Dear Reader

Firstly I would like to introduce you to our new team member, Ian McLennan. Many of the 49 new companies that have signed up to AngelNews this month will have already spoken to Ian on the phone, but for the rest of you, Ian has joined us in Somerset, UK to help us with support for companies using AngelNews. If you would like to speak to him, please call +44 (0) 1275 333 443. We will soon put up his photo and those of the rest of the team on our website so you can see what we look like. (We might also put up a photo or two of our office, with fields and cows attached so you can see why we base ourselves here rather than in the big smoke!)

Are you all as busy as we are? The last four weeks have been just crazy, but it has given us loads of reasons to write things in the AngelNewsletter Online. My international travel quotient has risen quite a lot this month with trips to Helsinki on an EASY project pan-European angel investor event and to La Baule in France for the World Investment Conference. Apart from realising that airports all over Europe have much more in common than apart I have also realised that it is true when you meet people, angels or otherwise. Interestingly, everywhere enterprise is now a buzz word – this must bode well for globalisation – which should make it easier for companies and their backers to make money on the world stage.

Thank-you to everyone who made the “For those who matter” event such a success – especially the speed networking. It seemed particularly appropriate to test speed networking in the BT Tower at an event that talked about IT and Communications in the 21st Century! Do let me know if you end up doing business as a result of the people you met there. If you could not make it on 26th June, reserve a place now for our Health Investors Forum on 12th September where we will be doing it again and even better this time, now that we have an idea of how it works best.

I am very grateful to Stephenson Harwood. This month they have contributed both a Wing Tip and a Legislation in Brief as well as giving us the time to interview Pawan Sharma a partner at Stephenson Harwood on AIM (the firm has just been given the accolade of AIM Lawyer of the Year), doing business abroad and what it means to operate as a partnership. Meanwhile Carpmaels & Ransford our preferred Patent Attorney have followed up last month’s WingTip with another one on the value of IP, with a focus on trade marks.

Lastly, this month has been a momentous occasion with the arrival of Gordon Brown in 10 Downing Street. I guess he feels he has made it in the way many entrepreneurs do when their business floats on AIM (something more companies should consider by the way!). So we have taken the opportunity to write an open letter to him.

Have a great July, especially those of you who will be taking your summer holiday soon.

Best

Modwenna Rees-Mogg

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For more information on these stories look in the rest of the AngelNewsletter Online

Dear Prime Minister

Congratulations on your new appointment, as someone who has largely championed the cause of investment and entrepreneurialism generally we welcome your arrival at number 10. With the full reins of power in your hands, we hope you will now feel more inclined than ever before to take the rest of the steps needed to ensure that the UK remains one of the best countries in the world to set up, invest in and grow the world beating companies of tomorrow.

The timing of your arrival is perfect. The mood of some of your fellow leaders in the EU is now in favour of supporting an entrepreneurial culture. You will find support across Europe from Hungary to France and from Italy to Finland for plans to support citizens in their attempts to build businesses. Use this support to ensure that the Commission does not block moves to enable capital to move freely into small businesses. At the World Investment Conference Prime Minister Fillon of France made it clear that supporting enterprise will be a key tenet of the new administration. Build him into an even greater ally if you can.

Stick to your guns when it comes to supporting our private equity cousins. From private equity to business angel investing, private investment into companies ensures that the best jobs are retained, new high quality jobs are created and strong businesses are built. Make sure that the tax environment remains benign for these individuals. If there are worries about how much tax their cleaning ladies pay, then reduce the tax for the cleaning ladies – not the other way around.

You still need to do much more to make it easier for capital to flow into companies, especially from private investors. Please increase the cash you are going to make available under the Enterprise Capital Funds. Making only £100m odd available per year is simply not enough. There are perhaps 2,000 companies receiving first round early stage investment each year in the UK. Based on our own research 90% of them will need a further £1m of investment within a couple of years – that is around £1.8bn a year. There are two simple steps you can take to ensure this capital is available. Firstly widen and ease the current schemes you have whether EIS, VCTs or Enterprise Capital Funds. Secondly, sort out Solvency 2 issues so that the insurers and pension funds can start to allocate more investment monies to venture capital funds. Remember that the effect of this loosening will be to increase tax take by the Treasury (through PAYE, VAT and Corporation Tax), which will enable you to bring the UK’s education system back to acceptability.

It was a wise move to put higher education, skills and science together. You could also join up education and enterprise by becoming a much more active supporter of charities such as Young Enterprise, The Princes Trust and the Fredericks Foundation. If you are thinking about improving the national curriculum, you could try making enterprise a much more fundamental part of school life. For a start you could take away the crazy and restrictive rules around teenagers doing work experience, which mean that many employers won’t even consider it currently.

