Dear Reader

This month we have an AngelNewsletter Online packed full of interesting articles and news stories – check out “the 10 to watch” – for the third time we have identified those people in the UK’s angel industry who are exceptional. We continue our series on How to make money out of angel investing, with an article on spotting the right commercial opportunity.

Our interview this month with John Spencer, CEO of MWB Business Exchange our Preferred Partner in Office Services. Click here to read an interview with the man who turned around his business by changing his whole management team bar one person – a bold and brave move that worked.

I do hope that you will come to our next event on 3rd March “Raising £3m without selling any shares. Aimed at entrepreneurs or investors in companies with explosive growth potential – to find out more Click here.

Great news! We have had our first response to This is the deal that was. Read The letter to the editor to find out more.

Best

Modwenna

[Top of page]

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

The Judge considered that the allowability of computer program product claims did not actually arise in Aerotel/Macrossan, because the court was not asked to consider the question of computer program products claims. He also recognised that it was highly undesirable to have provisions of the EPC construed differently at the EPO as compared with the courts in the different contracting states, and that decisions of the Boards of Appeal should be highly persuasive.

The UK IPO has changed its practice accordingly. It will no longer object to claims to a computer program or a program on a carrier where the claim to the computer program is drawn to reflect the features of the invention which would ensure the patentability of the method which the program is intended to carry out when it is run. These classes of claims can therefore be pursued and obtained again in the UK in the appropriate circumstances.

This change of practice was announced by the UK IPO on 7th February 2008 in a new practice notice, which reads as follows:

1. The Office's Practice Notice dated 2 November 2006 detailed the way patent examiners should assess whether inventions are for patentable subject matter following the judgment of the Court of Appeal in the matters of Aerotel Ltd v Telco Holdings Ltd (and others) and Macrossan's Application [2007] RPC 7 ("Aerotel/Macrossan "). Among other things, paragraph 14 of that Notice recorded the Office’s view that Aerotel/Macrossan left open a question over permissible forms of claim: can claims to a computer program (or a program on a carrier) be allowable when other claims in a different form, claims covering the use of that particular program, would be allowed? For reasons the Notice explained, the Office concluded that claims to computer programs or to programs on a carrier were not allowable.
2. In his judgment in Astron Clinica and other’s Applications [2008] EWHC 85 (Pat) ("Astron Clinica "), Kitchin J has now clarified the law in this area. He has decided that where, as a result of applying the test formulated in Aerotel/Macrossan, claims to a method performed by running a suitably programmed computer or to a computer programmed to carry out the method are allowable then, in principle, a claim to the program itself should also be allowable. However, Kitchin J made it clear that the claim to the computer program must be drawn to reflect the features of the invention which would ensure the patentability of the method which the program is intended to carry out when it is run. Where, but only where, these conditions are met, examiners will no longer object to claims to a computer program or a program on a carrier.
3. The Office will implement this change in approach immediately. Apart from this one change, the practice of the UK-IPO remains as set out in the Practice Notice of 2 November 2006.

If you would like further information on this issue, please contact me, Gary Small by email: gjs@carpmaels.com

[Top of page

Are you reluctant to share any more of your equity with new investors? Do actually need to share your equity with anyone new? Do you want to understand why global corporates want to form valuable partnerships with you? Have you considered other sources of finance – whether it is borrowing significant amounts from a bank or pulling down millions from public funding sources?

You are probably already trading strongly and know that with additional investment your growth will become explosive. If so, this is the perfect event for you.

We have brought together four experts. Not only will they give you the answers to your questions. They are also the people who can actually make the deal happen.

[Top of page]

Each year we name the 10 most important people in the business angel world. Here is the 2008 list – exactly half you will have seen last year and half are new.

