Do VCs have a duty to society?
Public market investors are under pressure from politicians and employee representatives to demonstrate that they are “good” for society. For example, UK pension funds now have to demonstrate that they have an investment policy in which they consider social and environmental aspects of their investee companies. But what are we to make of sustainability as a concept in the venture capital arena?
The European Social Investment Forum (Eurosif) this month published a study on the subject, called Venture Capital for Sustainability, 2007. Based on responses from 46 European institutions, it found that €1.25bn had been raised by VCs in 2006 for VC4S (venture capital for sustainability), or about 6 per cent of the total venture capital market. The report’s authors opined that this was a low figure, reflecting a lack of institutional interest and government support for VC4S.
Now, VC4S seems a laudable approach. It can involve funding companies that make products that change the nature of an industry, such as cleantech. Or it can inject capital into impoverished areas. It can also involve backing companies that have excellent business ethics, sound governance, good relationships with suppliers, good HR functions and so on. Eurosif further argues that VC4S represents more than just altruism on the part of investors. Sustainable companies are likely to outperform their peers, it argues. For example, investing in finance companies in the Balkans, which in turn lend to industrial groups, both reduces unemployment in poor areas and can provide outsized returns over the long term.
But just before we all get our chequebooks out, a certain amount of caution would seem in order. First, among listed companies, there is scant evidence that a focus on socially responsible investment or good corporate governance creates a premium for their shares. Second, sustainable attributes are hard to pin down. Corporate governance, for example, is often measured by imprecise and partial methods. Corporate governance agencies send out questionnaires to companies where they are filled in by junior staff with, often, little knowledge of the business. This box-ticking approach rarely uncovers useful information. And even if it were accurate and useful, it would be available to all investors, giving none a competitive advantage. Or, at least, the advantages would be eroded over time. So when Eurosif decries the lack of institutional support and demands that sustainable investment rises from its current level of 6 per cent, it should bear in mind how investors tend to operate.
For the best ones, being told how to extract value is anathema. Information known by the whole market is less valuable than proprietary intellectual capital. While some VCs may wish to explore the benefits of sustainable investment, others will look to their core strengths for ideas. Sustainable investing is a welcome additional to the investment panoply, but it is a specialist area and as such is probably best left to those who understand it and do it well. These include certain government funds which invest in underprivileged regions and specialist funds such as those run by CDC Capital, which has had a mandate to invest responsibly in the world’s poorest regions for decades.
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The Week's Deals
Twenty-two companies gained venture funding this week, eight were of undisclosed value. The deals raised a total of €44.9m, which is €3.2m on average.
ScanSafe, the UK-based web security-as-a-service provider, has raised $15m (€11.4m) in series B financing from
Scale Venture Partners and
Benchmark Capital. The new financing will be used to speed up ScanSafe’s global expansion as well as accelerate the company’s research and development efforts.
Israel-based
ColorChip has raised $7.4m (€5.6m) funding from
Vertex Venture,
Bessemer Venture Partners,
European Ventures Partners,
Motorola Ventures,
Polytechnos Venture Partners and
Walden Israel Venture Capital. ColorChip designs, develops and markets chips and modules for the fiber optic access and datacom markets. The funding will be used to move from product qualification phase to mass manufacturing to accommodate market demand in the US, Japan, Asia Pacific and more recently Europe. It will be also used for introducing new products targeting additional applications.
Vivolution, the Denmark-based developer of medical devices designed to improve the quality of surgical procedures, has raised €7m from
Danish Fund for Industrial Growth,
Dansk Innovationsinvestering,
Dansk Kapitalanlaeg Aktieselskab,
Vecata and
Seventure.
Revolymer, the UK-based polymer technology company, has raised £2m (€3m) from
Swarraton Partners,
IP Group,
Top Technology Ventures and management. The deal was led by Swarraton Partners and is the first investment from its recently raised £16m fund focused on investments in European University spin-outs. Revolymer is a spin-out of the University of Bristol.