You must try to reduce the costs of doing business in this country. As a first step you should reduce employers’ national insurance contributions for net new employment for every company in the land. I am sure they will reward you by spending the surplus on investment or further job creation – all of which will lead to revenue for you in the end.

Finally, please think about how we can make sure the risks associated with enterprise are shared more evenly between all stakeholders in UK plc. You must especially call the banks, business and the City together to ensure that support for the smallest businesses is in place. The collapse in the Small Firms Loan Guarantee Scheme must be reversed. Expecting small companies to charge interest on late payment by their precious companies is a plan designed not to work. To coin a phrase you need to win over hearts and minds – and this may mean that everyone needs to factor into their return on capital calculations a percentage that reflects their investment into today’s high growth potential businesses.

Yours sincerely

Editor, AngelNews

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Q What role does a lawyer play in an AIM (or other) flotation?

A. The lawyer to the company should be closely involved in a number of aspects of the process. These include: helping to prepare a company for IPO: formalising key contracts so that areas of exposure are reduced, advising the company and its directors of their responsibilities and potential liabilities in connection with an IPO and how to comply with their continuing obligations post float; putting in place an appropriate corporate governance framework; advising terms of engagement of their other advisers (in particular the investment bank);drafting key documentation e.g the prospectus in conjunction with the investment bank; verifying all marketing; and preparing all necessary corporate authorities to approve the flotation.

Q. What is the legal difference between shares listed on AIM and shares listed on PLUS Markets or the Main Market of the London Stock Exchange?

A. Many of the differences are less legal than commercial. There are a number of differences but some of the key differences are as follows:-

• Shares on AIM and Plus Markets are regulated differently to companies on the Main Market. They also benefit from preferential tax treatment over holdings in main market listed companies – e.g. tapering relief which reduces the effective rate of personal capital gains taxation for investors to 10%. The listing process is simpler than the Main Market;
• Historically companies which AIM or Plus Markets have tended to be smaller and younger and seen as being of less high quality and less liquid post float than companies on the Main Market. This genrralisation is too simplistic, but has meant that some investment banks have shied away from listing very small companies on AIM or Plus Markets.

Q. How long does it take to prepare the paperwork for a listing on a stock market?

A. The paperwork is only half the story so don't blame the lawyers! Typically a float takes 3-6 months from start to finish but this depends significantly on how much work needs to be done to get the company into shape for a listing in the first place, the amount of money the company is looking to raise and how realistic the pricing is. Listing on the main market of the London Stock Exchange tends to take longer than an AIM or Plus Markets float as the key document – the prospectus - needs to be formally approved by the FSA. Plus Markets is typically quicker than AIM particularly since AIM has increased the responsibilities of the sponsoring Nominated Adviser or "Nomad".

Q. What legal issues do you have to sort out before listing on a stock market?

A. There are a large number of issues to consider. The key ones include:-

• identifying and resolving potential weaknesses in the business (e.g. securing key assets, settling material disputes)
• introducing appropriate corporate governance measures including appointing independent non-executives to the board;
• standardising service contracts for senior management in line with market practice including appropriate notice periods and restrictive covenants;
• putting all arrangements between the company and its shareholders and employees on arms' length terms;
• converting all shares into ordinary shares and tear up existing shareholders' agreements;
• if not already the case the company will need to re-register as a PLC;
• ensuring that a listing will not trigger termination rights for key customers and suppliers;
• tax structuring and planning;

Q. What additional legal responsibilities do you have once you have listed on a stock market?

A. This varies significantly depending on which stock market you list on. The continuing obligations of issuers on the Main Market of the London Stock Exchange are far more onerous than those on AIM or Plus Markets. However the types of obligations broadly break down as follows:-

• periodic financial reporting (annual, half yearly and (for main market companies) abbreviated quarterly updates);
• prompt and clear disclosure to the market of matters which would be likely to move the company's share price;
• prompt disclosure of certain levels of shareholdings – particularly holdings of directors;
• restrictions on dealings by directors and connected persons in the company's shares;
• restrictions on transactions between directors or connected persons and the company
• clear communication and avoiding the creation of a false market in the company's shares;
• obtaining shareholder approval for certain material transactions. In the case of the Main Market of the London Stock Exchange this includes certain large transactions irrespective of whether they involve a fundamental change in the nature of the company;
• companies on the Main Market of the London Stock Exchange will have a liability under the new Companies Act to compensate investors who have relied upon inaccurate or misleading information released by the company;
• UK incorporated issuers will be subject to regulation by the Panel on Takeovers & Mergers

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Are you interested in seeing the best and most investment worthy propositions in the healthcare sector?

