Karl Gardiner

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Tento projekt je spolufinancován Evropskou unií.
Delivering Economic Development
The Role of Innovative Access To Finance
Initiatives

Karl Gardiner Director of Regeneration
Services NStar Limited
2
Contents

• NStar Background
• The North East of England
• Utilising ERDF - the key challenges
• NStar activity (funds and business support)
• The Proof of Concept Fund (POC)
• The Co-investment Fund (CoIF)
• 5 key lessons for developing investment funds
• Advantages of the NStar Fund model

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NStar Background

• Innovative investment and enterprise development
  company
• Private sector led investment team - finance,
  business development, technology and economic
  development backgrounds
• Operating at the interface of the public sector
  and the commercial world
• Incorporated 2003a key partner of the regional
  development agencybut an independent private
  company
• Delivering turn-key solutions - not just a
  consultancy report
• Nearly 100m under management of equity gap funds
• Originally North East scope now expanded to
  Europe wide
• Driving regeneration through enterprise
  development

NStar Background ? The North East of England ?
Utilising ERDF - The Key Challenges ? NStar
activity ? Proof of Concept ? Co-investment ? 5
Key Lessons ? Advantages of the NStar Model
4
North East Socio-Economic Data

• A Region undergoing transformation

• Approximately 90 Objective 2
• Population 2.6 million
• UK lowest average male earnings
• Lowest GDP per head
• 2nd highest unemployment
• 2nd lowest new VAT registrations
• Traditional focus on heavy industry
• From 1950s decline of traditional
• industries
• 1980s 1990s focus on large scale
• Inward investment - mixed results
• New focus is on developing a
• Knowledge focused economy - The
• Strategy for Success

NStar Background ? The North East of England ?
Utilising ERDF - The Key Challenges ? NStar
activity ? Proof of Concept ? Co-investment ? 5
Key Lessons ? Advantages of the NStar Model
5
The Need for Radical Change

• Promote risk capital as a tool of economic
  development
• Increase entrepreneurship and enterprise
• Commercialise the regional knowledge base
• Deliver credible solutions that can maximise
  private leverage (finance and expertise)
• Combine financial returns and sustainable
  economic development (double bottom line)
• Proof of Concept Fund (POC) a vital tool to
  deliver this

NStar Background ? The North East of England ?
Utilising ERDF - The Key Challenges ? NStar
activity ? Proof of Concept ? Co-investment ? 5
Key Lessons ? Advantages of the NStar Model
6
The Challenge

• How to transform a region which had
• Just 1 of total UK venture capital investment
• No specialist technology venture capitalists
  within 150 miles
• Few angels with technology backgrounds
• Extremely limited supply of technology mentors,
  non-executive directors and managers
• compared with the North West which has 16

NStar Background ? The North East of England ?
Utilising ERDF - The Key Challenges ? NStar
activity ? Proof of Concept ? Co-investment ? 5
Key Lessons ? Advantages of the NStar Model
7
ERDF - The Key Challenge Addressed in the North
East Region

• Promoting risk capital as a key tool of economic
  development
• Delivering financial returns and sustainable
  economic development - the double bottom line
• Providing regionally relevant solutions to the
  equity gap
• Delivering to tight spend deadlines - N2
  clawback
• Ensuring EC State aid compliance and the correct
  monitoring / governance / reporting capacity
• Delivering credible solutions which can secure
  leverage (financial and expertise) from the
  private sector
• Providing joined up solutions - maximising
  links with other regional programmes
• Delivering Lisbon Agenda objectives (knowledge
  focused economy)
• Keen to explore the extent to which other regions
  are facing the same issues

NStar Background ? The North East of England ?
Utilising ERDF - The Key Challenges ? NStar
activity ? Proof of Concept ? Co-investment ? 5
Key Lessons ? Advantages of the NStar Model
8
NStar Activity

• Innovative Investment Funds
• 15m Proof of Concept Fund
• 76m Co-investment Fund
• 3.6m pilot Design and Creative Fund
• 3.6m pilot 3 Pillars Fund (energy, healthcare
  and process industries)
• A comprehensive range of business support
  activity
• Inward investment
• Business angel networks
• Investment readiness programmes
• Mentors and non-executive director provision
• Driving Greater SME Start-Up, Growth, Survival
  and Competitiveness

NStar Background ? The North East of England ?
Utilising ERDF - The Key Challenges ? NStar
activity ? Proof of Concept ? Co-investment ? 5
Key Lessons ? Advantages of the NStar Model
9
Proof of Concept Fund (POC)

• The first vital funding step
• 15m Fund (45 ERDF / 55 RDA)
• Invests in early-stage and pre-formation
  technology enterprises
• Invests in university spin-outs as well as
  existing SMEs
• Maximum investment normally 100k (old de minimis
  limit)
• Invests via convertible loan structure not a
  grant
• Approximately 50 investments per year for 4 years

NStar Background ? The North East of England ?
Utilising ERDF - The Key Challenges ? Proof of
Concept ? Co-investment ? 5 Key Lessons ?
Advantages of the NStar Model
10
Why Proof of Concept Funding

• Transforming great research into business
  reality
• A key tool in commercialising the knowledge base
• Vital first stage - increasing the quality and
  quantity of ideas flowing into the continuum of
  finance
• Specific equity gap (lt100k) - technology is too
  early-stage and funding requirement too small to
  attract mainstream venture capital funding
• Commercial POC funding conducts essential due
  diligence which enables later stage investment
  and prepares SMEs for the rigours of later stage
  investment

NStar Background ? The North East of England ?
Utilising ERDF - The Key Challenges ? Proof of
Concept ? Co-investment ? 5 Key Lessons ?
Advantages of the NStar Model
11
Proof of Concept Fund (POC)

