Keep an open mind on subsidies

The concept of government intervention is no longer popular except in a few isolated parts of the world. The collapse of Communism and subsequent hegemony of capitalism and globalisation has shunted central planning and subsidies into the sidings. Even in “Old Europe”, artificially stimulating an industry or companies within certain sectors is punishable with hefty European Union fines.

For many entrepreneurs, the mere mention of subsidies has them shaking their heads in disbelief. Vinod Khosla, a founder of Sun Microsystems and a serial entrepreneur, said he viewed companies that rely on government backing with great suspicion. But Mr Khosla, speaking at Library House’s Essential Cleantech conference last month, did entertain the possibility of limited subsidies for very new industries.

The fact is, like it or not, governments are getting increasingly involved in venture capital. They recognise the positive effect that well-directed investment can have on jobs, GDP growth and, importantly on public morale.

For this reason the most prolific European investors, according to VenturePedia, are High-Tech Gründerfonds Management, which partners with the German government, and funds run by Scottish Enterprise, which are also state-backed. High-Tech Gründerfonds Management has made 49 investments in the last year while Scottish Enterprise funds have made 45. The average deal size involving these organisations is less than €1m, indicating they are operating at a micro level, targeting companies that are below the radar of most venture capitalists.

There are also a number of hybrid investment companies, that are ostensibly privately-owned but whose funds are swelled by government money. One of these, Bridges Ventures, the venture capital group set up by Sir Ronald Cohen to invest in deprived parts of the UK, will this week make its 27th investment, lifting to £26.5m the amount of capital it has spent since being set up in 2002.

Bridges raised £40m for its first fund, including £20m from the UK government, with capital also provided by Sir Ronald's charitable trust, as well as private equity executives Jeremy Coller, Nigel Doughty and Jon Moulton, retailer Tom Singh, and listed private equity group 3i. But its second fund of £50m had no government money.

Although micro financing may look unattractive to many VCs given the amount of due diligence that is required to complete a deal, this may be a false impression. Phil Newborough, the chief executive of Bridges claims his funds are outperforming the rest of the VC market. That should, at the very least, give the sceptics food for thought.

The Week's Deals

Thirty-three companies gained venture funding this week, nine were of undisclosed value. The deals raised a total of €87.8m, which is €6.27m on average.

NOXXON Pharma, the Germany-based developer of oligonucleotide therapeutics, has raised €37m in series C funding from DEWB, Dieckell Vermoegensverwaltung und Beratungsgesellschaft, Dow Corporate Venture Capital, Edmond de Rothschild Investment Partners, IBB Beteiligungsgesellschaft, IBG Beteiligungsgesellschaft Sachsen-Anhalt, Medical Strategy, Seventure Partners, Sofinnova Partners, TVM Capital and other undisclosed investors. The funding will be used for the pre-clinical and clinical development of NOXXON’s lead products in kidney disease and ophthalmology.

Nautilus Biotech, the France-based biotechnology company, has raised €8.4m from 123Venture, Auriga Partners, Creabilis Therapeutics, Fonds de Co-investissement pour les Jeunes Entreprises (FCJE), Genopole, La Compagnie Financière Edmond de Rothschild Banque, Matignon Investissement and Pre-IPO Invest. Nautilus has developed protein engineering technology designed to improve the pharmacology profile and administration route of ‘blockbuster’ protein drugs. The funding will be used for the initial clinical development of Nautilus’ two lead products.

Oree, the Israel-based developer of technology for the LED industry, has raised $7m (€5.1m) from GIMV and Genesis Partners. Oree’s technology is designed to enable the production of more efficient and more flexible LED-based lighting systems for LCD screens. In addition, the company says that it significantly reduces the production costs of LED-based LCD screens.

Everyclick, the UK-based charity search engine, has raised more than £1.5m (€2.2m) of a planned £3m (€4.4m) investment round. The participants so far include Lochside (International) and funds associated with the Fleming family. Everyclick operates as a meta-search engine, allowing users to search across a range of different search content providers, with a promise to give 50 per cent of all the revenue it generates to charity. The company expects that the current funding round will close ‘rapidly’.

Elsewhere, JenaValve, the Germany-based developer of heart valve replacement systems, raised €3.5m from Atlas Venture; Arkeia, the France-based developer of data protection software for networked storage, raised $3m (€2.2m) from Crédit Agricole Private Equity and SPEF Developpement; and Jentro Technologies, the Germany-based developer of GPS-based mobile online navigation systems, raised an undisclosed amount from New Enterprise Associates.

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

Spotfire, the US and Sweden-based business intelligence software company, has been acquired by US-based TIBCO Software for $195m (€142.8m) in cash. Tibco makes software products centered around service-oriented architecture, business process management and business optimisation. It plans to combine its real-time infrastructure with Spotfire's enterprise analytics platform to offer businesses a simple way to access and analyse their data and processes.

ScreenTonic, the France-based mobile advertising company, is to be acquired by Microsoft for an undisclosed amount. ScreenTonic has developed a platform that enables mobile portals to display advertising content that varies depending on where users are located. Microsoft said that the acquisition is part of its long-term strategy to deliver relevant ads to consumers. Investors in ScreeTonic include 3i Group and I-Source Gestion.

3 Way Networks, the UK-based developer of 3G infrastructure products, has been acquired by US-based Airvana, the provider of network infrastructure products used by wireless carriers to provide mobile broadband services. Terms of the deal were not disclosed. The acquisition is part of Airvana's strategy to address UMTS (universal mobile telecommunications system) radio access networks and to deliver fixed-mobile convergence and in-building mobile broadband products. Investors in 3 Way include Esprit Capital Partners and private investors.

People Moves

Flander, the Finland-based mobile technology company, has appointed Markus Suomi as its new chief executive. Mr Suomi joins from Nokia where he spent eight years in product development and business operations in Nokia’s S60 mobile software platform unit.

The Genetics Company, the Switzerland-based developer of diagnostics tools, research reagents and therapeutic programs in the areas of Alzheimer’s disease and cancer, has appointed Mátyás Végh as chief executive. Mr Végh joined the company in 2002 and since 2005 has been responsible for business development and intellectual property management.

Most Accessed Companies

Sonaptic, the UK-based developer of advanced audio technologies for mobile devices, has attracted a lot of attention this week. Sonaptic’s technology is designed to enable hi-fi quality audio for music and games on small portable devices, both for headphone listening and playback from built-in microspeakers. CSR, the UK-based provider of wireless technology, recently added Sonaptic’s SoundStage virtual surround system to its latest Bluetooth chip. Other users of SonapticSound include the device manufacturers NEC, Fujitsu, Mitsubishi, Motorola and Sharp, the semiconductor vendors ROHM and Yamaha and the network service provider NTT DoCoMo.

Truphone, the UK-based developer of software for VoIP on mobile devices, has also received a lot of attention recently. Truphone’s service lets Nokia mobile phone users make free or low-cost phone calls via the data portion of their provider’s 3G network, as well as via wifi. However, this allows customers to make calls without having to pay their usual network provider. Truphone has recently criticised Vodafone and Orange for allegedly releasing a version of Nokia’s latest handset that has its VoIP capability disabled. In addition Truphone has claimed that Vodafone is not connecting calls to Truphone's network.

Other companies generating interest recently include Cambridge Semiconductor, Moixa Energy, and Capsule Technologie.