Do you want to pitch your healthcare business to angels and venture capitalists with funds available to invest now?

Do you need to understand the issues and opportunities around growing a business in the healthcare market in the 21st century.

If so, please join AngelNews and Health Investor Magazine at our joint Health Investors Forum on 12th September 2007 at the New Connaught Rooms, London, WC2.

The Health Investors Forum will be a day of seminars by leading experts and entrepreneurs in the medical and healthcare sector, with a keynote speech from Dr Bruce Roser, the founder of Cambridge Biostability Ltd, one of the UK’s most exciting growth businesses in the area of vaccine stabilisation and instant injection. Learn how to build a viable business which will have global growth prospects with views and opinions from advisers, entrepreneurs and investors.*

In the afternoon the Forum will comprise a number of pitches by some of the UK’s most exciting young healthcare companies. Learn about the technologies they are developing, the business models they are pursuing and the markets they will be reaching.*

* A full programme will be issued shortly

There will be plenty of time to network with other attendees including the entrepreneurs who will be pitching their businesses and we will also, following the successful debut of the AngelNews speed networking system, be organising a highly effective speed networking session so you really will get to meet the people you want to!

To find out more, please contact: modwenna@angelnews.co.uk or call 01275 333 443.

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When I joined the City back in 1990, it was just post Big Bang and we were getting used to the idea that taking a UK orientated perspective was going to be the sure route to lower growth prospects. The Yanks had arrived and were getting traction with smaller advisory mandates. Five years later they were up against the British merchant banks, and winning everywhere – from client relationships to the most talented hires. Meanwhile the old way of looking at corporate clients – taking an alphabetical list of them and handing out to the first director the A-Cs and to another the D-Fs and so on - had thankfully been replaced by a cross-border sector focus. I should not think that today’s graduates even consider the ultimate ownership of their putative employers; they just look at the opportunity of working within a global firm or not.

The angel world is now where the big City was 20 years ago. It is a last bastion of local and national interest, excused by arguments such as “you have to be close to your investment to oversee it properly.” The only trouble is the world is moving on apace regardless and angels cannot afford to get left behind or they will find they are investing big in an opportunity which will only ever get small.

For a while now the odd angel has been blind to national borders. Xénos The Wales Business Angel Network has angel investors based in England. The occasional continental European pops up in the London networks and clubs. But unless you can tell me I am wrong, foreign angels in a network are like raindrops in a parched desert.

Meanwhile we know that there is plenty of angel capital searching for great investments that are remaining stubbornly hidden. The Venture Index has just reported a decline in sub £1m investment in the period to March 2007 across the UK.
As I said we are risking that the angel market will only ever get small if something does not change.

I am writing this whilst at the World Investment Conference in La Baule, France. Amongst the 900 delegates, there is a large contingent of representatives from Foreign Investment Agencies – within half an hour last night I met one from Montreal and another from Bulgaria. Everyone here is looking cross border and cross ocean. Valentina from Bulgaria told me something interesting – Brits only invest in property in Bulgaria, but Italians invest in light manufacturing, brand the products as Italian and sell them back to the Bulgarians at a premium. I explained that the Brits are pretty keen on UK property too. Meanwhile there is a room packed with Californian tech entrepreneurs who have come over to see what business can be done. If any of you hear of a similar delegation heading overseas from the UK anytime soon, let me know as I would like a ticket. Thinking global is no longer an option it is a necessity and I need to think about it as much as anyone else.

But back to the angels – can angels make money out of investing overseas and is this especially true for the Brits?. After all Ernst & Young has just published a report saying that the UK is the most popular source in Europe for inward foreign investment (19% of the total). Maybe the Brits should just stay at home and wait for everyone to come to them?.

Some people are beginning to think otherwise, encouraged by stories of foreign angels making money by investing overseas. (One Franco/Swiss angel backed Expedia and exited healthily recently). As part of my recent globe trotting I attended an EASY project event in Helsinki in the middle of June. 200 angels, entrepreneurs and network managers gathered in the birthplace of Nokia to participate in a series of investment pitches by entrepreneurs across Europe. We saw Slovenians, Russians, Germans, French Italians, Brits and many more display their wares and in the follow-up meetings the investor audience comprised angels from all over the place, so the horse has got to the water.

