Directorzone

Published by Directorzone Markets Ltd on February 7, 2017, 5:02 pm in Knowledge, Market Info

Ends

Wednesday January 1st 2020

Digest of news and trends in the GRID marketplace in January 2017:

SECONDARY SHARE TRADING

An early investor in UK fintech unicorn Transferwise has reduced its stake | Lynsey Barber, City A.M. January 31

A trend for highly valued so-called unicorns - private companies valued at more than $1bn - to stay private for longer has seen secondary share trading boom in the US. It's estimated that the total value of tradable shares among the top private US companies last year stood at $35bn, up from just $11bn in 2011. The figures from Scenic Advisement, a US investment bank, forecast that to grow to $38bn in 2017.

A secondary offering allows early-stage investors and early employees with stock to cash in on their investment without an IPO or M&A.;

DRUG DISCOVERY RESEARCH OXFORD

Oxford university to host £115m diabetes research centre | Clive Cookson, FT. January 31

Oxford university will host a £115m diabetes research centre funded over 10 years by Danish pharmaceutical company Novo Nordisk.

Sir John Bell, Oxford’s professor of medicine and the government’s “life sciences champion”, said the investment signalled the revival of drug discovery research in the UK, after a decade-long decline. “We once had 11 companies doing early-stage discovery research in the UK and now we have just two or three,” he said. “I think we can get that back to six or seven, making use of Britain’s world-leading strengths in the life sciences.”

About 100 Novo Nordisk scientists will work at the Oxford centre, investigating new ways of treating type-2 diabetes. The centre will be built on the university’s growing biomedical campus in Headington. … Novo Nordisk’s second European research centre. It also has two centres in the US and one in China. It is unusual for a large corporate research group to be embedded within a university.

Virginia Acha, research director at the Association of the British Pharmaceutical Industry, said UK universities were also benefiting from a shift in corporate research from in-house labs to collaboration with external partners.

33 TECH STARTUPS SCALE-UP

Early-stage startups with star potential have been chosen for Tech City's Upscale scheme | Lynsey Barber, City A.M. January 26

More than 30 companies have been identified as the most promising tech startups in the country and will be mentored by Lastminute.com entrepreneurs Lady Martha Lane Fox and Brent Hoberman, Candy Crush co-founder Riccardo Zacconi and Just Eat chief executive David Buttress, to help create the next wave of top British tech stars.

They will join Tech City UK's UPSCALE PROGRAMME. The startups, seven of which are from outside of London, will be coached in becoming so-called scale-ups on the six month scheme, of the calibre of some of the UK's most successful tech firms such as SWIFTKEY (now Microsoft*), UNRULY (now News Corp*) and ONEFINESTAY (now AccorHotels*), which are graduates of Tech City's FUTURE FIFTY PROGRAMME.

* DZ editor comment

The 33 early-stage businesses have raised on average $4.1m and bring in revenues of just over $1m per year and are four-years-old.

STARTUP – Description / Sector:

BLAZE - Urban mobility brand providing technology for bike sharing schemes and consumer cyclists globally / Hardware and devices
BOILER ROOM - Online music broadcaster of live events. Six years old, it has now hosted shows in 100 cities worldwide / Digital entertainment
BULB - An online renewable gas and electricity supplier, competing with the likes of British Gas and Npower / IoT + connected devices
CAMBRIDGE INTELLIGENCE - An artificial intelligence company that helps companies see patterns and insights in their data / Data and analytics
CHARGIFI - Supplies networked, wireless power to public venues like coffee shops, hotels, restaurants, sporting arenas, offices and transport hubs / App and software development
CHARLIEHR - A free HR platform for small companies / SaaS
CRONOFY - A cloud computing company that allows people to check the availability of people in real time / Enterprise software and cloud computing
CURVE - Allows you to combine all your credit cards into one Curve card and link with an app to monitor your spending / App and software development
DUECOURSE - Online invoice factoring business / Fintech
ECHO - An app that takes the pain out of repeat prescription / Health tech and biology
ELVIE - A company that focuses on women’s wellness with wearable tech / IoT + connected devices
EVERYLIFE TECHNOLOGIES - Provides a mobile platform for managing social care in real time, working with the NHS and social care providers / Enterprise software and cloud computing
FIREFLY LEARNING - Online tool for teachers, parents and schools to monitor pupils’ progress at school / Edtech
GEOSPOCK - Database technology that enables extreme-scale, real-time geo-spatial and multi-dimensional big data applications / Enterprise software and cloud computing
GOODLORD - End to end digital platform allowing letting agents, tenants and landlords to complete a rental transaction / App and software development
GRABYO - Edit, publish and share video across mobile devices / Enterprise software and cloud computing
LIVE BETTER WITH - Community and marketplace for products for people living with cancer / Health tech and biology
LIVINGLENS - Allows companies to search hours of market research video by key word / Data and analytics
MASTERED - Online courses for fashion professionals / Edtech
MIXCLOUD - Audio streaming service that allows users to listen to radio from all over the world / Digital entertainment
MONEYFARM - Online wealth manager whose investors include Allianz, one of the world’s largest insurers / Fintech
MONZO - One of a new breed of challenger banks. The mobile banking app receives its banking licence this year / Fintech
PADDLE - Provides e-commerce and digital infrastructure for software businesses / e-commerce and marketplace
PI-TOP - Provides DIY laptop and desktop products for STEM education / Edtech
POCKIT - Banking startup aimed at those excluded from mainstream banking / Fintech
POQ - App commerce solution for major retailers / SaaS
SIGNAL MEDIA - Artificial Intelligence-powered new monitoring / Data and analytics
STORYSTREAM - Live storytelling for brands: content curation and publishing / Digital advertising and marketing
STREETBEES - Market research insights from around the world, collected through artificial intelligence and geo-location / Data and analytics
TROUVA - Curated online shopping from 150 independent boutiques / E-commerce and marketplace
TRUSSLE - The online mortgage adviser, built upon a database of thousands of mortgage products / Fintech
URBAN MASSAGE - Booking massage online / E-commerce and marketplace
WOLF & BADGER - Global online marketplace for independent brands / E-commerce and marketplace