• Eligible activities
• Technology verification
• Prototype and scale-up studies
• IP development
• Market assessment
• Product / service offering costing
• Business case development
• Does the idea have the potential to be developed
  into a viable sustainable business

NStar Background ? The North East of England ?
Utilising ERDF - The Key Challenges ? Proof of
Concept ? Co-investment ? 5 Key Lessons ?
Advantages of the NStar Model
12
POC Investment Statistics
1st investment October 2004 Evaluated 210
applications Invested 120 deals worth nearly
11m 1/3 university spin outs / 1/3 SME / 1/3
individuals Leveraged approximately 21m of
private finance 1st AIM flotation anticipated in
2008
NStar Background ? The North East of England ?
Utilising ERDF - The Key Challenges ? Proof of
Concept ? Co-investment ? 5 Key Lessons ?
Advantages of the NStar Model
13
Co-investment Fund (CoIF)

• Investing 76m in high-growth technology
  enterprises (including leverage)
• Science and technology growth fund
• Investment range 150,000 to 1,500,000
• Case-by-case investment maximises flexibility
• Maximum CoIF investment is 45 of the syndicate
• All investments are on a pari passu basis
• Original fund is 100 ERDF financed (34m) -
  addressing N2
• Can only invest on a syndicated basis with other
  investors
• Has currently invested 13.5m and leveraged 21m
  private investment
• providing critical leverage for private
  investment partners

NStar Background ? The North East of England ?
Utilising ERDF - The Key Challenges ? Proof of
Concept ? Co-investment ? 5 Key Lessons ?
Advantages of the NStar Model
14
Lesson 1 - Investment Funds are only part of a
Comprehensive Innovation and Entrepreneurship
Strategy

• Leveraging
• Private Finance
• Business Angel networks
• AIM (junior stock market)
• Co-investor development
• Inward investment

• Access to Finance
• 15m Proof of Concept Fund
• 76m Co-investment Fund
• 3.6m Design and Creative Fund
• 3.6m 3 Pillars Fund

Driving Greater SME Start-Up Growth, Survival
and Competitiveness

• Investment
• Readiness
• Workshops and seminars
• Mentors
• Non executive directors
• E-mentors
• Online diagnostics
• Accelerator mentors

• Technology
• Solutions
• Cluster development
• Technology transfer
• Technology specific funds
• Intellectual property

NStar Background ? The North East of England ?
Utilising ERDF - The Key Challenges ? Proof of
Concept ? Co-investment ? 5 Key Lessons ?
Advantages of the NStar Model
15
Lesson 2 - Deliver Regional Solutions

• Critically important to deliver regionally
  relevant customised solutions
• Need to address specific regional funding gaps
• -stage of finance (POC, seed, later-stage)
• -type of finance (micro, loan, equity,
  mezzanine etc)
• Alignment with regional cluster development
  strategy
• Availability of private sector matched funding
• Availability of experienced fund management teams
• Required sustainability of the resource

NStar Background ? The North East of England ?
Utilising ERDF - The Key Challenges ? Proof of
Concept ? Co-investment ? 5 Key Lessons ?
Advantages of the NStar Model
16
The Continuum of Finance
Lesson 3 POC is part of a Continuum of Finance
Mainstream Venture capital
Funding requirement lifecycle
Early-stage
Seed
POC
Deal Size ()
50,000 to 200,000
200,000 to 400,000
400,000 to 3,000,000
3,000,000
NStar Background ? The North East of England ?
Utilising ERDF - The Key Challenges ? Proof of
Concept ? Co-investment ? 5 Key Lessons ?
Advantages of the NStar Model
17
Lesson 4 - State Aid Regulations

• Make EC State aid regulations work for you
• De minimis regulation (200k)
• New RDI framework (young innovative enterprises
  up to 1.5m)
• New Community Guidelines on State aid to promote
  risk capital investments in SMEs
• Key features to deliver (if possible) are pari
  passu investment and market economy investor
  principle
• Proactive approach - utilise independent
  professional advice and Europe-wide best practice

NStar Background ? The North East of England ?
Utilising ERDF - The Key Challenges ? Proof of
Concept ? Co-investment ? 5 Key Lessons ?
Advantages of the NStar Model
18
Lesson 5 - Maximising Private Sector Investment

• A key measure of the success of the fund
• Credibility of fund management team is key
• Clear separation from regeneration / sector
  development bodies is needed
• Certain types of fund structure are more likely
  to maximise private finance
• -POC de-risks a proposition (early-stage
  due-diligence)
• -Co-investment provides leverage and the
  ability to attract a broad range of
  co-investment partners
• Commercial investment funds identify real sector
  strengths and clusters - use this information to
  inform future regeneration strategy
• It is essential that you capture private sector
  leverage as an output
• EIF / JEREMIE offers co-investment potential

NStar Background ? The North East of England ?
Utilising ERDF - The Key Challenges ? Proof of
Concept ? Co-investment ? 5 Key Lessons ?
Advantages of the NStar Model
19
Advantages of the NStar Fund Models

• Revolving Fund / Legacy programme
• Development of regional skills base

Sustainability
People

• Credibility with entrepreneurs and investors is
  essential

• Prepares businesses for rigours of later stage
  investment
• Greater private finance leverage

Commercial approach

• Making deals happen
• Money with management
• Full project and ERDF programme management

Not traditional fund management
NStar Background ? The North East of England ?
Utilising ERDF - The Key Challenges ? Proof of
Concept ? Co-investment ? 5 Key Lessons ?
Advantages of the NStar Model
20
Contact Details

• NStar Limited
• Karl Gardiner - Director of Regeneration Services
• Tel [phone]
• Email Karl.gardiner_at_nstarfinance.com
• Web www.nstarfinance.com