Despite the tough economic climate, a number of venture capital firms did manage to pull off some spectacular deals last year.

Despite the tough economic climate, a number of venture capital firms did manage to pull off some spectacular deals last  year.

Now in their tenth year, the Investor AllStars awards, presented by Business XL magazine and specialist investment bank GP Bullhound, recognise the hard work, ingenuity and determination of these firms to push through deals in what remains a testing business environment.

Held at the Hilton Hotel in London’s Mayfair, over 500 investors, CEOs and advisers gathered to see the cream of the venture capital community rewarded for the best exits, fundraisings and buy-outs. The winners are:

Deal Envy of the Year
Wellington Partners & Northzone Ventures

The winners are Northzone Ventures and Wellington Partners for backing the music streaming website Spotify.

‘The secret of Spotify’s success is that it’s a premium model that provides people with a free program that is ad-supported,’ says Pär-Jörgen Pärson, general partner at Northzone. ‘As users start to build up playlists and find that they can use it on their phones and other devices, they are prone to upgrade to the subscription model.’

In 2008, Northzone, a Nordic venture firm that has offices in Stockholm, Oslo and Copenhagen, led the first round of funding for the website, raising an initial sum of €12 million (£10.5 million). Pärson says that for subsequent fundraisings the main hurdle has been to find new investors who have not only the funds but the right connections for the company.

He says, ‘Wellington Partners brought a lot of good contacts for getting into the German market, which is a complex market to address, and the Li Ka Shing Foundation gave us good access to the operator 3 Mobile and the handset manufacturer INQ. That round raised €20 million.’

VC Fund of the Year
Sofinnova

French venture capital group Sofinnova has had a bumper 18 months for exits, with nine trade sales since April 2009. Managing partner Denis Lucquin says that the combined exits yielded more than €540 million (£460 million) for the firm’s investors.

Lucquin comments: ‘The nine companies we exited were all ones that we had started from scratch. We are either the seed investor or leader of the A round in all our companies. We made a rate of return higher than ten times our investment on the first trade sale in April 2009, a company called Core Valve that produces aortic valves for heart surgery. Core Valve was sold for $850 million (£532 million) to Medtronic.’

The firm’s most recent exit was the sale of the Swiss pharmaceuticals company PregLem, which was founded four years ago. Sofinnova’s first investment in the company was €200,000, after which it led the A and B investment rounds. Lucquin says that PregLem had been considering going public before it was acquired by a Hungarian pharmaceuticals company, Gedeon Richter, for €144 million in October.

Equity Gap Fund of the Year
MTI – UMIP Premier Fund

The UMIP Premier Fund is run by MTI, which focuses on companies in the cleantech and medtech sectors. The fund primarily makes late seed-stage investments of between £250,000 and £750,000, with the capacity to provide follow-on investment of up to £3 million.

Since its close in 2008 it has made 11 investments, such as Ai2, a developer of a peptide coating technology that is able to render medical devices and implants antibacterial, thereby potentially reducing the frequency of infection. Another is Nano ePrint, which has technology to open up the prospect for low-cost, high-performance printed electronics across a range of applications. Working closely with spin-outs from Manchester University, UMIP also supports academics with its innovative Proof-of-Principle (PoP) programme, for those at the very early stages of IP development.

David Ward, managing partner at MTI, says, ‘We’ve helped to bring more investment into the sector, as all of our main investments have been made with co-investors and business angels. Our minds will turn fairly quickly to raising further funds because our portfolio proves that there is money to be made in this sector.’

Private Investor Network of the Year
Beer & Partners

Beer & Partners impressed the judges with the volume and variety of the deals its network of private investors backed.

Michael Weaver, the company’s CEO, comments, ‘We look at about 3,000 business plans a year and aim to take on about 100. The biggest limitation to funding is finding good-quality businesses. There’s a lot of appetite to invest but a scarcity of good-quality companies.’

Weaver says that the typical investors are generally retired entrepreneurs: ‘They are keen on investing in something that they can see, feel and touch. With their contacts, they can open up doors for [start-ups].’

The firm’s average investment is about £100,000 per investor, but can range from £25,000 to £1 million. Weaver describes the Beer & Partners network of investors as heavy hitters who are able to do deals on their own without having to be syndicated, which he says is a definite strength.

‘Our biggest competitor in recent years has been the regional development agencies,’ says Weaver. ‘I’m looking forward to them being starved of cash, if not completely neutered. Their demise will be great news for our business.’

Exit of the year
Playfish – Accel Partners & Index Ventures

Index Ventures partner Ben Holmes, who also won the VC Personality of the Year award, describes the Playfish deal as ‘the European-based venture capital success story of the year’.

Social gaming company Playfish was sold for up to $400 million to US corporate Electronic Arts in November 2009, which Holmes comments was high for a European sale: ‘This year we have been driven by trends that are generally more powerful than the broader macroeconomic trends. There might be a slowdown in consumer spending, but there’s still an enormous switch from offline to online spending.’

VCT of the Year
Foresight Group

Although Foresight has spread its wings in the past couple of years to invest in renewable energy, its VCTs continue to be some of the best performing in the industry.

Overall, Foresight has attracted more than £40 million of investment into its products during the 2009/10 tax year, with £30 million of this going into its VCTs.

Partner David Hughes notes that last year’s investment in engineering software company Diagnos is a good example of how VCTs boost a company’s ambition. Foresight backed a £7.5 million MBO of the business and, since then, it has expanded into Europe and the US, doubling profits to £2 million.

Cleantech Investor of the Year
Imperial Innovations

As its name hints, Imperial Innovations invests only in spin-outs from Imperial College London.

Robert Bahns, director of investments at the firm, says: ‘We take a very active role in our businesses, sitting down with academics to help them formulate patents to protect their work, and putting the management team together.’

This summer Imperial invested £3 million in Plaxica, a company that researches alternative plastics, and raised £1 million for its cement research company, Novacem.

Clearly, it’s not been easy for companies at the heart of innovation. In trying to overcome the challenges, Bahns notes that they’ve often needed a more creative approach. So in July Novacem issued a green cement bond to concrete and aggregates company Lafarge for around £500,000. He says that this wasn’t enough to give Lafarge access to the technology itself, but gave them some say in the company’s strategy going forward.

Looking ahead, Bahns hopes that the government will continue to favour green technologies, which is often the only way they can remain competitive. He adds, ‘Greentech isn’t always the cheapest option, so we hope that the green agenda remains at the forefront of government policy rather than trying to find the cheapest route.’

FULL LIST OF WINNERS

Deal Envy of the Year
Winner: Spotify – Wellington Partners & Northzone Ventures

VC Fund of the Year
Winner: Sofinnova

Equity Gap Fund of the Year
Winner: MTI – UMIP Premier Fund

Exit of the Year
Winner: Playfish – Accel Partners & Index

Private Investor Network of the Year
Winner: Beer & Partners

VCT of the Year
Winner: Foresight Group

Cleantech Investor of the Year
Winner: Imperial Innovations

Buy-out/Development Capital Fund of the Year
Winner: TA Associates

Service Provider of the Year
Winner: PER

Jon Moulton’s Triumph Over Adversity Award
Winner: Morse

VC Personality of the Year
Winner: Ben Holmes – Index Ventures  

Outstanding Contribution of the Year
Winner: Michael Elias – Kennet