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ANNEX B FUND PROFILE - SIGMA INNOVATION
Objectives
The Sigma Innovation Fund targets innovation and early stage (not seed or pre-seed) companies with high growth potential and capacity for job creation in the East of Scotland Objective 2 area. The fund has a bias towards companies engaged in TMT (technology, media and telecommunications - including biotech and environmental) activities. The Fund aims at providing development capital in the range of up to £300,000 for start-up and early stage business.
Financial resources
At final close on 14 May 2005 the total fund value was £6 million. The partners are:
- 1 general partner - Sigma Innovation Partners
- 3 limited partners:
- Uberior Investments PLC (Bank of Scotland), £3 million
- Scottish Enterprise Fife, £2.35 million
- Sigma Technology Investments ltd, £650,000.
The ERDF contributed £2,225,000, included in the SE Fife contribution above. The fund still has 8 years to run with termination date in 2013.
Investments
As of 31 March 2006, 11 investments have been made, totalling £3.05 million. Of these, 7 are in eligible areas, 4 in transitional areas. All investments to date are in the £250-300,000 category.
As regards exit strategies, a mix of IPOs and trade sales is envisaged.
A summary of the current portfolio is provided in the table below:
Table B.1: Portfolio of Sigma Innovation
Portfolio summary, 31 March, 2006
Company | Initial inv. date | Industry | Stage | % Equity Holding | Cost £'000 | Eligible inv. £'000 | Transition inv. £'000 | Holding period months |
|---|
Securivox | 12/ 2003 | Software | Early | | 250 | 250 | | 28 |
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SFX Technologies | 12/ 2003 | Electronics | Start-Up | 10.64 | 300 | 300 | | 28 |
|---|
Evolve Hldngs Ltd | 02/ 2004 | Internet Security Technology | Early | | 300 | | 300 | 27 |
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Nandi Proteins Ltd | 03/ 2004 | Biotech | Early | 18.43 | 300 | 300 | | 24 |
|---|
Recycling Solutions Ltd | 04/2004 | Environmental | Early | 28.51 | 300 | | 300 | 23 |
|---|
i-Design Multi Media Ltd | 11/ 2004 | Media | Early | 11.51 | 250 | | 250 | 17 |
|---|
Trinsent Comms Ltd | 04/ 2005 | Telecoms | Early | 37.50 | 300 | 300 | | 11 |
|---|
DataPA Ltd | 05/ 2005 | Software | Early | 43.29 | 250 | 250 | | 10 |
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Logicalware Ltd | 06/ 2005 | Software | Early | 35.56 | 250 | | 250 | 9 |
|---|
Plenoptics Ltd | 11/ 2005 | Graphics | Early | 31.25 | 300 | 300 | | 4 |
|---|
Visual Sciences Ltd | 12/ 2005 | Games | Early | 12.00 | 300 | 300 | | 3 |
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Total | | | | | 3,100 | 2,000 | 1,100 | |
|---|
Source : Sigma
Detailed valuations for each investment are available but are not shown in this report. Valuations are carried out according to BVCA guidelines. They are therefore conservative for companies which do not yet have a cash flow on which to base the valuation. At this early stage, it is not possible to calculate a realistic valuation.
As at end of March 2006 there were 17 prospects under consideration. Since inception, 228 new business plans have been considered; 194 rejected and 6 remain under consideration.
Financial results
The fund manager's view is that given the relatively short activity period, IRR calculations are not applicable at this stage as no realisations were achieved during the period.
Economic targets and outcomes
A table summarising overall progress against plan is presented below.
