Brown axes venture capital benefits
Budget Day in the UK is a curious affair. Does any other country make such a fuss over something as banal as the annual presentation of its national accounts? In the UK, the Budget is eagerly awaited: the Chancellor of the Exchequer poses proudly for photographs with the red box containing his speech, and then for more photos with his wife. Television cameras follow every second of his short journey from Downing Street to the Houses of Parliament, and the nation watches breathless to see how their individual spending habits will be affected.
With all the hullabaloo it seems appropriate (with apologies to readers outside the UK) to focus this newsletter on last week’s Budget. Now Gordon Brown, the current Chancellor, has an ambiguous relationship with business and that was evident with his pronouncement on venture capital trusts (VCTs). VCTs are designed to help both investors and growth companies: investment through VCTs creates no capital gains tax liability if you sell at a profit, pays dividends that are tax-free and provides income tax relief on your initial investment as well.
The scheme, introduced in 1995, only helps venture capital at the margins but it was still unfortunate that one of its most important benefits was abruptly withdrawn by Mr Brown on Wednesday. Individual companies can now raise a maximum of just £2m a year from such schemes, where previously there was no limit.
Rather than passing comment ourselves on these moves, we will let the industry speak for itself:
- Martin Curchill, editor of Tax Efficient Review, says: “This new rule will curtail VCT investment in firms where more than £2m is being invested by various VCTs.”
- Matthew Woodbridge, a VCT manager at financial adviser Chelsea Financial Services, says it is "potentially very damaging to the VCT industry".
- Peter Walls, managing director at Unicorn Asset Management, says: “The Chancellor has severely hampered the opportunity for these companies to reach a sufficient scale to take the large step from being an unquoted company to one that has sufficient scale to be independently successful on a quoted exchange.”
Plenty of others were queuing to comment, but space is scarce.
The other change in the Budget, confining VCT investment only to companies with 50 or fewer employees is in keeping with last year’s efforts to keep VCTs focused on genuine start-up businesses. In 2006, the income tax break was reduced from 40 per cent to 30 per cent, and the maximum size of the company to be invested in dropped from £15m to £7m. These represent perfectly reasonable measures to make sure investors do not take advantage of the tax breaks.
And Mr Brown was undeniably generous in some ways this year. VCT schemes, for which the minimum investment in eligible companies is 70 per cent of total assets, previously lost their generous tax benefits if they fell below that threshold when they sold an eligible company. They now have up to six months to reinvest the proceeds of such sales.
But the imposition of a £2m threshold will hurt. With deal size increasing, the industry may suffer a tangible negative effect. Despite the economic prosperity the UK continues to experience, many entrepreneurs remain unconvinced by Mr Brown’s business credentials.
The Week's Deals
Twenty-three companies gained venture funding this week, twelve were of undisclosed value. The deals raised a total of €75.6m, which is €6.9m on average.
Artimi, the UK and US-based developer of semiconductors for wireless portable consumer electronics, has raised an additional $5m (€3.8m), bringing its series B financing to $31.5m (€23.7m). The latest funding comes from new investor
Khosla Ventures, founded by Vinod Khosla
1, co-founder of
Sun Microsystems and now one of the world's most influential venture capitalists. Artimi's technology is designed to offer consumers simple wireless connectivity for digital devices such as cameras, phones and media players.
ZBD Displays, the UK-based developer of low-power display technology, has raised an additional £10.5m (€15.5m) in a round led by
QinetiQ, the former UK Defence Evaluation and Research Agency. Other investors were
Esprit Capital Partners,
Dow Corporate Venture Capital,
Lansdowne Capital and
TTP Venture Managers. ZBD manufactures zero power bi-stable displays that only require power to update the display content. Its initial target market is retail signage.
Zopa, the UK-based online marketplace where people meet to lend and borrow money, has raised $12.9m (€9.7m) in series C funding from
Bessemer Venture Partners,
Benchmark Capital and
Wellington Partners. Douglas Dolton also joined the company as global chief executive (see below). Zopa says that with its UK peer-to-peer business well established and growing rapidly the company is now ready to launch in the US.
