27/08/10

By Modwenna Rees-Mogg, Founder and CEO of AngelNews

As we continue to brink on an economic recovery across the Western world, it seems a good time to consider what the great businesses of tomorrow will be and what you as investors should be thinking about investing in to make the rest of 2010 a vintage year.

For a start green has become so well, mainstream. Every angel network event is littered with companies with a green angle. And the Award winners at Shell Springboard 2010 showed that there really are some fantastic businesses out there which really deserve funding, not just because they are green, but also because they have some great technology and very profitable business models. More and more groups of investors are beginning to cluster within the green sector, mirroring a similar theme in the early stage venture capital (VC) market where firms such as Acuity Capital are active entrants into the market, with its current fundraisings for Acuity Environmental VCT & VCT2.

Green is national, not clustered, interestingly. It is worth highlighting Yorkshire Association of Business Angels' recent announcement of an angel investment in Grimsby based Energy Optimisers with its PLOGG device which logs the energy used by individual appliances and can be programmed to switch appliances on and off at fixed times or in response to outside signals, such as generation from a wind turbine or energy pricing information transmitted through a ‘smart meter'. I do wonder whether the chatter about a Green bubble is more about the noise around the sector generally rather than people overpaying for implausible deals. When I dig into the businesses looking for money, they seem to be displaying pretty old world business models. So I can't help thinking that a lot of opportunities, now labelled green, could also fit into more traditional sectors such as hi-tech manufacturing, internet or even plain old "software". This is without question a good thing. I have not heard the expression "new paradigm" for many years.

This leads me onto the whole Technology, media and telecommunications (TMT) sector. There are deals aplenty fundraising in this segment ranging from a deal sitting at Beer and Partners' for "a Magazine 3D website and TV series aimed at a wide female audience". This is a classic example of a "New Media" opportunity, as is a deal sitting alongside for a Mobile "Facebook" for Football. Meanwhile, Beringea, Edge and Ingenious Media are all fundraising for VCTs with a media theme. Sensibly, they and indeed all the other VCTs fundraising at the moment invest only in the cash generative models within their specialist sectors, particularly those deals which will support sensible levels of leveraged funding and deliver an income stream to their investors rapidly. There are plenty of models in the TMT sector like this. I think the challenge is going to be finding a really ground breaking new concept which has Google-type characteristics. I am uncertain whether I have seen anything like this whilst digging around the UK angel network websites, though please let me know if I have missed something amazing. Meanwhile there are gaming ideas a plenty.

Lots of people tell me that MedTech will continue to be hot for years to come and there is a healthy dispersion (terrible pun, .ed) of deals in this arena. Interestingly we are seeing a lot of second and third round fundings for companies, symbolised by Glide Pharma's recent completion of a £2.7m investment round supported by Hygea VCT and Oxford Technology VCTs. I wonder how this will impact on first round fundings for new MedTech deals. There are no specialist VCTs targeting this sector in the 2009/10 crop of fundraisings, so medtech entrepreneurs will have to head to investors such at Albion Ventures, NVM and Octopus Ventures all which have long term experience in backing such deals or head towards Anglo Scientific's EIS Fund. London Business Angels also always has a MedTech deal or two passing through its network.

There is a noticeable lack of retail deals seeking funding at the moment. I am rather surprised about this given that new retailers will be in pole position to sign rent free periods in their site leases, and even if they do not want to venture onto the high street, I would have expected more online retailers to be popping up as the economy turns upwards.

One of the sectors increasingly cropping up in conversation is companies involved in the Social Enterprise arena. I am intrigued by this area. Players like Bridges Ventures have been operating for years in social investment and the members of the CDFA have been providing finance under government auspices for several years. Will social enterprise become core to investing? Yes. But I think the challenge is going to be how all those involved in business will address the issue. These are the types of questions that still need answering in a consistent way:

• Is it acceptable to charge consumers a premium in order to be able to distribute more cash into the supply chain?

• What is a fair profit for a business?

• Who deserves the greatest share of this profit? Suppliers, customers, staff, management, shareholders or even charity?

• Should profits be shared on a daily basis or is it acceptable to distribute the rewards of business success toward the end, in the same way as Tom Hunter, Bill Gates and Warren Buffet have done?

I wonder what you all think?

Notwithstanding all of the above, I wonder if there is not a lot of money to be made from good old fashioned education? Looking at how children interact with each other and the world at large I continue to be amazed at how they cope with increasing sources of information? In this context, what is the role of large schools? Will new government policies in the UK cause a new wave more local, smaller schools to emerge, but schools that are global because of their ability to leverage the benefits of the internet? Will we see children using their phones and iTouch's in place of pen and paper? And will touch typing see the end of handwriting?

Why is education so exciting an opportunity for UK entrepreneurs and investors? Well, because India still largely follows the UK education system, opening up a market not just for 60 million but for over 1bn for products and services in this area. Now that is a market worth going after.

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