		Alex Macpherson The sale of Katalyst Ventures to Octopus Asset management was a masterstroke, linking up a powerful angel group to an equally powerful VC. Expect to hear more from the new Octopus Ventures from now on
		Andrew Stevenson e-Synergy, led by Andrew Stevenson is steadily consolidating its position in the market having established its reputation as a nationally recognized group. Once again we have an angel group that has successfully grown to managing VC funds too
		Anthony Clarke Having spearheaded the EASY investment project which is encouraging pan-European angel investment and now involved in establishing the World Business Angels Association, Anthony continues to be the outstanding leader of the business angel world
		Bruce MacFarlane In winning an ECF for MMC Ventures late last year, Bruce finally got the public sector recognition he deserves – his reputation amongst angels and in the VC world was already established as one of the cleverest people in this market. This is the leader of yet another angel group that has grown into becoming a VC fund manager
		John Waddell* Spearheading the development of Archangel Informal Investors, we think that John is a man to watch in 2008
		Ken Cooper Ken knows what he is doing and we look forward to new initiatives at Capital for Enterprise Ltd. Our message to government - you have a quality guy here!
		Leanna Davies* Deal volumes at xénos are rising as are sums of money raised. Leanna and her team of four are not noisy about their achievements, but their success should be acknowledged.
		Philip Tellwright* A man who does ordinary things, extraordinarily well – 56 deals in four years at SWAIN – keep them coming Phil
		Sally Goodsell* Sally has been in our market for years and has been unfairly overlooked. We particularly admire her spearheading of a women angels initiative – a difficult task in a world where the “women” issue is a potential minefield, but if Sally thinks there is an issue, she will be right. We also respect her debt-only seed fund – way to go Sally – what a great instrument for entrepreneurs in the South East.
		Stephen Campbell* Senior Director at HBOS Growth Equity, Stephen has arrived and looks like he is here to stay, having formed relationships with Pi Capital, OION and Braveheart Investment Group to date. We look forward to hearing more from this smart venture capitalist.

Note: *= new name this year

[Top of page]

But often when you don’t have the resources to hire anyone, it’s a case of all hands to the pumps until circumstances change. So that means doing the job yourself, which is no easy feat. The only other option is not to bother at all – and in today’s competitive business environment, that is as good as raising the white flag.

That said, getting good coverage is difficult at the best of times – just ask the professionals, who do it full time.

However, there is a simple, cost-effective way of tackling that publicity deficit.

Our workshop, How’s my PR? will tell you what journalists actually want from businesses and how you can do it.
It is run by journalists from the Financial Times, Daily Mail and Sunday Times, BBC and others, who know the media business inside-out.

Among the things that they will tell you are:

• How and when to pitch a story
• What information is needed
• How best to ‘react’ when something in your area happens
• What things like ‘sidebars’ and ‘forwards’ are, and why they matter
• The importance of pictures and graphics
• How the new-look newsrooms offer more opportunities, especially for small businesses
  …And much more

Also, you will get the chance to rub shoulders with the people who matter on newspapers and broadcasting – the commissioning editors. Find out what they want and how you can provide that.

Even if you use PR agencies, this course is still a valuable insight into the media, how it works and, more importantly, how it can work for you.

Next Date: Feb 12
Price: £395
Venue: City of London
Time: 10am-5pm

To book, or for further information, contact Lol Laverty at info@writebetter.co.uk or phone 0208 275 9401.

www.writebetter.co.uk

[Top of page]

How do you find the right commercial opportunity to back, regardless of timing, valuation, management team or the myriad of other things that you should consider when making an investment? Recent research from the Kauffman Foundation in the US, which analysed over 1,100 angel deals in the US showed that there was a clear correlation between a successful exit and the angel investor’s own expertise in the sector in which the company traded.

A while back I made an investment in a business that I understood, with a great team and which is still working, but there is no sign yet of an exit. At the same time I had the opportunity to back something which also had a great team, but was in a sector I then did not understand and I did not back it. 18 months ago it returned a startlingly large sum to its investors. So I clearly missed a trick and, in doing so, challenged the assumption that the Kauffman research made that you should invest in the sector of which you have personal business experience. But maybe that is just me and I am happy to acknowledge that there were many other factors that have prevented an early exit from the investment I made. When I get my exit I will be able to better judge that one.

Spotting the right business to back can, I think, be broken down into a few core rules.