Transmode, the Sweden-based optical equipment developer, has raised $12m (€9m) from investors including
Amadeus Capital Partners,
European Equity Partners,
HarbourVest Partners,
Lumentis and
Pod Holding. Transmode researches, develops, markets and sells intelligent optical networking systems for the transport of data, voice and video traffic. The company has seen turnover grow from $20m (€16.9m) in 2005 to $54m (€41m) in 2006.
Elsewhere,
Tribold, the UK-based developer of product management software for the communications industry, raised $15m (€11.2m) in a series B round from
Esprit Capital Partners and
Eden Ventures;
Inge, the Germany-based developer of ultrafiltration technology, raised €6m from
Sustainable Performance Group,
SAM Group Holding,
Siemens Venture Capital,
Taprogge,
Dutch Entrepreneurs Fund and
StoneFund; and
Okairos, the Switzerland-based T-cell vaccine company, raised €7.2m from
BioMedinvest,
Life Sciences Partners and
Novartis Venture Fund.
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
TiGenix, the Belgium-based biomedical company focused on treatments for damaged and osteoarthritic joints, has listed on Euronext, raising €46m. Subscription to the offer was closed early because the placement was more than four times oversubscribed. The company’s market capitalisation is now about €131m.
VASTox, the UK-based biotechnology company has simultaneously acquired
DanioLabs, the UK-based drug discovery company, and
Dextra Laboratories, the UK-based provider of services related to carbohydrate chemistry. Aim-quoted Vastox paid £15m (€22.2m) for DanioLabs and £1.5m (€2.2m) for Dextra, and believes the deals will help strengthen its drug discovery and development capabilities and improve its clinical and pre-clinical drug pipeline.
Enfis, the UK-based light emitting diode (LED) technology developer, has raised £4.5m (€6.6m) in an Aim flotation. By combining semiconductor LED chips, Enfis has developed a way to turn electricity into light more efficiently than traditional methods. The company is initially focused on the architectural, entertainment and retail sectors but may later enter the more lucrative domestic lighting market.
People Moves
CacheLogic, the UK-based provider of online content delivery services, has appointed Tony Illsley as Chairman. Mr Illsley currently holds non-executive directorships with GCap Media, the UK 's largest independent radio company,
Plastic Logic, the developer of plastic electronics technology, and
Aggregator, the provider of video-on-demand services.
Zopa, the UK-based online marketplace where people meet to lend and borrow money, has appointed Douglas Dolton as global chief executive officer. Mr Dolton has 30 years of consumer financial services experience with successful, high-growth businesses.
MySQL, the Sweden-based open source database developer, has revealed that Paul Weinstein, former executive vice president of business development, recently left the company.
Exanet, the Israel-based data starage company, has appointed Mark Weiner to its executive team. Mr Weiner joins from US-based StoreAge Networking Technologies where, as executive chairman, he managed its successful acquisition by LSI Logic.
Most Accessed Companies
M2FX, the UK-based optical fibre cable company, has attracted a lot of attention this week. M2FX manufactures products designed to allow communication companies faster and easier fibre installation, and a reduction in the cost of that installation. The market the company is addressing is the roll out of optical fibre to the home across the US and Scandinavia. The company recently finalised the first closing of a funding round to allow it to expand sales operations and invest in the capital equipment necessary to deliver on its growing order book.
P21, the Germany-based fuel cell company, has also received a lot of attention recently. P21, a spin-out of the Mannesmann/Vodafone group, specialises in back-up power systems for use in the telecommunications industry. The company has proven its technology in field trials with mobile telecommunication carriers and is in the process of starting the global roll-out of its systems. Series C funding was provided earlier this year from
Conduit Ventures,
Goldman Sachs Capital Partners and
Target Partners.
Other companies generating interest recently include
Artimi,
Short Fuze, and
Solar Century Holdings.
There are now 10,124 companies in the database and 7,711 investors, comprising 3,892 institutional, 3,166 corporate, 500 individual and 153 other. Of the database's 34,332 contacts, there are 19,530 executive, 7,870 CEOs, 2,646 chair, 1,502 non-executive and 2,784 other.