Table B.2: Sigma Innovation Fund
Overall totals - progress against plan as at 31 March 2006
Eligible
Physical outputs | 2003 | 2004 | 2005 | 2006 | 2007 | 2008 |
|---|
Actual | Plan | Actual | Plan | Actual | Plan | Actual | Plan | Actual | Plan | Actual | Plan |
|---|
New business supported | 1 | 1 | 0 | 1 | 4 | 2 | | 2 | | 2 | | 1 |
|---|
Existing businesses supported | 1 | 0 | 1 | 2 | | 2 | | 2 | | 2 | | 1 |
|---|
New jobs | 3 | 4 | 6 | 14 | 3 | 20 | | 20 | | 20 | | 10 |
|---|
New jobs - women | 1 | 1 | 0 | 6 | 0 | 8 | | 8 | | 8 | | 4 |
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Jobs safeguarded | 9 | 2 | 1 | 7 | 111 | 10 | | 10 | | 10 | | 5 |
|---|
Sales incr. existing £m | 0 | 0 | 0 | 0.5 | n/a | 1 | | 2 | | 3 | | 4 |
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Sales incr. new £m | 0 | 0 | 0 | 0.5 | n/a | 1 | | 2 | | 3 | | 4 |
|---|
Table B.3: Sigma Innovation Fund
Overall totals - progress against plan as at 31 March 2006
Transitional
Physical outputs | 2003 | 2004 | 2005 | 2006 | 2007 | Total |
|---|
Actual | Plan | Actual | Plan | Actual | Plan | Actual | Plan | Actual | Plan | Actual | Plan |
|---|
New businesses supported | 0 | 1 | 3 | 2 | 1 | 2 | | 3 | | 3 | 4 | 11 |
|---|
Existing businesses supported | 0 | 0 | 0 | 3 | | 2 | | 3 | | 3 | 0 | 11 |
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Intermediate outputs | | | | | | | | | | | | |
|---|
New jobs | 0 | 4 | 7 | 24 | 11 | 20 | | 34 | | 30 | 18 | 112 |
|---|
New jobs - women | 0 | 1 | 0 | 10 | 2 | 8 | | 14 | | 12 | 2 | 45 |
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Jobs safeguarded | 0 | 2 | 54 | 12 | 5 | 10 | | 17 | | 15 | 59 | 56 |
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Sales incr existing £m | 0 | 0 | 0.7 | 0.75 | n/a | 1.25 | | 2.5 | | 8.5 | 0.7 | 13 |
|---|
Sales incr new £m | 0 | 0 | 0 | 0.75 | n/a | 1.25 | | 2.5 | | 8.5 | 0 | 13 |
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Source : Sigma
Additionality and displacement
Our survey of the 11 companies in the portfolio received 5 replies.
Why did you decide to apply for funding from this fund?
Option | Number |
|---|
(a) No other source of funding was available | 2 |
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(b) Other funding existed but more was needed | 2 |
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(c) Other funding was available but on less attractive terms and conditions | 0 |
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(d) First funder we tried | 1 |
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Total | 5 |
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Source : CSES survey of Sigma investments
What would have happened if funding from this fund had not been available?
Option | Number |
|---|
(a) We would have gone ahead anyway | 0 |
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(b) We would have been delayed or gone ahead on a different/smaller scale | 2 |
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(c) We would not have gone ahead at all | 2 |
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(d) We would have tried another funder | 1 |
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Total | 5 |
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Source : CSES survey of Sigma investments
From the responses to the questionnaire, it appears that there is full or partial additionality in all cases where there is a relevant response.
The fund managers told us that in their view a market failure exists in relation to availability of development capital in the range up to £300,000 for start-up and early stage business (and potentially at a higher level as well). They did not comment on larger amounts for development funding.
Advertising and application procedures
The high rate of applications suggests that the fund is marketing its offer successfully. A mix of approaches is used: fund raising events, contact with professional intermediaries, LECs and universities.
Management and governance
The fund is managed by Sigma - Sigma remains actively involved in the companies invested in - providing strategic support, sales support, recruitment and securing co-investors.
Management costs
As an annual management fee, the manager will, during the Investment Period, receive an annual priority share of the profits from the Fund equal to 3% of the total amount of Participations (the "General Partners Share"). Thereafter the annual management fee will be based on 3% of drawn down assets, net of written-off amounts and the cost of realized investments.
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