raison d’etre being to extend development or to further research, academic propositions fail frequently as they are hard-wired for R&D.
In the coming weeks I will be putting out a proposal to angel investors and VCs alike, offering the chance to syndicate their investment. I am working on the branding at the moment and have the introductory outline done and dusted. Unlike institutional funds who to a degree play a numbers game, our syndicate will place emphasis on working close with the businesses, supporting them and providing resources.
[Post 2]
Structure is Everything
It must be said that other than one person in the Welsh Assembly Government and another in the business angel network Xenos, local and national government have proved to be extremely difficult to use as a development facility for something you would think would be greatly encouraged in these economic times. Business Link, BERR, NESTA and others have been equally unproductive conversations.
One thing I started to realise in the earliest stages of this endeavour was that the structure and configuration of the seed investment vehicle was going to take a while to figure out. If it was going to be an institutional ‘fund managed’ investment vehicle, which one VC said really only works at funds of £15m or above, then it would need a FSA regulated Fund Manager. Limited Partnership, General Partnership, Limited Liability Partnership and a range of other legal variations would also need to be considered, mainly for tax breaks from the investor’s perspective. From my conversations I realised that I was looking at three fund investment size categories; up to £1m, £1-5m and upwards of £15m. The big fund was the more conventional configuration but I found that there were other ways of pooling investment money: via a syndicate of business angels, using the Enterprise Capital Fund (ECF), Enterprise Investment Scheme (EIS) and possibly some others too.
[Post 1]
Just an idea !
To date, my experience with investment has been purely from the entrepreneurial side of things, taking some of the businesses that I have worked with towards procuring private equity. Armed only with an idea of doing something along the lines of Y-Combinator’s seed fund, I got researching and networking. As I have a strong network in South Wales, Cardiff in particular, I set about exploring my contacts in previous investment encounters, as well as a few people in the Welsh Assembly Government (WAG). My first meeting was with someone from the WAG who was really helpful and gave me some pointers of other regional organizations that I could investigate. Among them was Finance Wales. At this stage my conversations were exploratory only and with no real agenda, other than to see if there I could develop some traction on setting up a seed fund. My second meeting was with a well know entrepreneur from the days of web 1.0 who is nowadays involved in brokering investment deals for digital startups. This meeting went extremely well and I learnt that they were in the middle of setting up a fund and that maybe I might become involved in some way. It went a bit quiet on this one so I kept going.
Meetings, meetings and more meetings!
It wasn’t long before I began to meet with several angel investors from my network and to much surprise I learnt that not only were there individuals and groups out there with funds but that they were interested in my vision also. They encouraged me to keep exploring and return once I had formed my ideas further. Some were investors with a spare £50k that they were looking to make use of, others were already underway, configuring funds of £20m and up. Some wanted me to come over to their fund, others wanted me to keep putting together a framework around my original thoughts. I decided to explore all options, closing no doors at this stage.
