Businesses can now bank on diverse range of funding options
It was a seminal moment in the annals of East of England fundraising. Cambridge-based SyndicateRoom raised £1.2 million on its own crowdfunding site – in just 33 hours – to underpin its near-term expansion needs.
That’s £36.4k every hour – despite SyndicateRoom limiting investment to £5k per individual backer and vetoing any option for overfunding. Founder and CEO Goncalo de Vasconcelos (above) said the round was more than twice oversubscribed even before the launch. A number of elements in this deal chime with the funding culture that has evolved in the East of England.
When Business Weekly launched 25 years ago, banks ruled the roost. You could get venture capital if you were prepared to donate an arm and a leg and perhaps a pint of blood. This often equated to signing over a third of your business and promising to exit when demanded by the VC concerned.
With government spin-out 3i dictating the pace with a near VC monopoly locally, even Hermann Hauser in hi-tech and biotech entrepreneur Chris Evans became so frustrated that they had to go to the City and explain the facts of emerging technology life to the chief funders.
They were sufficiently unimpressed to forge their own VC funds to ensure a fair crack of the whip for science & technology startups in the cluster. Both now direct internationally influential funds with a much more open mind to opportunities once considered too risky to support. In that limited scenario, the alternative was either the banks who could pretty much dictate terms, especially when reviewing overdrafts, or relying on the only other alternative to 3i – 3f (family, friends and fools).
The Syndicate Room deal leveraged two main power drivers of the modern funding era – crowdfunding and angel investors. The angels are serial entrepreneurs who have made money from scaling then selling their own businesses and choose to shake off their corporate shells, go native and survey opportunities as they present themselves.
Rewind to the recent SyndicateRoom deal. The round was led by super-angel Jonathan Milner who negotiated the valuation, agreed all the terms of the deal and invested over £250,000 of his own money.
Since it opened just over 18 months ago, SyndicateRoom has doubled in size every quarter and helped globally influential enterprises hit and exceed their targets in good time. Although SyndicateRoom launched significantly later than the other two ‘Big Three’ equity crowdfunding platforms in the UK (Crowdcube and Seedrs), its investor-led model has produced remarkably fast growth.
To date it has helped over 30 companies raise more than £20 million, with the average round being more than £600,000 and the average amount from each investor being £15,000 per investment. Notably, there has yet to be a single failure among the businesses SyndicateRoom has funded.
Milner is not surprised and vocalises the rationale for the success: “I have been a board observer in the business for over a year. SyndicateRoom’s vision, values and team make it an incredibly exciting business. It has demonstrated that when done properly, where the interests of investors are genuinely balanced with those of quality, serious businesses seeking investment, equity crowdfunding can be a huge force for good for both investors and industry.
“As an experienced angel investor, I know how crucial fairness and transparency are to successful investment, where both sides win, and SyndicateRoom unquestionably leads the way in this regard.”
Another important element has been added to the funding mix, not just in this region but across borders.
Cambridge debugging software specialist Undo Software recently raised $2m growth capital through a new business model that hitches long-term funding to angel capital. Cambridge Innovation Capital – the long-term funder – is urging early stage tech companies in the cluster to adopt the model to help them through their critical early years.
The Undo deal represented the first time CIC had invested alongside Cambridge angels. Senior investment director Victor Christou said the model would help address the funding gap experienced by many early stage, potentially high growth companies. He said: “Angel support is invaluable for early stage companies as it provides very high-risk capital, resources and access to the contacts that are essential in the formative days of an enterprise.
“However, many founders reach a point where they need more resources than the angels are able to provide and the company development stalls. At CIC, we aim to play a leading role guiding management and shareholders through this transition into institutional investment.
“Our investment in Undo is a perfect example. It is made alongside Cambridge Angels and has strengthened our relationship with this influential investor group. Hopefully it will provide a template for future interactions and pave the way for many more promising Cambridge Cluster businesses to raise growth funding rounds.”