Elsewhere,
Koolanoo, the Israel-based social networking website, has raised $3m (€2.3m) from
Giza Venture Capital and private investors (also see ‘most accessed companies’ below);
Wireless bioDevices, the UK-based wireless sensor technology company raised £400k (€595k) from
IP Group; and
DaWanda, the Germany-based marketplace for buying and selling customised and handmade products, rasied as undisclosed amount from
Holtzbrinck Ventures.
See below for a complete list of deal headlines.
Did we miss anything? If you think we have missed a deal or know of a deal that is about to close then send us your
deal news.
The Week's Exits
EndoArt, the Switzerland-based medical technology company, has been acquired by US-based
Allergan for $97m (€73.8m) in cash. EndoArt’s investors include
Sofinnova Partners,
Genevest,
EMBL Ventures,
Renaissance PME and
Venture Incubator Partners. The company was developing remote-controlled implants used in the treatment of morbid obesity and other conditions.
Ma Potter’s, the fast growing UK-based restaurant chain, has been acquired by
Tragus for £14m (€21.1m). It is expected that most of the Ma Potter’s sites will be converted to Tragus’ Café Rouge and Bella Italia bands, although some may remain as the original brand.
Property Investment Exchange (Propex), the UK-based property trading company, has been acquired by
CoStar for about $22m (€16.7m) in cash and shares. Propex provides an online database of retail, office and industrial properties to matches buyers and sellers of institutional-grade investment properties in the UK. US-based CoStar is using the acquisition to expand into the UK.
Last.fm, the UK-based social-networking music site, is rumoured to be in negotiations to be acquired by Viacom for about $450m (€342m). The deal looks to fit with Viacom’s strategy of increasing its online presence and follows an announcement last week that it will provide programming for internet television service Joost.
Elsewhere,
Notrefamille.com, the France-based online family roots and genealogy company, is to list on Alternext in mid-March, and Israel-based
Endogun has postponed its flotation on the Tel Aviv Stock Exchange by at least a year as it finishes clinical trials in Europe.
People Moves
Anilinker, the Finland-based electronic business operator and service provider, has appointed Mikko Reunamäki as chief executive. He takes over from Tuomas Koljonen.
Cambridge Broadband, the UK-based developer of carrier-class cellular backhaul products, has appointed John Cronin as its new chairman. Mr Cronin has more than 30 years’ experience in the telecommunications industry, most recently as founder, president and chief executive of
Azure Solutions, a 2003 spin-out from BT specialising in revenue assurance for telecommunications companies. Azure was acquired last year by India-based
Subex Systems.
Jacobs Rimell, the UK-based provider of subscriber-centric IP service fulfillment products, has appointed Duncan Lewis as chairman. Mr Lewis is currently senior advisor in telecommunications, media and technology at
The Carlyle Group.
Elsewhwere, it has been revealed that John Fuller has left UK-based
Cascade Technologies. Mr Fuller had been chief executive since April last year.
Most Accessed Companies
Koolanoo Group, the Israel-based social networking company, has attracted a lot of attention this week. Koolanoo has developed a platform for creating and running vertical social networks, and currently maintains two sites: Koolanoo.com is “the world's first” network for young Jewish professionals, with more than 10,000 registered members; and 360Quan is an entertainment-based social network which targets young internet users in China. The company plans to launch additional social networks for other religious and ethnic groups.
Novexel, the France-based pharmaceutical company, has also received a lot of attention recently. Novexel discovers and develops antibacterial and antifungal agents for severe and difficult to treat bacterial and fungal infections. It currently has four compounds in development. The company’s strategy is to build a portfolio of anti-infectives around which it can develop a commercial infrastructure to address the fast-growing hospital-based anti-infective market. The company plans to build partnerships with pharmaceutical companies as a means to develop compounds which can be used in a primary care setting. Recent series B funding of €50m will be used for ongoing clinical development and to advance Novexel’s anti-infective pipeline.
Other companies generating interest recently include
Zlango,
dynaTrace Software, and
DataLase.
There are now 9,652 companies in the database and 7,213 investors, comprising 3,590 institutional, 2,998 corporate, 487 individual and 138 other. Of the database's 32,649 contacts, there are 18,580 executive, 7,443 CEOs, 2,499 chair, 1,434 non-executive and 2,693 other.
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