Venture Capital – LaunchPad available for start-ups

Throughout Europe, dot.com fever’ is raging with comparable virulence to the Sydney Flu. One might therefore imagine that new economy’ or Internet-related start-ups would encounter little difficulty in sourcing seed funding from private or institutional investors desperate to jump on the e-commerce bandwagon.

To an extent this may be true but, as important as initial funding is the right kind of support to ensure that such start-ups get ideas to market as quickly as possible.

The growing business consultancy CREDO has instituted an incubator initiative, LaunchPad, and a parallel seed fund, with the stated aim to turn great ideas into great businesses’. CREDO’s Tom Coates says that LaunchPad differs from the plethora of incubators now popping up like mushrooms because we have taken the view as to what the businesses and entrepreneurs need, unlike others who are driven by what they want to provide’.

Coates reports that CREDO’s research into new economy’ businesses has identified three (scarcely earth-shattering) key points, namely: The right people; the right strategy; the right technology’. In order for LaunchPad to provide the right services across this spectrum of needs, CREDO formed partnership initiatives with Hewlett Packard – to provide sound technology advice, says Coates – and FutureStep, the leading Internet recruitment agency, to help identify the right people. CREDO itself provides business support and advice, described by Coates as more than just strategy’.

The LaunchPad Fund is intended to replace or complement traditional sources of start-up finance such as informal angel capital for a proportion of LaunchPad companies, many of which are likely to be business-to-business e-commerce ventures. The fund aims to raise up to GBP3 million ($4.9 million) and typically will provide up to GBP250,000 ($410,000) initial funding to investees. London Ventures will manage the fund while CREDO will act as official consultant to the vehicle, a role which encompasses sourcing deal flow and applying the CREDO yardstick, its proprietary evaluation model for new economy businesses. All LaunchPad-originated opportunities that measure up to the yardstick will be presented to London Ventures and the board of independent trustees for arms-length assessment. Coates is at pains to emphasise the fact that passing the yardstick doesn’t necessarily mean passing the fund’s selection process’.

London Ventures is manager of the HSBC Enterprise Fund for Greater London. The London Ventures team of James Orman and Leo Dunne currently manages a live portfolio of 20 investments. Although a number of London Ventures’ investees are Internet-related, the firm does not at first seem an obvious choice as manager for the seed fund, in that it is neither a start-up nor a new media and communications specialist. However, Orman argues cogently that London Ventures’ strengths match CREDO’s and LaunchPad’s objectives.

“First and foremost, we’re people specialists,” says Orman. “When investing in smaller companies, all that really matters is getting the right mix of people and resources: our capital is not primarily financial but intellectual, and the LaunchPad Fund will enable us to make best use of that.”

Orman also points out that e-commerce – as opposed to the underlying enabling technologies – is rapidly becoming assimilated into everyday business life to the extent that it will soon cease to be regarded as a specialist’ field.

Via the LaunchPad Fund, London Ventures and CREDO are deliberately setting out to shape businesses that will attract second and third-round funding proposals from leading mainstream venture funds, thereby building credibility for the LaunchPad brand.

Smith & Williamson issued a prospectus for the LaunchPad Fund in early January. The vehicle, which will be structured as a conventional LP, expects to draw capital both from retail and institutional sources, and Coates predicts that a certain amount of its capital may even come from US groups. The managers expect to make ten to 15 investments in the next six to 12 months – an ambitious target that Coates says reflects how many decent opportunities exist’.

The fund’s independent trustees are Lars Ahrell, chairman of Tufton Capital, Peter Butler, an active non-executive director with long-standing links with CREDO’s team, and David Smith, formerly of Burton and Arcadia, who is now the president of Zoom.co.uk.