SLOWER, LOWER GROWTH vs INVESTMENT

Thank you but we just don’t want your money | Kiki Loizou, The Sunday Times. January 22

Founders are relying on their own resources rather than deal with outside investors. Scare stories circulate in business networks nationwide about angel investors who become hellish to deal with, and venture capitalists who steal control.

Slower, lower growth is increasingly preferred to the fast track to riches offered by minted mentors, as depicted by TV shows such as Dragons’ Den, according to many young entrepreneurs.

“If you can help it, do not take somebody’s cash,” said Jason Bannister, 45, who founded the furniture retailer OAK FURNITURE LAND in 2004. “Resist the temptation as long as possible.” Bannister has expanded his business to 75 shops, taking in annual sales of more than £200m, without needing the help of any external investors. He knows all too well the sacrifices he made in growing the Swindon-based company solely by reinvesting profits. He has “felt the pain” of doing things on a budget.“For a long time I didn’t take any decent money out of the business. It was not an option,” he said. “You have got to be frugal. Certainly, in the early days, nobody knows your business better than you.”

However, Bannister has finally conceded that he can go only so far under his own steam. He is now in talks with possible backers who could support expansion into America, Australia and Canada. He may even give up control and sell a majority stake.“What we’ve done so far is nothing compared to where we can go,” he said. “It’s not about the cash, it’s far from that. It would be what [a new investor] can bring to the table to get this business to where I think it should be.

Stephen Welton, chief executive of the banks-backed BUSINESS GROWTH FUND, argues that many new businesses are passing over the chance to live up to their potential. Although his fund made 59 investments in small businesses last year, totalling £400m, many of the recipients took some persuading to accept the cash. “When you think about bringing in an outside investor, it raises many potential concerns,” he said. “There is a lot of emotion involved in the decision, quite rightly.”

BEAUTY TECH

The five beauty tech startups joining L'Oreal and Founders Factory's incubator | Lynsey Barber, City A.M. January 23

Five startups hoping to disrupt the multi-billion pound world of beauty have been chosen by L'OREAL and FOUNDERS FACTORY, the London tech incubator from LastMinute.com entrepreneurs Brent Hoberman and Henry Lane Fox, co-founder and chief executive of Founders Factory.

L'Oreal's chief digital officer Lubomira Rochet: “We believe that open innovation will be key to identify new disruptive ideas and co-develop new services to meet the aspirations of our consumers ….through our partnership with Founders Factory and accelerate their development by bringing them our expertise of the beauty industry.”

The five startups, whittled down from 180 applicants who will be hot-housed on the six month programme, are:

PREEMADONNA, a startup creating a nailbot that can print designs onto nails via a mobile phone
INISTU, an online skincare company
an app-based beauty community called VELEZA;
COSMOSE, an app that can be used by retailers to monitor shopper's locations and connect the online and offline advertising worlds;
TAILIFY, which connects brands and social media influencers.

L’Oréal invests in ‘beauty tech’ start-ups for digital makeover | Harriet Agnew, January 23

The partnerships … illustrate how the world’s largest brands are increasingly seeking to tap into innovative new companies to harness the power of digital.

