Hi. While this blog is a part of Seed Catalyst’s website, I realised over the initial few weeks that a lot of you are first introduced to the firm via the blog rather than our home page.
So to introduce myself - I’m a business consultant working with early stage technology firms to help streamline their strategy and go-to-market approach and support them for fund raising.
With this blog, I aim to capture key market trends that I see in the industry, the ecosystem and cross-plays in some of the more interesting and upcoming sectors, as well as cover interesting companies that I meet.
I will also be addressing vexing and interesting valuation and deal/term-sheet structures that would be of interest to technology start-ups at various stages of their growth.
It’s the age of the secondaries. There’s been a lot of activity behind the scenes but now after the high profile 3i, Coller and DFJ transaction it’s the turn of French fund Seventure. The VC fund has transferred the currently illiquid assets from their funds vintage 2000/2001/2002 to a newly formed vehicle Chopin Invest sponsored by London based Greenpark Capital. These funds come under the French FCPI/ FCPR regulation which is essentially retail funds with associated tax benefits for the investee. This of course implied that the funds HAD to be liquidated and returned to the investees in 2010 making the secondary transaction a must for the VCs if they didn’t want to sell the firms at rock bottom prices.
Greenpark acquires single LP positions as well as portfolios of direct investments with/without incumbent managers. In this case, management of the investments continues with Seventure which will continue to act as a General Partner.
As for the investments they would fall into two categories – the success stories which can be developed further before an eventual IPO or a trade sale when markets improve or else the also-rans who are waiting for market improvement only to be able to garner a relatively decent price.
So which are the investments we are talking about and what future can we anticipate for them:
Quescom: The firm manufactures GSM gateways which connect an IP-PBX or rather an IP network to a GSM network i.e. a call from a land-line to a mobile will appear as a local mobile-to-mobile call. It implies great savings for corporate and is currently legal for an organization’s internal use. Positives - they are certified compatible with a range of IP-PBX vendors, have an established distributor network and customers across 40 countries. Negatives – a very fragmented, low-end market. In addition thanks to regulation the technology cannot be offered as a cloud based service for small and medium enterprises.
Small bolt-on acquisitions are part and parcel of the unified communications market but I don’t see a very high multiple exit for the investors (Amount invested - $13million between 2000 and 2002). I’m wont to put it in the second category.
Netasq: They provide UTM security appliances. It’s a growing market with players like Fortinet, SonicWall and Watchguard leading the market. Netasq, Cyberoam and Astaro are grouped together as being visionaries in the market but with a mediocre ability to execute projects i.e. customer experience, pricing, market responsiveness etc. Netasq is of course strong in France with a developing presence in the rest of EMEA. A good growth story – the first category for sure – we should be seeing it as a bolt on acquisition for one of the big guys soon (Amount invested: €18mil over 2000 to 2004). The only restriction here can be the complexity its cap structure – the firm had close to 12 investors on last count. Interestingly enough, sometime in 2008 another one of the early stage investors in Netasq – Innovaco Gestion – had also sold their stake to a secondaries fund, Saints Capital.
Opti-time: They provide a route planning solution for cost optimization. The firm has been listed on the Paris Euronext stock exchange since March 2008 so the stake must be for regulation purposes and can be diluted smoothly as markets improve.
Scaleo Chip: A fables semiconductor company focused on automotive electronics for body control, driver information and in-car infotainment entertainment. They’ve worked with several Indian firms like Tata Elxsi and Wipro to develop an automotive platform integrating the hardware as well as microcontroller abstraction layer modules and with Atmel as the other end of the chain. A very small part of a long value chain.
W4: Provider of BPM solutions. The claim is that they are the only independent vendor in the market and they have over 500 customers. I’m not very sure how relevant and important both the claims are.
All in all a very mediocre portfolio transfer. It would be interesting to know the valuation and I’ll have an eye out or rather ear out for it.
