Pick any British summer you like from recent years and you can be sure that some of the most enduring and evocative images will be of vast seas of people lined up in front of stages at festivals all over the country. Thousands of people jumping, dancing and moving in unison as music blares and lights fan out across countryside that, not long before (or after), was an expanse of green populated mostly by the occasional cow.
Now, imagine if whole festivals could be powered by those very seas of people, or more specifically by their dancing and moving around. Laurence Kemball-Cook believes it’s possible; even more, he’s invented a product that can do just that, capable of harvesting energy from human footfall to generate electricity. From the end of this month you’ll find his company’s innovative Pavegen floor tiles in Westfield Stratford, just in time for the Olympics, along with a number of other installations. One large London corporation, which will use Pavegen – and the footfall of its 4,000 employees – to power the lighting in the entrance to its headquarters.
Considering Kemball-Cook incorporated the company in 2009, Pavegen’s progress has been rapid to say the least, its recent growth guided – at least in part – by a certain, City-based angelic presence. In 2011, an early-stage funding round yielded £210k investment by members of London Business Angels group.
Angel investors are individuals (as opposed to companies) who provide equity finance to fast-growing, early-stage technology companies. Where private equity firms focus on businesses that are generating profits, or beginning to do so, and venture capitalists look for revenue generating companies requiring investment to develop, typical angel investment prospects tend to be pre-revenue and pre-profit. Some are pure startups, while others are more mature. Those looking to become angels usually do so through one of the many networks, of which London Business Angels is one of Europe’s leaders. Since 2000, LBA’s members have raised over £50m for over 200 companies, and now the network is working with the City of London Corporation on a new initiative to raise awareness of angel investment in the Square Mile.
The project is part of the Corporation’s ongoing commitment to supporting small businesses in the City and its fringes, particularly the much-vaunted cluster of technology companies that has emerged in the Old Street and Shoreditch area dubbed ‘Tech City’ or, with tongue lodged slightly in cheek, the ‘Silicon Roundabout’. With upwards of 600 technology companies in the area, including Last.fm, Tweetdeck and Google (which recently opened a startup ‘campus’ there) Tech City is viewed by some as the epicentre from which a new, British technology boom is exploding. And if it’s going to grow, individuals in the City have a vital role to play.
The government, and David Cameron in particular, has proven a useful cheerleader for the area, backing up its vociferous support with a slew of measures designed to incentivise investment in startup companies, including a 50% tax relief for investors as part of the Seed Enterprise Investment Scheme announced in the Budget. Angels will be able to invest up to £100k per year under the scheme into companies with fewer than 25 employees and assets of no more than £200k, with additional capital gains tax benefits. The existing Enterprise Investment Scheme, for companies with employees of up to 250 people and gross assets before investment of £15m has been beefed up to allow individual angels to invest up to £1m. “For people starting out in angel investment it’s a very attractive prospect, and very timely for this initiative,” says David Pack, the City of London Corporation’s partnerships manager. Pack is clear that Angels in the City is not a philanthropic venture – “it’s really about return on investment” – but he hopes channelling individuals in the Square Mile into angel investment can bring tangible benefits to the neighbouring areas.
The scheme aims to introduce interested parties to the angel concept through a series of events and workshops that highlight the benefits and the not inconsiderable risks, taking place initially until March 2013. “We’re quite open through our delivery partner, London Business Angels, that this is a risky form of investment, and investors will need to go into it with the eyes open,” says Pack. He says the corporation has set a notional target of recruiting and initiating investment with 125 new angels (many of whom will invest in syndicated groups), with 40 to 50 companies accessing finance through them, and using typical figures for this type of investment they expect at least £10m to be invested per annum over the next few years.
Aside from taking advantage of a sector that is growing at an enviable rate in these straitened times, why invest in technology? According to one veteran City angel investor with a background in corporate finance and private equity, who asked not to be named, the answer is maximum growth potential and bang for your angel buck.
“When looking at the business proposition the question is, how quickly can it be scaled up once you get to proof of concept, once you’re established in the market?” he says.
“I’m not interested in something that needs heavy capital investment to scale up, and if you take that view you inevitably come back to a technology-based proposition with a small number of people so the cost is inherently contained. It’s the intellectual property that’s going to grow the business.”
The investor has 14 angel investments in total, the majority in meditech, cleantech and web-based technologies, and “none of them has failed,” though he has already exited one and does not expect to get his initial investment back. “The moral of that story is don’t touch financial services,” he laughs. The rewards for those willing to take the plunge, though, are undeniable, if not instant; the criteria he has set for his returns is to make ten times his money on exit – typically in the region of four to ten years. “Angel investing is not a fast buck operation,” he adds.
The benefits for the recipients of the angels’ investments are clear. For Laurence Kemball-Cook, the capital allowed Pavegen to increase its production facilities and put the infrastructure in place to expand and distribute globally. Most importantly, though, it enabled him to bring in the right people to take the technology to the next stage and, he hopes, a £5bn exit. “We’ve increased the size of our team with experienced, key players, to take us to another level of logistics, planning and contract negotiation,” he explains.
Pavegen’s round of angel investment was executed in double-quick time. From pitching the idea to London Business Angels members to closing the investment all took place in four weeks. “In under a month the funds were in the bank and we were moving forward,” says Kemball-Cook. Apart from inventing a product that harvests energy so efficiently the head of one of the UK’s leading science research establishments refuses to believe it works, Pavegen’s swift angel investment round owes much to being “de-risked” by already having been made and proven to work before being taken to LBA, with intellectual property rights secured and a sales pipeline in place. “It was key,” he says, “to show them the opportunity was so advanced that it represented minimal risk for them and a clear return on investment.” That game-changing £210k investment predictably followed.
While securing capital is obviously the primary goal for startups, there are notable advantages to be gained through ‘active’ investors, who provide knowledge and expertise to the companies they invest in.
One startup hoping to benefit from this in the future is SafetyNet. Dan Watson is the creator of the product, a bottom-trawler fishing net that applies an understanding of the behaviour of different species to eliminate fish that are either unwanted, endangered or juvenile from the catch. He is currently receiving development funding from a Swiss multinational to enable him to bring the product to the point of manufacture.
He anticipates seeking his next round of investment within the next year, and hopes to benefit from both capital and expertise. “The business world is a whirlwind for me,” he says.
Whatever the future holds for startups like SafetyNet, and the continued growth of Tech City and the Silicon Roundabout in general, it’s clear that City people have an opportunity to play a key role in shaping it and, according to our seasoned investor, there’s never been a better time to become an angel.
“What else are you going to do with your money? Keep it in cash? Put it in the stock market and watch your shares go up and down by 5-10% every day?” he asks, adding one final – and crucially important – caveat. “Of course, you have to have the money, the time and the stomach for it.”
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