Sussex Place Ventures – a funder’s experience of the ECF programme

Sussex Place Ventures (SPV), the fund management company owned by London Business School, has invested in early stage technology companies since its inception in 1998.

In 2014, it launched a new fund – Regents Park Partners II ECF LP – that has given the firm the firepower to invest more money into more promising firms. Two thirds of the fund has been committed by the British Business Bank through its Enterprise Capital Fund programme.

It had been several years earlier – back in 2011 – when SPV began to assess their options for a new fund and had its first conversation with the British Business Bank. With its close ties with the alumni of London Business School and entrepreneurs in its network, SPV already had an international base of investors. “The ECF was a very good structure for us,” explains SPV’s managing director Richard Gourlay.

In 2012, Gourlay and his colleague John Brimacombe worked on the model for the fund and made some important additional hires, including the experienced technology investor Barnaby Terry. Care, rather than speed, was important. “We were not in a hurry,” he says. “It was essential that we put the right team together. We were building a fund management team to last beyond us, and we can only do that if we assemble the right team.”

The fundraising process

In 2013, Sussex Place began its soft marketing campaign to prospective private investors for the new fund.

Fundraising is a classic exercise in project management. “We had to show the British Business Bank that there was a strong chance that we would secure the required private investors, while private investors were interested to know that we were likely to gain the support of the British Business Bank,” says Gourlay. “So there were many different constituencies in the mix; we had to bring everything to the boil at the right moment. That takes time and requires understanding investors on all sides.”

“We made it clear to our private investors that we would not close the fund without the British Business Bank as a partner – and the British Business Bank made it clear that it would not commit to our fund unless we could secure one-third from private investors.”

During this period the firm was also the subject of the British Business Bank’s due diligence process. “It was extremely thorough,” says Gourlay. “They talked to the CEOs of our portfolio companies. They talked to the people who we had used for due diligence on our investments – so they were doing due diligence on our due diligence process. They said it would be thorough – and it was.”

Launching the fund

By September 2013, Sussex Place secured its ECF mandate. In March 2014, the £30m Regents Park Partners II ECF LP was launched.

Alongside the £20m from the British Business Bank, a matching £10m came from technology entrepreneurs, business angels, London Business School alumni and family offices.

“The size of the fund is a sensible progression for us,” says Gourlay. “We are doing more of the same but we can take larger positions in syndicates which we can lead more often.

“We are keeping to the same approach and philosophy, but we can now do more of the same. We are writing larger cheques. We are leading rounds with larger amounts of money. And we can hold more capital back in reserve for follow-on rounds.

Investing in early stage companies

The fund will invest from seed amounts – from approximately £300,000 – to its permitted maximum first-round level of £2m. “The better we know the entrepreneur, the earlier we feel we can invest,” says Gourlay. “With the ECF, we can start funding businesses from a blank piece of paper in the knowledge that we can carry on investing all the way through their journey.”

The fund has already made nine investments in software and digital companies and businesses with strong patent-protectable intellectual property. The ventures range from cancer diagnosis and treatment (Endomag) to network server performance monitoring (Server Density) to the generation of decontaminating ozone for foodstuffs and medical devices (Anacail). Gourlay says that some follow-on rounds are already commencing and that further fresh investments are in the pipeline.

As the first institutional investor in an SPV fund, the British Business Bank has been a constructive partner. It sits on SPV’s investor committee alongside other investors and entrepreneurs. “We get real value from them,” says Gourlay. “They are helping us on our journey, nudging and encouraging us in the direction that we’re already travelling. It’s been a very positive experience.”

“Our relationship with British Business Bank is very rewarding,” he concludes. “The team are clear and commercial in their outlook. Any fund manager considering raising a fund should always talk to them.”