Lubomira Rochet, who previously oversaw Microsoft’s start-up efforts in France, joined L’Oréal three years ago to lead its digital transformation. As part of this, the company announced in December a strategic investment in an early-stage fund run by venture capital group PARTECH VENTURES.

Then in May, L’Oréal launched an investment in London-based FOUNDERS FACTORY. The plan is to invest in and grow five early-stage start-ups in the beauty tech sector and co-create two companies from scratch every year. L’Oréal invited a shortlist of nine to its Clichy headquarters to pitch their ideas to L’Oréal chief executive Jean-Paul Agon.

Developments in digital have transformed the way that companies in all sectors can target, engage and sell to their clients. L’Oréal is working with a growing number of online “influencers” to reach its target audience and circumvent ad-blocking apps.

Now, augmented reality and artificial intelligence are playing a part in the beauty industry. L’Oréal has developed an app called Makeup Genius that lets users see themselves wearing products — virtual cosmetics — that have not been applied to their faces.

AIM RETURNS 16%

Aim’s biggest groups prove its brightest stars | Kate Burgess, FT. January 23

Last year …it turns out that shares in the Alternative Investment Market performed almost as well as those of the UK’s biggest 100 stocks and a darn sight better than small and midsized companies on the main market.

Aim’s total returns — income and capital returns — over the year were 16.1 per cent. That is about three points behind the FTSE 100 (up 19 per cent last year) and markedly higher than the smallest 10 per cent of FTSE stocks that go into the NSCI. The comparison was starkest with medium-sized businesses, which were the top performers in 2015.

Why did Aim — the graveyard of many investors’ hopes in the past — perform so much better in 2016 than mid-caps and the NSCI? The easy answer would be it has large numbers of non-UK mining and hydrocarbon companies. Not quite right, though. Mining and extractive industries buoyed the NSCI more than they did Aim.

… one of these sectors — Aim’s car and parts sector, which outperformed its NSCI equivalent by 60 per cent — comprises just two stocks. One of those companies, TRANSENSE TECHNOLOGIES, a £9m developer of carbon ceramic brakes for cars, rose 24 per cent on the back of a contract and a share consolidation. The lone company in the NSCI’s car and parts sector — TOROTRAK, a green technology group working on improving fuel consumption and emissions — fell 40 per cent.

Similarly, Aim’s gas, water and utilities sector beat the NSCI by 58 per cent but this was largely because shares in one of the three companies in the sector — FULCRUM UTILITY SERVICES — rose from 28.75p to 50p. Shares in DEE VALLEY — the Welsh water company that is the sole constituent in the NSCI’s gas and utility sector — were up just under a third.

Disappointingly for those who view Aim as a seedbed for start-ups, the brightest stars in its firmament last year were its biggest constituents: online retailers ASOS and BOOHOO.COM, and GW PHARMACEUTICALS, which is working on marijuana-based treatments for epilepsy and multiple sclerosis and has now moved to Nasdaq. This triumvirate contributed 4.9 per cent of Aim’s performance last year.

Asos shares are up from 3,500p to 5,238p over the year, valuing the group at £4.49bn. That is three times the size of the biggest company in the NSCI and would put Asos in the FTSE 100 if it were listed on the main market.

Two things emerge from LBS’s research. The median market capitalisation of Aim’s 1,000 or so stocks is a weeny £20m, nonetheless it is not quite the small-cap index it is billed. Nor can it be written off as a dumping ground for two-bit resources stocks.

STATION F, PARIS

Station F provides Paris with global start-up platform | Harriet Agnew and Madhumita Murgia, FT. January 17

In a former railway depot that spans the length of the Eiffel Tower lying down, the finishing touches are being put to Europe’s most ambitious start-up project to date: STATION F, a 34,000 sq m space that will be filled with up to 1,000 small technology companies from around the world in Paris’s fast-growing 13th arrondissement.

Set to open in April, the campus received a boost on Tuesday, with FACEBOOK announcing it would become a founding partner and launch its first physical start-up incubator there. Station F is funded with a €250m investment from Xavier Niel, a former sex shop investor-turned-disruptive telecoms entrepreneur who has made billions of euros by offering ultra low-cost mobile telephony to French consumers through his company ILIAD.

Built in 1929 by French engineer Eugène Freyssinet, Station F’s home retains much of the historical building’s original features, including dramatic wooden beams and train carriages. The vast campus, run by Roxanne Varza, an American who formerly oversaw Microsoft’s start-up efforts in France, was designed by French architect Wilmotte and Associates in 15 days.