But will it drink? For the great opportunities it just might. There are just a few, but unfortunately rather large, issues to cover off, mainly around the area of risk dissemination. In no particular order overseas investing brings with it; legal risk, currency risk, economic risk, tax risk, IP risk, political risk, co-investor risk and, what I choose to call, communications risk i.e. the ability of an investor to stay in touch with the entrepreneurial team they have backed. I will ignore management, R&D and competitive risks as they apply to all high growth potential companies.

Canatu, which presented at the EASY event in Helsinki, is a company with a technology around nano buds – for the layman this ultimately means an evolution in display materials on things like mobile phones. Excitement levels around Canatu were high helped by cool technology and by the fact that the Finnish agency which supports angel investing, SITRA, is backing this business to its fullest extent and with a Finnish seed fund will act as lead investor. By following this strategy, with an investor who can look after the interests of all the others, the Canatu deal is likely to lower communications risk. The company is based in Finland thus dealing with political and economic risks; currency risk, at least for angels also in the Euro zone, is not an issue. Canatu’s IP protection is also international with issued patents in relevant countries, so that problem is minimised.

The trouble is that there is a big black hole still in two areas – tax risk and co-investor risk. With some countries around the world having put in place tax incentives for angel investors, we now have two playing fields and angels playing on the field with the tax breaks probably won’t change game unless they can feel a benefit in their wallets. This is crazy. I have explained in the past that government treasuries make a c.40% ROI in year one alone on tax break schemes to encourage private investment in enterprise. More countries should introduce schemes now and make sure that any benefits that accrue are accounted for cross border tax arrangements. Fortunately the word on the street at this World Investment Conference is that they will be doing so, so fingers crossed.

Lastly, and perhaps most importantly of all there is the problem of co-investor risk. Everyone has been there: investors who play up; investors who go native with the management (or part of); and investors who do not follow their money even though they had indicated they would. I met angels from all over Europe in Helsinki. Strange though it may seem, they were much more similar than different (and not just because most were men in their 40s-60s!). The trouble is that they do not know each other and therefore need to build trust amongst themselves before they will co-invest.

So here is an offer for all angels. Email me: modwenna@angelnews.co.uk and I will tell you about the details of something we are organising in the autumn to help you actually meet each other. No-one will be pitching to you. It will just be great networking and very interesting. I look forward to meeting you in the autumn.

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A woman entrepreneur was sitting at a bar with her girlfriends when an exceptionally dashing angel investor walked in. He was so striking that the entrepreneur could not take her eyes off him. The angel noticed her overly attentive stare and walked directly toward her.

Before she could offer her apologies for staring so rudely, he leaned over and whispered to her:

“I’ll do anything, absolutely anything that you want me to do, no matter what, for £20, on one condition”

Flabbergasted, the woman asked what the condition was. The angel replied:

“You have to tell me what you want me to do in just three words.”

The entrepreneur considered his proposition for a moment and then slowly removed a £20 note from her purse, which she pressed into the man’s hand along with her address. She looked deeply into his eyes and slowly and meaningfully said:

“Finance my business.”

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No one can dispute that private equity has been on the receiving end of adverse publicity of late. Concerns over the motivations and operating practices of some firms - the rise of the mega buy-outs and the use of leveraged debt as a way to gear private equity partners’ returns, the lack of transparency by some buy-out houses on the companies they own and the cost cutting and redundancies that may occur - has left the whole of the private equity industry at risk of being tarnished with the same brush. And despite the private equity industry lobbying government, creating trade associations and adopting voluntary codes of conduct in attempts to mollify its critics and regulators, it’s unlikely such measures will prevent increased public scrutiny and further negative media coverage.

Equity is vital to all businesses. Demanding no immediate return or set repayment date, equity can fund growth of companies when uncertain cash flows and a lack of collateral security mean bank finance cannot. Without equity, many exciting business propositions might not get off the ground or grow to their full potential. So what can the VC industry do to improve its image? And more fundamentally, can venture capital be used as a force for good, or is it just another instrument for savvy equity investors to make a tidy profit?

Enlightened investment choices: By investing in industries with a social or environmental mission, Sustainable VC is helping to foster a more eco-conscious way of living. With growing demand for more green products and services, such companies are also likely to flourish. For example, organic products, fair trade businesses, renewable energy, and businesses promoting social inclusion all have strong growth prospects. It’s a sign of the times that in response to the rapidly developing clean technologies sector, the second day of this year's Venturefest conference focuses on climate change and the commercial opportunities it presents.

