Dear Reader

Welcome back from your holidays. I hope you had a fantastic break. This month we have prepared an AngelNewsletter Online jam-packed with exciting stuff – you will see from the news that not only have AngelNews companies been pretty busy but also the Venture Capital Community has been closing deals hand over fist.

The stockmarkets have been haywire over the holiday season and as we know that you will all be extremely interested in the outlook for the markets this autumn, we asked our friends at Merrill Lynch International Bank Ltd to provide us with a summary of their views. To read the article from their Chief Investment Officer please click here.

We have introduced a new section this month – This is the Deal that was to remind you of what were the happening investment opportunities back in 1982 when the Falklands War had just been won and tax rates were still at astronomical highs. Do you remember any of these deals or the entrepreneurs behind them? Please let us know if you do and we will let our other readers know what happened to them. We have also really dug into the crash in uptake of the Small Firms Loan Guarantee Scheme. Traditionally SFLGS was often seen as part of the funding mix when AngelNews companies first raised funding, but now the world has changed. But with every negative there is always a positive so read our article to find out a bit more.

Lots of new companies for you again this month and details of some great events to which you are invited over the next couple of months.

We have been working up our strategy for AngelNews over recent weeks and during the next few months you will see some big developments. We would love to find someone to come and help us implement our plans. If you know of anyone who might be interested please ask them to get in touch. There is a brief summary the job in our Job Ad of the Month section.

Best

Modwenna

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

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You can borrow from £5,000 up to £250,000, but the average amount lent in 2006/7 was £78,400. Only 127 loans were made for £200,000 to £250,000 and only 160 for £150,000 to £200,000.

2. What are the terms of the loan?

Up to 75% of the loan plus six months interest is guaranteed by the Department for Business, Enterprise and Regulatory Reform (“BERR”). There is an annual premium of 2 per cent of the outstanding balance of the loan payable for this guarantee, which is assessed and paid quarterly. Borrowers also pay the commercial interest charged by the lender.

Your business has to have been trading for less than five years to qualify for a loan and must have turnover of £5.6m or less. You cannot use the loan to repay existing borrowing or for financing export orders.

The term of the loan can be from two to ten years.

3. Where can I get a SFLGS Loan?

There are 27 different lenders operating the SFLGS ranging from high street banks to specialist lenders. A full list can be found at http://www.dti.gov.uk/bbf/small-business/info-business-owners/access-to-finance/sflg/page37617.html

4. Who makes the decision whether to give me a loan?

The full decision for approval of the loan is with the bank offering the loan.

5. Assuming I qualify what are my chances of getting approved for a loan?

The government suggests that there are up to 25,000 businesses per annum which may have potentially viable propositions, but cannot obtain borrowing on a commercial basis due to an absence of having any assets against which to secure the loan. In the 2006/7 financial year, over 2,700 loans were guaranteed under the SFLGS. So you have an 11% chance of getting a loan under this scheme. Statistically you should borrow £99,999 or less not £100,001 or more. You should be under two years old, be in business services, hotels & catering, production or retail and based in London or the South East.

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Presentations from vetted young and fast growing companies seeking investment and management.

Presentations from micro companies and start-ups seeking guidance, management and investment.
with £30,000 worth of business services up for grabs

Business Northwest 21-22 November
www.businessnorthwest.co.uk
For more information or if you wish to present please call Lawrence on 0161 214 5206

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Back in September 1982 tax rates were astronomical*, the Falklands War had been fought and won, the Barbican Centre in London had opened, Prince William was a small baby and Knight Rider was about to make its first outing in Knight of the Phoenix.

We wondered what the angel world was like back then and what the buzz opportunities were for investors. So we looked back in the old Venture Capital Report magazine for September 1982 to see what we could find out. It was rather eye-opening!

Here is a list of the companies that were in the September 1982 VCR magazine. Did you back any of them or do you know someone who did? Perhaps you know what happened to them for some other reason. If so, please let us know – we would love to find out (email replies to modwenna@angelnews.co.uk ).

Note: these were the days when there was still a 75% unearned income surcharge!

Next month – community mobile base stations, first computerised second hand market, safety stickers and much more…

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What is the difference between a Venture Capitalist and a terrorist?

You can negotiate with a terrorist.

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By Jerry Davison

There is so much in the media about the environmental crisis, and it’s become highly politicised, but what exactly are the new technologies, who is investing in them and what are the drivers?

Even the name of the sector is varied – sustainables, green, low carbon, ethical, renewables, eco businesses – but from the US we have a moniker that is gaining acceptance, which is Cleantech. Its main divisions are energy, industrial, chemical and materials, and IT. This is good, because in turn they are investment areas that are familiar to VCs and the public markets.

Investment in Cleantech has soared to over $70 billion p.a. in the last few years and is set to grow substantially: the sector has definitely gone mainstream. It’s a sector that is going to keep expanding for the next several decades, and it is full of opportunities for innovation and investment. It’s an area that holds great promise in terms of substantial inward investment and for start up prospects.

So what comprises Cleantech? Essentially there are two distinct levels in terms of investment quantum: the higher level multi-million pound funding of major sustainable projects such as wind farms, wave/tidal generation, waste processing and biofuel plants, and then the lower level of more modest investment into those areas that are the realm, typically, of the entrepreneurial SME. This lower level, from around £200k to £2 million, is focused mainly on the following areas –

• Heating – biomass, ground source heat pumps, solar panels
• Micro-generation – wind turbines, photovoltaic panels, hydro turbine, fuel cells
• Ecobuilding and materials – insulation, glazing, paints, recycled material, efficient structures
• Other – for example waste, food

In aggregate, the value of the smaller ticket projects will grow to several billion pounds, and apparently some technologies such as fuel cells ‘could propel an SME to big ticket very quickly if the technology was particularly disruptive’ (Shell Springboard Report). Some of the minnows are already showing success: there were 30 Cleantech companies on AIM at the end of 2006, with a total market cap of £2.5 billion, ranging individually from £7 million to £400 million.

