Qi3 – Quality, Insight, Integrity & Innovation - UNITING TECHNOLOGY & MARKETING

Tag: investments

Here’s to the future of low energy lighting systems

I’m delighted to confirm today the latest investment led by the team of angels at Qi3 Accelerator; this time we’ve led a £1.1m syndicate investment in a company called iSotera.

iSotera has developed a novel control power distribution and control network for the next generation of LED lighting systems.

My colleague Paul Anson discovered iSotera over a year ago, and we have been working with the founder Marc Ottolini ever since in order to help him bring his business to an investment-ready state , providing input to all aspects of the business plan.  Peter Cowley of Martlet and our friends at 42 Technology have been instrumental in the technical evaluation. We introduced iSotera to a number of other Business Angels, and particularly significant was a presentation to London Business Angels in September 2011.  This brought together a syndicate of over 20 parties, including our colleagues at Synergy Energy and enabled co-investment by the Low Carbon Innovation Fund. We’re also delighted that Moonray Fidelity has joined us in this important investment.  Note that Qi3 Accelerator is not a fund, it’s a group of independent angels led by Tim, Paul and me, so an investment like this requires all of us to feel persuaded to commit our cash to worthwhile businesses.

So why iSotera? We all know that LED lighting is going to take a significant market share over the next decade, replacing incandescent lighting and compact fluorescents.  iSotera has spotted the opportunity in the more prosaic area engineering of power distribution and control for LED lighting.  iSotera’s technology enables more efficient energy usage, lower cost of ownership and easier installation, revolutionising the cost and energy impact of lighting installations.  So rather than investing in LED technology, we’re backing a system that makes it greener, cheaper and easier to install.

Marc Ottolini is a superb enthusiastic serial entrepreneur and has shown tenacity and determination to drive the company to become a significant market player.  Several leading lighting distributors are queuing up for the launch later this year of the first production systems.  Backing a great technology and a great team with our financial resources and commercial support feels to me like a winning mix.

The Qi3 Accelerator team will be playing an active role in the development of iSotera, with Paul, Nat Billington (Synergy Energy) and me all taking board positions.  We look forward with pleasure to the development of another UK High Value Manufacturing company.

Qi3 Accelerator leads syndicate investment in Phase Vision

It always takes far longer to close a deal than I imagine at the outset. There’s always some hiccough or another that introduces a few weeks of delay.

Anyway, I’m delighted to be able to confirm today that Qi3 Accelerator, working with existing investors Octopus Investments, has completed a £1.5m investment in Loughborough-based industrial inspection business Phase Vision.  I’ve joined the board as a non-executive Director, to support the development of the business in the aerospace, automotive and nuclear markets, and to represent our substantial Business Angel consortium.  Our syndicate comprises a wide range of Cambridge, London and East Midlands based investors.  Great task sharing between Tim, Paul and me, together with support from other investors, made this a real team effort.  Most importantly, the management and staff at Phase Vision have been a pleasure to work with throughout, seemingly unflappable in the face of our persistent questioning.

And this is why we started Qi3 Accelerator; to find great British engineering companies and provide them with the financial and management support they need to accelerate their development.  Phase Vision offers for me the perfect combination of a strong team, a super product that benefits efficient manufacturing and reduces environmental impact, and global export opportunities.

I’m sure there will be plenty of problems along the way – it’s a risky game investing in High Value Manufacturing, particularly in the midst of a prolonged economic downturn.  But in life you have to choose whether to be a spectator or a doer, and I hope to see Phase Vision do well.

Many happy total returns

It’s one of those jobs I do over the festive break, checking on the performance of investments during the 2011 calendar year, and thinking about where different classes of assets stack up against the roller-coaster risk of angel investment.  It’s been a pretty scary prospect.