Longer-time scales: It’s not just the choice of investment that makes VC sustainable. Investment processes are as important, especially the need for a longer-term view than normal. There’s no quick road to building businesses that address the complex social and environmental challenges facing us today. A more sustainable VC industry would better understand these sectors and the particular challenges companies working in them face. Genuine Sustainable VC involves working with investee companies, other investors and the founders to find a suitable buyer or other exit avenue. It isn’t about prioritising a quick return on the investment.

Be a positive influence: VC funds provide hands on support to their portfolio companies as well as capital investment. This influence, as well as any useful connections, can be used to promote good working practices in companies - treating customers fairly, dealing with suppliers in an open and fair manner, and monitoring environmental impacts. VC investors should also ‘walk the talk’ and publish details of investee companies to promote better industry disclosure.

Investing ‘social venture capital’ according to such guidelines isn’t easy. It presents the same challenges as mainstream venture capital, while adding extra layers of complexity and due diligence. However, ‘social’ venture capital is possible and crucial if the industry is to help address pressing social and environmental challenges. If properly designed, the venture capital model can help reduce many of the barriers common to growth companies in rapidly growing sustainability sectors. However, the Sustainable VC industry is currently small and, unlike the major players, would greatly benefit from tax breaks in recognition of the role it’s playing in the provision of sustainable products and services In recent years strong, fast growing ethical companies have had limited options. They could choose to sell to bigger organisations, as the Body Shop and Green and Black’s have done, or keep going independently, limiting the scale of their ambition. There’s a growing gap offering equity finance to companies in flourishing sectors like natural health care and organics. There are environmental VC funds, for example Zouk’s Cleantech Europe Fund, and social funds, including Bridge’s Community Development Venture Funds, but no-one has linked the two in a Sustainable VC fund. Triodos Bank is launching the Triodos Opportunities Fund to address this need. The Fund will provide development capital for high-growth social and environmental businesses in the UK. It builds on Triodos Bank’s ethical investment business across Europeand is aiming for an investor return of 10-15%, promising a social return in addition to a healthy financial return. Sustainable venture capital has arrived.
Visit www.triodos.co.uk or call James Vaccaro on 0117 980 9716 for more information.

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We know you all want to meet each other, get more out of us and our Preferred Partners and generally make AngelNews work for you. So we have decided to up the ante on the number of events we would like to invite you to. Here is a list of them. We do hope you will be able to make it to one soon.

When George Gallagher of Zi Medical PLC, first invented his now highly successful Red-Eye™ intravenous drip monitor, he was chased by a venture capitalist who wanted to invest in the business. George was forced to sell his beloved motorbike, his only really valuable asset, to pay for his lawyers, only to be told by them that the deal would not be in his best interests. He immediately went off and found a great angel investor and the rest is history with his business now quoted on AIM and in partnership with many of the world’s largest healthcare companies.

The moral of the story is – legal advice may cost you but it does keep you out of disaster and points you in the direction of success – however obliquely!

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DRIVEN, COMMITTED, DYNAMIC - ARE YOU?

CHIEF OPERATING OFFICER - £SIX FIGURE PACKAGE + BENEFITS
FLEXIBLE LOCATION WITH WILLINGNESS TO TRAVEL INTERNATIONALLY

My client is a wholly owned private business with a global luxury niche position within the toiletries marketplace, supplying leading hotels in 109 countries. A high growth business, their worldwide network of manufacturing, supply chain and sales operations, combined with their growing luxury brand licenses, has ensured their name is the most powerful and trusted within their sector.

Reporting to the CEO you will be responsible for:

• All Supply Chain and Manufacturing activity across their global footprint
• Improving manufacturing efficiencies through to capacity planning and warehousing across two factories and six distribution centres globally
• Management of optimisation plans for logistics and manufacturing facilities
• Accountability for system improvements within inventory management, with particular focus on IT system improvements

The ideal candidate will have a demonstrable track record of leading a substantial multi-site Supply Chain and Manufacturing operation on a global or pan-European scale. Other key attributes will include:

• Experience of delivering global operational excellence within an FMCG business, with particular focus on Supply Chain and Manufacturing
• Capable of working within an entrepreneurial, challenging, high growth driven privately owned business
• Proven ability to lead change across a geographically dispersed supply chain operation, displaying an ability to coach supply chain best practise including freight management, capacity planning and warehouse management
• Commercially astute with high intellect, tenacity, persuasiveness, drive and the ability to influence at all levels of an organisation
• Willingness to travel extensively globally

Interested candidates please email your CV and details of your current package to Malcom Devine at