Over the past five years, the French capital has benefited as a generation of successful entrepreneurs — including Mr Niel, VENTE-PRIVEE.COM founder Jacques-Antoine Granjon, and ride-sharing company BLABLACAR’s founders Fred Mazzella and Nicolas Brusson — have started to reinvest in and mentor local entrepreneurs.

In 2016, France attracted record levels of deals and capital invested, making it the third most significant European tech hub by number of start-ups and by investment.

For Mr Niel, Station F and his other non-profit project Ecole 42 — a free coding school he launched in Paris in 2013 — are designed to harness the creative energy he sees among young people in France, and help Europe’s second-largest economy address its unemployment rate of more than 10 per cent. … as European cities grapple to steal London’s crown as the tech capital of Europe in the aftermath of the UK’s vote for Brexit.

France has sought to capitalise on its strength in “deep tech” — areas such as artificial intelligence, virtual and augmented reality, big data analytics and chip design. It is behind only the UK in terms of money raised in deep tech over the past five years, and France also has the second-highest number of professional developers in Europe, behind the UK.

The country also draws on its historic strength in maths and engineering. Many of its famous “Grandes Écoles” have launched initiatives to boost entrepreneurship, and graduates are increasingly picking careers in tech or start-ups as opposed to finance or consulting.

Mr Niel … A prolific investor in technology, who has backed companies including messaging start-up SNAPCHAT, geolocation app ZENLY, and music-streaming company DEEZER, his venture capital arm KIMA VENTURES invests in two companies each week.

NW ENGLAND HEALTH TECH CLUSTER

Genedrive scores US army coup with DNA-testing deal | Andy Bounds, FT. January 16

GENEDRIVE is at the centre of a burgeoning medical equipment and health technology cluster in north-west England. Mr Budd said being based in north-west England had kept costs low. “We have spent less than £10m on development.” He said it was also easy to find qualified staff.

Hakim Yadi, director of the Northern Health Science Alliance (NHSA), a consortium of private and public institutions in the region, said Genedrive was “part of a very large ecosystem. We have the capacity, capability and ambition.” He said there were 1,000 life science companies across the north of England, employing 38,000.

The NHSA is helping a start-up from outside the region, OXFORD NANOPORE, to deploy in hospitals a handheld DNA device that can detect infectious agents and identify genes involved in antibiotic resistance from clinical samples. The MinION machine can screen samples to determine which antibiotics will be effective in treating a disease, aiding patients and reducing the overuse of antibiotics.

The north of England’s leading life sciences institutions include the ANTI-MICROBIAL RESISTANCE CENTRE at Alderley Park in Cheshire, Newcastle’s INTERNATIONAL CENTRE FOR LIFE, which researches the genetics of rare diseases, and the LIVERPOOL SCHOOL OF TROPICAL MEDICINE. That century-old institution is now opening an “incubator” for small businesses. “This could be the start of something bigger and better,” Dr Yadi said.

ALPHABIOLABS, which provides same-day DNA analysis, is in Warrington. It specialises in parentage, alcohol and drug testing and won an innovation award last year for its work to shorten the sequencing process. It carries out 20,000 tests a year and works with the courts as well as The Jeremy Kyle Show on ITV.

REGIONAL STARTUP STATS

I belong to Glasgow, dear old start-up town | Kiki Loizou, The Sunday Times. January 15

A report from the campaign group StartUp Britain suggests that Glasgow is one of the top entrepreneurial regions outside London. It has climbed to third place in the table of top regions for start-ups, overtaking Leeds and Edinburgh. Data from Companies House shows 7,800 businesses were created in Scotland’s largest city last year, topping the 6,600 formed in Scotland’s capital.

The council is working to transform what was once the second city of the British empire into a thriving start-up hub. It led the creation of the TONTINE, a workspace for technology businesses, which opened last year. The project aims to create 500 jobs and inject £54m into the local economy over five years.

Outside London, Birmingham still tops the table of start-up hotspots, ranked by local authority, with Manchester just behind. Overall, it was another record-breaking year, with more than 650,000 companies registered in the UK, up 50,000 from in 2015.

“This is cause for celebration, not least because of the uncertainty generated in the run-up and immediate aftermath of the EU referendum,” said Matt Smith, a director of the CENTRE FOR ENTREPRENEURS, the think tank behind STARTUP BRITAIN.

However, the total includes a significant number of freelancers and self-employed people. More than 50,000 one-man bands registered last year.

Growth in the number of start-ups does not necessarily translate into an economic boom. The most recent figures from the Office for National Statistics show that while businesses are being created in record numbers, there are plenty of failures, too. Nearly 400,000 companies formed in 2014-15, but more than 250,000 businesses fell out of the Companies House register during the same period.

