Business Weekly - Cambridge, UK

Managed by NW Brown in Cambridge, the IQ Capital Fund has been launched by the DTI to both encourage more high net worth individuals to become business angels and bolster their investment power by co-investing alongside them.

The model is based, “with minor adjustments,” on programmes in the US and Australia. It has been particularly successful in the US where the government has deployed upwards of $40bn over a number of decades. It represents the first of the DTI’s Enterprise Capital Funds to be rolled out.

Enterprise guru Walter Herriot from the St John’s Innovation Centre in Cambridge is a director to the IQ Capital Fund. He said: “This is great news for the area and should go a long way to helping to plug the equity gap for early stage businesses.”

Although the fund will not be ready to make its first investments until July at the earliest, Hugh Parnell of NW Brown is keen to get out of the traps as quickly as possible and is encouraging the region’s hi-tech hotshots to submit proposals now.

NW Brown won through in a two-year selection process, beating off competition from 44 other fund managers to secure the management contract. The IQ Capital Fund will primarily focus on investment opportunities in what the Government calls the ‘Golden Triangle’ - Cambridge, Oxford and Bristol. It will collaborate closely with four separate angel networks – the Great Eastern Investment Forum and Cambridge Angels locally, as well as one each in Oxford and Bristol.

Parnell said: “The primary aim is to mobilise the business angel networks, effectively activating private capital and drawing it into the early stage development space. It is a prerequisite of the fund that it invests alongside angels, experts in a particular technology area and industry sector. This means that it is very targeted and can also leverage the expertise and added-value that can be missing from early stage investment.

“The DTI’s decision to have the IQ Capital Fund managed from Cambridge reflects the strength of the cluster and its importance.”

The fund is permitted to invest a maximum of £2.5m in any one venture, with first tranche investments of between £250k and £1.5m allowed in the first six months.

Angel and seed stage investment is particularly vibrant in Cambridge, with NW Brown a fairly central player. Its Great Eastern Investment Forum has now been going for 11 years, investing a total of £10m over that period.

It also manages three other seedcorn funds, including GEIF Ventures, which has made 18 investments in the past three years.

Operating in broadly the same space is the elite Cambridge Angels, whose super-rich members make individual investments and the Cambridge Capital Group, which acts as a manager of angels, allowing them to hunt in packs.

There is also the East of England Regional VC fund, managed by Create and a number of research-focused offerings like the University Challenge Fund. And with the recently announced changes to the Enterprise Investment Scheme aimed at pushing more investment down to the earlier stages of the investment process, the equity gap as it stood two or so years ago is of little relevance to most young ventures.

Many firms believe that the gap has been displaced, with those looking for sums around the £5m or so falling between the gap of current provision.

Dr Stuart Hendry, CEO of Sphere Medical, a medical device company in the process of closing a £5m VC round said: “Good companies with a robust business model should win through, but I believe there is another gap opening up.

“There are lots of angel networks around and they are becoming larger and more well organised, which is great if you're looking for up to £2m. Between that figure and say £10m there is a paucity of options. It is off the radar of the big funds like Abingworth or Apax but out of the reach of most angels.”