Many of the sector’s technologies have now reached the point where they are much more economically viable and practical. However, there is a long way to go before the world can, for example, rely purely on renewable energy. There are some interesting statistics that illustrate this – for example, the entire US grain harvest would provide only enough bio-ethanol to run 16% of US vehicles for a year. In the same breath you can also point out that the grain used to make the fuel for one tank-full for a 4X4 would feed a person for a year.

Global energy demand will rise nearly 50% between 2005 and 2030, largely driven by China and India, partly because we now expect them to manufacture most of our goods (have we outsourced our industrial pollution?). The media has been focusing on climate change but many forget that the parallel crisis is the depletion of fossil fuels, which is actually the main driver of Cleantech investment. As well as depletion, we are being impacted by the political risks of gas and oil (think Iraq, Iran, Russia) and of course by the ever rising cost of fossil fuels. We all need to reduce energy consumption, and increase its efficiency at the same time.

Amazingly, one third of global energy consumption is used just to generate electricity. This is why it’s so important to generate more through renewable methods, including nuclear. The other two thirds of consumption is in transport, industry and buildings. Each of these has its own investment drivers; for instance transport has electrification, e.g. fuel cells, and biofuels.

In the UK, there are now some 300-400 Cleantech companies. The public sector has been involved in 45% of all investment, for example Oxford-based Green Biologics, a developer of bio-butanol, raised £560k which included £250k from the DTI – the rest was from Business Angels. A few specialist Cleantech investment funds have been established including Climate Change Capital (a £1 billion fund), Low Carbon Acclerator (£45m AIM listed) and the Sustainable Technology Fund (an Enterprise Capital Fund). However, mainstream funds such as 3i are also investing, particularly in wind farms and alternative fuels.

For the SME, the opportunities are being partly driven by a Government that has Kyoto and European emission targets to achieve, leading for example to tightening of building efficiency standards, which is encouraging the development of better insulation and heating products – in fact the emissions compliance market alone could be worth billions in the UK over time.

To illustrate the diversity of the sector, our firm has a few SME clients in Cleantech, and I will mention three of them,. Each has attracted investment, from sources such as Finance Cornwall –

• Cloud Nine – modular eco-housing - www.cloudnine-living.com
• Naturepaint – non-toxic, safe, oil free paint - www.naturepaint.com
• Continental - underfloor heating, heat pumps and solar panels – www.continental-ufh.com

So is this another dot.com bubble, with a risk of overheating? I don’t think so, and we’re not seeing the easy money associated with 1998-2000. Investors are more wary and there is a lot more realism, with robust due diligence and a demand for investment readiness. Investors want to see defensible IP, management strength, and scalability and longevity of product.

It is essential that we as business advisers have a good understanding of the sector and its dynamics. The Cleantech sector is quite diverse, not an easy option for investors but very exciting, and for both corporates and SMEs there are some great opportunities!

Jerry Davison is MD of Exeter based, The Mill Consultancy www.millconsultancy.co.uk

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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.

In mid 2005 Mega Brands, £245m turnover, Canadian manufacturer of Mega Blocks, a rival to Lego acquired Rose Art the maker of Magnetix – a children’s brand of colourful, magnet-tipped plastic rods which can be attached to each other to make shapes. Suddenly in November 2005 a child in Seattle died after swallowing Magnetix that had come loose from one of the rods. Each magnet is little bigger than a pill and if they stick together inside a child’s intestine they can cause tears in the intestine’s wall. Injuries to 27 children have since been reported.

Mega Brands redesigned the product to make it safer, added warning stickers to the product, included a safety booklet in seven languages and fired the former owner of Rose Art. Then in March 2006 it agreed a voluntary recall and replacement programme and in October paid $13.5m to settle 14 injury claims. The head of Mega Brands then said “we are pleased to put this behind us.”

But Mega Brands make one, big mistake. It changed the product but failed to change the packaging which meant it looked as if the problem had not gone away. Therefore in April 2007 there had to be a second product recall and repackaging. Mega Blocks then adopted drastic action, including employing an intern at head office to buy old sets of Magnetix off Ebay with his boss’s credit card.

But the outside world has been up in arms. So far year there have been accusations that Mega Brands did not co-operate fully with the Consumer Product Safety Commission – the US regulatory agency over the recall of Magnetix. The widespread recent coverage of toy product safety in China (where Magnetix sets are made) has not helped. And the press are fanning the flames - the New York Times featured an article on Mega Brands with an illustration of a skull and cross-bones shaped in Magnetix pieces. To top it all, there have been accusations from a Canadian stock market analyst that Mega Brands did not undertake sufficient due diligence on Rose Art and that since the acquisition it has been poor at informing the market about lawsuits, write-downs and the fact that Magnetix makes up about 15% of the company’s sales.

Mega Brands is currently facing four remaining lawsuits, 11 other complaints and is embroiled in litigation with Rose Art’s former owners. The debacle has cost Mega Brands $tens of millions. Luckily despite all of this, there have been no complaints about the redesigned toys and sales of Magnetix are on the up, so the future is finally looking good.

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