…the chief executive of ENTREPRENEURIAL SPARK, a chain of 12 incubator offices for start-ups, Lucy-Rose Walker: “Glasgow is becoming more vibrant for entrepreneurship but it is still a long way from Edinburgh or Manchester …In Edinburgh there is a huge number of accelerator and incubator programmes and there isn’t the same amount of support in Glasgow.”

Entrepreneurial Spark can house more than 750 entrepreneurs, and their average age is 38, she added. The “hatcheries” in Brighton, Bristol, Cardiff and Manchester tend to be the most popular, Walker added.

BIOTECH EVERGREEN FUNDS

Testing for fool’s gold in intellectual property investment | Kate Burgess, FT. January 8

The plight of CIRCASSIA, floated to huge fanfare in 2014, was a nasty reminder of the risks investing in biotechnology and in so-called “evergreen funds”, which claim to have the deep pockets and Job-like patience needed to research and develop medical and technological breakthroughs.

… buying shares in the likes of TOUCHSTONE, ALLIED MINDS, IP GROUP or the WOODFORD funds may be the only way that ordinary investors can gain access to ground-breaking technology or drugs. However, money is tied up for decades in projects that may, but usually don’t, turn into blockbusters. Backing a range of ventures — 33 and mostly unquoted in Imperial Innovations’ case — only spreads the risk a bit. Fund valuations are based not on earnings, cash flow or dividends, but on hopes and how much money these early stage businesses can attract from investors or big pharmaceutical groups to further their research. These are private equity punts with an extra dollop of the unknown.

Aside from fears that Brexit may constrain funding for British biotech and innovation from the rest of Europe, doubts have been creeping in that IP commercialisation funds are not backing enough big winners. Funds need the occasional big win to offset the no-hopers and outright losers, say brokers at Stifel. And even when funds do strike gold, as Circassia appeared to when it floated just above 300p in 2014, portfolio values remain tied to binary events such as clinical trials. And these funds rarely pay dividends or distribute float or sales proceeds.

UK AEROSPACE

UK aerospace industry fears loss of leading edge after Brexit | Peggy Hollinger, FT. January 4

Stephen Cheetham says he is “scared witless” about the impact of Brexit on British manufacturing. But the chief executive of PK ENGINEERING, a small aerospace supplier in the West Midlands, is pressing ahead with a £500,000 investment in new equipment to keep up with the demands of its clients. PK Engineering, which employs just over 40 people and makes precision machined parts, is not the only supplier to the aerospace industry with mixed expectations.

For many UK aerospace companies, business has never been better; ….Last year, the UK aerospace sector grew 6.5 per cent to £31bn, 87 per cent of which was exported. Aerospace has seen average annual growth of close to 10 per cent between 2011 and 2015, outpacing the wider manufacturing industry, according to ADS, the industry lobby group.

But uncertainty over the terms and conditions of Brexit has raised questions about the next generation of aircraft programmes, with other countries lining up to challenge some of the UK’s key positions.

The UK is already falling behind its continental European rivals on key aerospace infrastructure, such as test beds for engines and aircraft structures, that support the development of high-value design and cutting-edge technology, according to a recent report by Roland Berger for the AEROSPACE TECHNOLOGY INSTITUTE.

Airbus, one of the UK’s biggest employers in the sector, will face pressure to bring jobs back to France, Germany and Spain, its original stakeholder countries, say several suppliers.

The UK plays a leading role in wing technology, one of the most critical and lucrative parts of aircraft manufacture, and work that other countries are keen to grab. Britain’s position weakened during the shift from aluminium to lighter composite materials.

Access to highly skilled EU labour, to Europe’s research projects and funding and its relationship with Airbus are critical to Britain’s position as the world’s most important aerospace sector after the US. Many companies are worried that their competitiveness will be dulled by restricted access to their employees in continental Europe. About a quarter of Rolls-Royce’s workforce is in the EU outside the UK…

Some foreign companies are rethinking investment into the UK, say industry bodies.

If the UK opts to create its own regulatory regime, and UK suppliers still have to seek certification from Easa, costs would rise. Although aircraft and their parts are exempt from tariffs under World Trade Organisation rules, there is a niggling fear that competitors could encourage governments to find loopholes during exit negotiations that would raise the cost of business for UK companies. For example, the UK’s aerospace supply chain could be hit if EU exemptions for the raw materials used to make those components are reversed.

Finally there are worries that the decision to go it alone could lead to big non-tariff penalties such as costly delays at borders if the UK withdraws from the customs union.

MARKET: Health Tech to Station F, Paris

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