The $2m funding round also included investment from high profile entrepreneurs Jaan Tallinn (co-founder of Skype) and Sir Peter Michael (founder of Classic FM).
Cambridge entrepreneurs applauded the model championed by CIC in the Undo deal. Charles Cotton, a director of several public companies and chairman of Cambridge Phenomenon, said: “Cambridge deservedly has a strong reputation as a great place to start a business, but scaling up presents new challenges. By working closely with Cambridge Angels, CIC is introducing an important new dynamic into the cluster for the benefit of companies and investors. This will raise company aspirations, lead to further growth and improve chances of success.”
David Gill, managing director of St John’s Innovation Centre, added: “It’s great to see Cambridge Innovation Capital stepping in to the funding gap beyond the level of investment that business angels can provide and CIC supplies intelligent capital, not just the next stage of funding. This is innovative finance funding innovation.”
And serial life science entrepreneur, business angel and corporate executive Dr Andy Richards, felt the model was a potential gamechanger. He said: “We have become experts at selling and licensing technologies – often too early – but to build sustained value we need to grow companies. CIC’s patient capital approach is a refreshing model for financing high growth companies and we are already seeing the benefits of this at Congenica, where I am chairman.”
As if gaining confidence from seeing angels, crowdfunders and seed fund administrators pitching in to new age deals, international VCs are increasingly joining the consortia. DFJ Esprit and Amadeus Capital Partners have continued to fight the good fight for local businesses and it was encouraging to see both Imperial Innovations and Johnson & Johnson Innovations set up at the Babraham Research Campus.
Imperial Innovations in Cambridge last October pledged to maximise a £200 million war chest to fund new technology plays in addition to its own portfolio companies. Nigel Pitchford, who spearheads Imperial Innovations in Cambridge pledged at a reception for current and potential investee companies that the funder was determined to leverage every penny of the cash to boost Cambridge and UK tech ventures.
He said: “In our time in Cambridge we have seen our portfolio pack on incredible value while we have also invested in a number of new plays. We have seen a number of successful fundraisings and IPOs all of which have made us determined to grow our portfolio even further. It is our vision to help create more billion dollar businesses for Cambridge. We believe there is an appetite among tech entrepreneurs to achieve that status and we are pledged to do all in our power to help them reach that goal.”
Investee companies with a local edge include small cell backhaul pioneer CCS, Circassia, IXICO which reversed into Cambridge biotech Phytopharm, Abzena, Aqdot, Crescendo Biologics, MISSION Therapeutics, Featurespace and Psychology Online.
A lot of market watchers are predicting big things for Aqdot whose proprietary and disruptive chemical encapsulation technology – developed at Cambridge University’s Department of Chemistry – utilises a novel one-step, shrink-wrap approach based on a combination of emulsion technology and supramolecular chemistry.
So where does all this leave the traditional bank funding model? It is pleasing to report that the sector is adapting to the times.
Business Weekly reported recently that the American-born Metro Bank had opened its first branch in the Cambridge technology hotspot. Founder Vernon Hill’s model is based on alien concepts to many High Street lenders – longer opening hours, better customer service – rather than an overtly commercial approach. It certainly worked in the land of king dollar where Hill built Metro Bank into a $multi-billion empire.
Metro fast-tracked Cambridge and earmarked the opening of more than 200 new outlets in the next six years just four years after launching in the UK with four London branches. The model turns traditional banking on its head – based on service not price; building a physical presence in the High Street as the current major players close more and more of their branches.
Swedish-owned Handelsbanken is now looking to add a South Cambridgeshire office to its central Cambridge base, subject to finding suitable premises. Cambridge & Counties Bank has added more spice to the pot: It represents a unique partnership between two established and respected institutions – Trinity Hall, Cambridge and Cambridgeshire Local Government Pension Fund. It has become a banking specialist for SMEs within the UK and tells us it is lending record amounts.
It all adds up to unprecedented funding choice for companies of all ages – from startups to established players.