As a starting point, let’s look at equities in 2011.  The FTSE100 index started the year at 5899 and closed at 5572, a fall of 5.5%.  The FTSE100 Total Return (TR) index, taking into account the dividends paid by these companies, fell by 2.2%.  With a high of 6091 in February and a low of 4944 in October, you could have gained 3% or lost 16% from the start of the year.  Expanding this to the FTSE UK All Share index, total returns were -3.5% and the FTSE World Index performed even worse, with a total return of -7.6%.  That’s all pretty alarming, and if you hold these shares within managed funds in your pension plan, the charges would see you with falls of about 9-11%.  I know of very few investors whose shareholdings appreciated in value in 2011, and the ones I do know relied on an income and reinvestment approach, rather than on capital gain.

Compare that with cash.  With UK RPI inflation at 5.2% in December 2011, interest rates at say 3% were a built in guarantee of losses during the year.  Nevertheless, despite the risk of holding a fiat currency, at least cash performed better than equities.

Bonds were mixed in 2011 with UK and US treasury bonds ending the year at historically low yields under 2%.  Corporate bonds showed high yields but significant risk. The outlook for 2012 has to be generally negative for gilts and corporate bonds, with huge uncertainty around the key indicators of long-term inflation, interest rates, growth, bank and sovereign stability.  Gold and oil did well, with gains of 11.7% and 15.5% in the year.  House prices in the UK fell by about 2% during 2011, with only London registering modest rises.  Surely the UK outlook for house prices has to be continued modest year on year real-terms decline?

So with that gloomy review of 2011, and 2012 looking no better for any asset class, where does that leave me as an early stage technology investor in UK engineering companies?  Surveys in the UK and US point towards long-term annualised returns of 20-25%, and that’s before taking the benefits of the Enterprise Investment Scheme into account.  The real picture for angel investors I know is far more mixed, with a few substantial exits dominating overall return.

The reality for this investor is that I’ve written a number of cheques, and I’m happy with the performance of all of the businesses so far.  So my loss is either 100%, or else I’m sitting on a share of their future successes.  I’m a firm believer that technology creates a great opportunity for good management teams to build businesses with excellent market share, growth and profitability.  Economic downturns are for me the ideal circumstances in which to build businesses and invest for the future, so I’m looking forward to 2012 with gusto.

Concentrating on Photovoltaics

It’s all very well having a grown-up staged methodology for evaluating investment propositions.  But eventually you reach the end of Stage 4, and have to decide whether to sign a cheque or not.  I gave myself the weekend to read through the background material and my due diligence assessment.  And then took the plunge.

On-Sun Systems is the newest company in the Anglo Scientific incubator.  The company is developing a low cost tracking mechanism for Concentrated Photovoltaics (CPV).  Their panels will be inexpensive, flat and capable of being roof-mounted.  In the 25% of the world solar market which receives sufficient direct sunlight for CPV to be worthwhile, their panels should deliver a competitive amount of solar energy for a given roof space and per dollar invested.  Most importantly, as a lapsed physicist who has spent my lifetime working with semiconductors, I love the fact that this business is developing an opto-mechanical tracking mechanism and not semiconductor materials.  There are already several suppliers of triple junction photovoltaic cells, and these will be merely a component in the assembly, rather than the focus of investment for On-Sun.

Above all, I like the people.  Every member of the management team has been approachable, professional and all of my (numerous) questions have been answered promptly and to the best of their ability.  I hope I’ll be reading these words with the same feelings in 3 years, but I’m pleased to be supporting the development of this business and look forward to their quarterly progress reports.

Time for a Beer

Decision time.  I’ve invested in the Beer & Partners EIS Scheme.

For me it’s a way of gaining some immediate diversification and a chance to learn from an already successful fund manager who has made over 40 investments on his own account.  Moreover, Simon Hunt is personally a significant investor in the club.  About half of the investments they’ve made so far are in the security, sustainability and instrumentation domains which are the focus for Qi3 Accelerator.  The others are mainly in IT and medical devices.  I would be interested in medical stuff, but I’m far too squeamish.  We looked at 9 EIS funds before settling on Beers.

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