AU-Systems sets up corporate venturing operation

AU-Systems, the Swedish mobile internet consultancy, has established a £20m joint venture with a number of venture capital firms to finance the spinning out of a series of wireless companies from within the business, via a new, unnamed, holding company. Participants in the venture include London-based incubator web-angel, Swedish VC IT-Provider and the US-based McKenna Venture Accelerator.

Coordinating the new vehicle on behalf of web-angel is Nick Tamblyn, with legal advice provided by Nabarro Nathanson. web-angel and the McKenna Group have each taken a 9.26% stake in the holding vehicle, while AU-Systems and IT-Provider hold the balance between them. Each investor retains control of the capital they have committed to the vehicle and each retains a separate stake in new companies – thus there may be spin-offs that do not have funding from all four partners. Investments into the spin-outs will follow the pattern of investment in the vehicle, with web-angel and McKenna each taking 9.26% stakes in investee companies. However, AU-Systems is guaranteed a 10% stake in any company by virtue of its technical input into the portfolio. Furthermore a conditional stake of around 20% may be allocated to management as an incentive. The long-term intention is that spin-offs will be developed over an 18-month period until they can be sold off, either to trade-buyers, or to another venture capital operation. Investment is hoped to be complete by 2004, with six to 12 new companies successfully developed into a position where they can be sold. At present all funding comes from the four partners’ balance sheet, but external fundraising may be considered in the future.

web-angel is a London-based incubator fund, formed in 1999 by three founding companies: OC&C Strategy Consultants, an international firm partnered with US high-tech player McKenna Group; Ermgassen & Co, a London based corporate finance group; and Brait Capital Partners, a South African venture capital house. Prior to the AU-Systems operation, web-angel had £6.8m of funds under management, which it had invested in a portfolio of ten companies. Although IRRs are unavailable as yet, sources at web-angel said that three of their investee companies had approximately trebled in value during web-angel’s stewardship, although an assessment of the entire portfolio has not yet been undertaken.

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