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ANNEX C FUND PROFILE - SIGMA SUSTAINABLE ENERGIES
Objectives
The aim of this fund is to fund early and development stage companies in the East of Scotland Objective 2 Programme Area that specialise in sustainable or renewable energy technologies. The idea for such a fund originated by ESEP when it was suggested that several projects presented to the Sigma Innovation Fund that did not qualify there could qualify for a different fund of this nature. Scottish and Southern Energy also report a strong deal flow in the target market.
In addition, it supports various Scottish Government and UK government targets such as set out in the Scottish Sustainable Development Strategy and links into ERDF supported projects such as the Fife Energy Park. It is anticipated that there will be some synergy between investee companies and HEIs, Fife Energy Park, and Abertay Centre for the Environment and Business Environment Partnerships.
The fund aims to make 16 investments, with maximum single investments of £500,000.
Companies may benefit from second financing as well as first round finance.
Financial resources
The ERDF contribution was £2.4 million. The fund is capitalised at £6 million and can offer equity and loan finance. The investment period is 3 years and the fund will run for 10 years.
The fund's resources are contributed as follows:
Source | Amount |
|---|
ERDF | 2.4m |
|---|
Scottish Enterprise Fife | 0.5m |
|---|
Total Public sector | 2.9m |
|---|
Scottish & Southern Energy plc | 2.4m |
|---|
Sigma Technology Investments | 0.4m |
|---|
Further limited partners | 0.3m |
|---|
Total | 6.0m |
|---|
Investments
At the time of our fieldwork, one investment of £0.5 million had been made: Ocean Power Delivery Ltd ( OPD), offshore wave energy, although others are in the pipeline. According to Sigma:
" OPD is a Scottish offshore wave energy company set up in January 1998 to develop their Pelamis wave energy converter technology. The company received significant media interest recently when it secured the world's first order for a wave farm and began shipping equipment to Portugal in March. Revenue for the last financial year was £4.8 million and existing investors include Norsk Hydro Technology Ventures, 3i, Sustainable Asset Management and the Carbon Trust."
By February 2007, there were two further investments as follows:
- XiPower Limited - £300,000
- IRT Surveys Limited - £ 300,000
Financial results
Given that there was only one investment, at the time of our fieldwork, IRR calculations are not appropriate yet.
Economic targets and outcomes
These are set out in the ERDF application and summarised below:
Table C.1: Sigma Sustainable Energies Fund Targets
| 2006 | 2007 | 2008 | Total |
|---|
Number of Businesses assisted | 4 | 4 | 3 | 11 |
|---|
New businesses created | 2 | 1 | 2 | 5 |
|---|
Increases in sales in existing businesses £m | 0.3 | 1.4 | 2.8 | 4.5 |
|---|
Increases in sales in new businesses £m | 0.1 | 0.6 | 1.2 | 1.9 |
|---|
Gross new jobs for women | 2 | 2 | 3 | 7 |
|---|
Gross jobs safeguarded | 49 | 41 | 41 | 131 |
|---|
Gross new jobs | 20 | 17 | 16 | 53 |
|---|
The view is that market failure exists in relation to the availability of development capital in the range up to £500,000 for start-up and early stage business - as in the case of the Sigma Innovation Fund. It was in the course of dealing with investee companies that Sigma identified the gap in the market specifically relating to sustainable or renewable energy technologies. This is considered to be a high-risk area so investors rather invest in safer options.
The grant is considered critical for two reasons:
- To encourage private sector investment (reduces risk)
- To make fund a viable size.
Advertising and application procedures
The fund is marketed through Sigma's established network of intermediaries as well as at trade events.
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.
Management and governance
The fund is managed by Sigma Technology Management Limited, an experienced private sector specialist fund manager and the presence of Scottish & Southern Energy plc brings valuable industry knowledge and expertise.
Quarterly reporting including a statement of and valuation of investments and other assets, details of investments purchased and progress towards ERDF output targets, as well as full annual report and financial statements will be submitted to the Programme Monitoring Committee. The Supervisory committee is to meet twice yearly to oversee progress and provide guidance on policy.
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