Cambridge Consultants sets up £10m fund for new wave of spin-outs
Cambridge Consultants, a leading technology-based design and development company, has created a new venture fund of up to £10 million jointly with Esprit Capital Partners. The creation of the fund supports Cambridge Consultants’ move to restart its spin-out activities after a four year gap – an intention exclusively flagged up to Business Weekly last month.
It will be used to invest exclusively in its own technology ventures. The first new venture is expected to appear in 2007. Candidates for the next batch of ventures are expected to come from a range of Cambridge Consultants’ core markets, including wireless technologies, drug delivery, diagnostics, radar and electronics.
Cambridge Consultants has a track-record of creating and developing successful start-up companies that is second to none, with just four of its spin-outs creating a value in excess of £1 billion in the last seven years.
Spin-outs from Cambridge Consultants collectively employ almost 3,000 people, many of whom are headquartered in the Cambridge area. It is this pool of successful technologists in one area that has created what is often referred to as the ‘Cambridge Phenomenon’ or ‘Silicon Fen’.
According to the British Venture Capital Association survey of 2004, the upper quartile performance of early stage funds between 1999 and 2004 returned a net IRR (internal rate of return) of 9.6 per cent.
During the same period, Cambridge Consultants’ spin-out investments produced an IRR in excess of 50 per cent. Not surprisingly, this performance led to extremely strong competition to partner with the company in the creation of the new venture fund, one that will see one new start up company created every two years on average.
Esprit Capital Partners, formed by the recent merger of Cazenove Private Equity and Prelude Ventures, won the tender process due to its strength in both investing in, and supporting, early stage technology ventures, as well as its ability to provide funding for later stage growth.
The team at Esprit Capital Partners also brings to bear significant experience in investing in technology start-ups, including several from Cambridge Consultants.
These include Cambridge Silicon Radio (CSR) whose market cap is currently around £1.1 billion, and Alphamosaic, which was sold to Broadcom for $120 million just three years after start-up.
The new investment will be made by Prelude Trust plc, the investment trust that specialises in early stage technology-based businesses, now managed by Esprit Capital Partners.
Ray Edgson, ventures director at Cambridge Consultants said: “To make a truly successful venture you need three key ingredients – the right people, the right technologies and the right market conditions.
“With confidence now restored in the global technology markets, we believe that it is people that make the essential difference between average and truly great new ventures. Our track record of success in this area, and an IRR in excess of 50 per cent, shows that our unique culture allows us to develop just such people.
“We are able to recruit some of the best engineers in the world because of the stimulating and creative environment we provide as they develop throughout their careers. However, whilst there is a structured career path within the company, our venturing model allows those who want to exploit their entrepreneurial skills to go on and start their own businesses, whilst being supported by our established networks and systems.
“It’s an approach that has made us central to the creation of today’s vibrant technology cluster in the Cambridge area, as well as making quite a few millionaires.”
Simon Cook, CEO of Esprit Capital Partners said: “This fund reflects our core strategy of working with, and investing in, early stage hi-tech companies with global ambitions.
“By combining both partners’ venture expertise, our aim is to deliver a clutch of spin-outs over the next few years that will carry on the tradition of generating both employment and wealth-creation for many in the region.”