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Alliance for Brainspark and Royal & SunAlliance

Internet and technology incubator Brainspark and the Royal & SunAlliance insurance company have formed an alliance that will see Brainspark co-operating with Royal & SunAlliance’s Global Ventures division, which was established last year and is led by Stuart Degg. “In developing Royal & SunAlliance’s new venture capability over the course of 2000 we’ve recognised the advantages of working as part of an alliance network with other quality organisations,” said Degg.

Mark Harford, chief financial officer at Brainspark, which is based in Clerkenwell, London, says Brainspark has been talking to corporations with the potential to become alliance partners during the last eight months. Around the time the Internet bubble burst Brainspark made a strategic decision that as well as backing ideas from entrepreneurs it also wanted to be involved in founding online businesses coming out of offline corporations.

No doubt Brainspark’s offering is made more attractive to potential alliance partners by the formation of a partnership with one of its founding investors Diamond Technology Partners, the telecoms and online strategy consulting firm, in last August last year.

The alliance with Royal & SunAlliance will see Brainspark bringing any resultant cub companies into the Brainspark offices. Royal & SunAlliance is likely to provide the majority of the financial commitment and Brainspark will earn its equity stake by incubating the businesses. Incubated companies bought to Brainspark outside the Royal & SunAlliance alliance release between 25 per cent to 40 per cent equity in their business to Brainspark. Harford was unable to give an equity range for companies that it incubates from the Royal & SunAlliance Global Ventures team. In addition, the formation of incubated companies from this alliance has great flexibility and issues such as the release of Royal & SunAlliance staff to work in incubated companies will be reviewed on a case by case basis. There are currently two business models under development at Brainspark as a result of this alliance.

While Harford does not rule out more alliances of a similar nature in the future he notes Brainspark’s management capacity as an issue, noting that expansion is not the answer since he does not see economies of scale in the incubator business.

Brainspark has currently 26 personnel on its payroll, although it has some 300 people in its offices working as part of the 15 cub companies that it is incubating. Last month Brainspark dropped two of the 17 companies that it has incubated since its formation in September 1999. Brainspark was floated on the London Stock Exchange’s Alternative Investment Market in April last year, raising GBP18.4 million, and since then has made few new investments. According to Harford, who joined from Bass where he was director of strategic and financial planning for Bass Leisure Retail in May 2000, the bulk of investments were made between the November 1999 and May 2000 period.

In September 2000 Brainspark invested in Traderserve, an ISP targeting professional traders. Brainspark, says Harford, expects to invest in two or three new companies during the next six months. Also on Brainspark’s radar is the opening of a new office in Cambridge, first announced in September last year. Harford notes that an individual has been identified to run this office but those plans will not be formalised until independent funding from a financial investor is confirmed. Brainspark, says Harford, is well connected to the Cambridge technology scene owing to the fact that Brainspark’s founders made successful venture capital investments in businesses emanating from Cambridge prior to the formation of Brainspark.