The first is to look for a new growth sector – and as an angel investor, when I say new I mean really new – social networking may be the current buzz on the street, but if you see a social networking company pitch now (unless it is an expansion deal) you are probably seeing it too late. Smart investors have already been backing social networking websites for 3 or 4 years. Clearly, if you understand a sector, you will be in pole position to judge whether the company you see pitch really does have something new in its market place.

Secondly, there are some sectors you should always avoid. My personal no-nos are mining and shipping. Another investor I know avoids golfing. Many investors avoid biotech, with good, if unfair, reason. My reasons for avoiding the sectors I have selected are primarily based on the suspicion that some sectors already have significant heavy weight investors who back all the best businesses in their world. QED, if such a business comes to the general angel world, there is probably something about it that is suspicious. And it may be very difficult to find out exactly what is wrong.

When looking at the financial model of the business you can find clear pointers to help you. My personal favourite is to only consider deals which have a gross profit margin in excess of 60% or even 70%. PBT margins should be 20% or more. The rationale: a high gross margin leaves lots of room for pressure on revenue from customers and rising direct costs from suppliers, before overheads are eaten into. A high EBIT margin means you have financial room to hire more staff to fulfill new orders. Also, high margins justify high valuations.

Further things to think about when it comes to the financial model will be discussed next month.

I like businesses that can build genuinely valuable assets, especially think about the value of a brand and how powerful that can be at facing off competition. Look at what Wiseman Dairies has done to milk. Remember that the real strength behind a brand is usually perfect execution of the process. It is easier to execute a simple process than a complicated one.

Choose a business that can react quickly to changing market conditions and remember that the biggest threat to a young business can be apathy in the market. The trick to dealing with rapid change is also to have a simple business with repeatable activities. Look for businesses where (in the early days at least) the complicated bits are solved by sub contractors who can be hired and fired easily.

Always consider opportunities that can flip rapidly into a sale to another business, possibly the chief competitor. What that owner then does with it will not be your concern assuming you have got your cash out. A great example is Simply Switch, Karen Darby’s utilities price comparison business which was successfully sold to DGMT a couple of years ago, which generated a considerable profit to the VC backers. Last week it was announced that DGMT are closing the business down. This is very sad for Karen and her employees, but of no interest to the VC, I am sure. However, if Simply Switch had stayed independent, it is quite possible that today it would be the investors facing the losses which will be incurred on the shut down.

It is worth finding out how much international interest there is in the business – if people from abroad are finding their way to a company in its early days, it suggests two things – one an absence of competition overseas that is already satisfying the market and also potential for international expansion.

Whilst I was writing this article, I took a call from Professor Gordon Murray Chair of Management (Entrepreneurship) at the School of Business & Economics at the University of Exeter. I told him about the article I was writing and he told me that all academic research to date points to date suggests that finding investment successes is a random walk. Some would suggest therefore that you may as well go to the casino or the races. Logic would suggest that you should invest in large volumes (probably 25 deals or more).

Personally I take another view. I think you will find the backable commercial opportunities by watching closely (if covertly) the investors who have a track record for making money. Remember those people who can count cards in Las Vegas or the rare body who can beat the bookies. There are some very smart angel (and VC) investors out there; they may not be prepared to tell you how they do it, but if you hang out with them some of the dust may rub off on you.

[Top of page]

EASY Investment Forum, Italy, 25th-26th February 2008
Conference Centre of Palazzo delle Stelline, in the heart of Milan

After three successful events in 2007 (Paris, Helsinki and Estoril), we are pleased to announce that the first EASY Investment Forum of 2008 will be held in Milan, Italy.

This important cross- border event aimed at the early stage investment market is being hosted by META Group with AIFI (Italian Private Equity and Venture Capital Association) and IBAN (Italian Business Angels Network Association) representing an exciting opportunity for both investors and entrepreneurs.

This event offers business angels, seed funds and early stage VC funds from across Europe the chance to identify investment opportunities in 22 selected European companies representing the following four sectors:

• Med-tech and Healthcare (technologies and service applications for health and medicine)
• Design (products across all sectors which focus on design)
• Transportation and logistics (technologies and service applications)
• Cleantech (environment and energy technologies)

Entrepreneurs wishing to apply to participate in the EASY Investment Forum event will need to comply with the following core requirements:

• Sector: The business is within one of the above four sectors
• Products/Services: The business has a strong USP - Unique Selling Point in the sector.
• Market: The business must show that it has an effective market strategy with existing/identified customers.
• International strategy and objectives: The business must show that it has both a clear international strategy for seeking international investment and clear international market objectives
• Business Model: The business model/concept has potential for scaleable growth investment:
• Investment: Not seeking more than €2m Euros in this round and has clear and demonstrable objectives for using the international investment

Core requirement:

The business needs to demonstrate that it has existing interest for investment from either business angel, seed or venture capital fund. The event especially welcomes applications from women entrepreneurs.

All the selected companies will receive coaching for preparation for the event and further specific preparation the day before the Investment Forum event presentation.

The deadline for receipt of applications is scheduled for the 17th January 2008.

Please register to the EASY Investment Forum by clicking HERE

The Easy Investment Forum in Milan on 25-26 February 2008 is aimed at investors interested in seeking cross-border investment opportunities in internationally focused businesses across Europe seeking up to 2m€ in the above 4 sectors.

You will receive details of all of the 22 selected companies in advance and see pitch presentations from each of the companies, including the opportunity to meet and network with fellow early stage investors from across Europe and with a view to potential syndications.

If you are interested in participating, please register to the EASY Investment Forum by clicking HERE or contact info@earlystageinvestors.org This e-mail address is being protected from spam bots, you need JavaScript enabled to view it

Please find here the Forum Brochure

[Top of page]

Venture Capitalists should never ask a PA a question if they aren't prepared for the answer.

In a waiting room at a prospective investee company two venture capitalists were waiting to go into the due diligence meeting. Taking advantage of the opportunity to chat to the elderly PA without her boss being present, the younger man went over to her desk and asked; "Mrs. Jones, do you know me?"

She responded:

"Why, yes, I do know you, Mr. Williams. I've known you since you were a young boy, and frankly, you're a big disappointment to me.

You lie, move the goalposts, manipulate people and talk about them behind their backs. You think you're a big shot when you haven't the brains to realize you never will amount to anything more than a two-bit paper pusher.

Yes, I know you."

The venture capitalist was stunned! Not knowing what else to do, he pointed across the room and asked, "Mrs. Jones, do you know my colleague?" At that moment their boss walked in.

She again replied, "Why, yes, I do. I've known Mr. Bradley since he was a child. He's lazy, bigoted, and has a drinking problem. He can't build a normal relationship with anyone and his investment skills have one of the worst reputations in the country. Not to mention he cheated on his wife with three different women. One of them was your wife.

Yes I know him."

The venture capitalist almost died.

The boss asked both his colleagues to join him on the sofa and in a quiet voice said:

"If either of you ***** asks her if she knows me, I'll sack you."

[Top of page]

Dear Modwenna

If I recall correctly.

Chris [Shelton, Shelton Instruments Ltd] raised the money and went onto attract £500K from a Government Venture Fund that also had to have 50% invested from a private individual to. I think it was one of David Sainsbury's venture capital funds that put up the other 50%.

Later on Mr. Sainsbury acquired the balance of the Company and folded it into another of his operations.

I don't know what happened to Chris, but at the time he was living in Islington.

Ray Winter
Chairman, Mazingo Ltd

From the Editor – does anyone else know what happened to Shelton Instruments or any of the other companies mentioned in This is the deal that was?

[Top of page]

If you had been investing back in February 1983, these are the sort of opportunities that would have been on offer to you!

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)

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.

[Top of page]

For the full stories please click on the story and login at www.AngelNews.co.uk.

REMEMBER YOU CAN RECEIVE FREE EMAIL ALERTS FOR ALL NEWS STORIES AND SECTORS if you login at www.AngelNews.co.uk and select your preferences. While you are there you can also change your password to something more memorable.