July 19, 2016
For more than a decade, Northstar Ventures has invested in and supported start-up companies based in the North East.
It was established towards the end of 2004 with funds from what was then the regional development agency, One North East, in an attempt to seed a strong venture capital industry in the region.
Alasdair Greig, an experienced venture capitalist, was enticed north from the epicentre of UK venture capital, Cambridge, to help establish the Newcastle based firm.
He reflects: “At the time there was very little equity start up capital in the North East but some interesting businesses which were having to focus on an organic growth model – basically customer funding – because they didn’t have access to investment to scale their operations.”
Since 2004, Northstar Ventures has invested in excess of £95 million in more than 300 companies.
Its focus has largely been on tech start-ups and other high-growth companies with investments in the likes of digital content specialist Amplience, 3D visualisation company Zerolight, software applications company Palringo, and financial services company Fairstone.
The venture capital firm is also a founding investor in Newcastle-based Ignite and provides capital for all the companies that go through the 14-week accelerator programme.
In addition, Northstar Ventures provides access to business advice and support to all the fledgling businesses it invests in.
Ian Richards joined Alasdair at Northstar Ventures in 2007, also as a director.
He says: “A lot of the region’s talent are first time entrepreneurs who do not yet have the experience they need to develop their business.
Currently, Northstar Ventures, which has offices in Darlington and Newcastle, is investing three funds. The £20.7 million North East Proof of Concept Fund initially invests up to £100k in high-growth companies at a seed level, while the £34 million North East Accelerator Fund invests in slightly more advanced, but still early-stage, businesses with individual investments ranging from £100k-£750k in a first round and up to £2 million investments overall.
Both funds form part of the Finance for Business North East Fund (previously known as the JEREMIE fund) – which has twice been extended to £159.9 million – the core investor of which is the European Investment Bank.
Northstar Ventures looks to supplement this funding with a syndicate of private capital for each project it invests in.
“With every deal, we are trying to encourage private investors to come in,” says Alasdair. “Sometimes, if it’s really early days for the company, it can be difficult to get that investment and quite often it’s us investing in the company first and then getting it to the point where they have a minimum viable product, making it more attractive to private investment.”
The success of Northstar Ventures has allowed it to expand its investment remit outside tech and high-growth companies, and last year it launched a £9 million Social Investment Fund to support sustainable enterprises that make a social impact in key priority sectors. The Northstar Foundation was also established in 2014 to support social enterprises and entrepreneurship that benefits excluded and deprived communities in the North East of England, and to provide grants of up to £50k – specifically the Fresh Ideas Fund.
“We’re trying to give the not-for-profit sector of the North East a real kickstart and a push to become more sustainable,” says Ian.
The endeavours of Northstar Ventures over the past 12 years have helped develop the entrepreneurial spirit in the region and put the North East on the map as a place to develop a business, particularly in the tech sector.
Alasdair comments: “We see that there has been a fundamental transformation in what’s going on in the North East. There are now a lot more entrepreneurs compared to even five years ago, as well as other venture capitalists and more angel investor activity.
“People can see that there’s a scene of entrepreneurship developing, particular in tech, with companies doing some really interesting things. This is helping to create a magnet effect which is attracting more talent.”
But Northstar Ventures and, seemingly, the ecosystem it has helped to create, was dealt a severe blow on June 23 when the UK voted to leave the EU.
Alasdair and Ian admit they were shocked by the result of the referendum with Alasdair comparing it to being “hit over the head”.
Short term, Northstar Ventures will continue to invest £6 million of funding allocated for this year via its Proof of Concept (£2 million) and Accelerator (£4 million) funds, and the team remains committed to investing in just as many start-ups as planned. Its social fund, which doesn’t rely on European funding, will also continue.
“The general feeling amongst those involved in securing EU funding for projects in the North East is that we will continue to benefit from investment and support for the next few years.” assures Alasdair.
“However if this proves not to be the case, we will have to redouble our efforts to work with the UK Government, Local Authorities and LEPs, to continue to develop the ecosystem of support available to North East businesses and to ensure that they remain committed to the Northern Powerhouse agenda.”
He continues: “The North East very much relies on early-stage EU-sponsored venture capital funding. There is now a private investment scene in the North East – and we’ll be looking to grow this – but, at present, it’s not enough on its own to meet the demand. So if the institutional money isn’t coming from Europe, we need to make sure that Central Government gets behind the North East quickly, and there’s not a huge gap in funding for our local entrepreneurs.”
A lack of access to funding or the single market, Ian goes on to warn, may lead to promising entrepreneurs looking to base themselves outside of the North East and the UK.
“We’ve already seen cities like Berlin and Dublin trying to use the referendum result to attract entrepreneurs to set up new businesses outside of the UK,” he says. “For those supporting start-ups in the North East this means working even harder to promote the region’s talent and infrastructure to aspiring founders, as competition is now even stiffer.”
It is, of course, still early days and there is still a huge amount of negotiation to come regarding the UK’s exit from the EU.
Ian and Alasdair join the millions of others around the world as they wait to see what the real impact of Brexit will be.
Alasdair concludes: “Short term, we have seen a (hopefully temporary) negative impact on [the UK’s] economic growth, which frankly, has been a concern.
“But, hopefully, in the medium to long term, once trade agreements have been put in place, it is possible that there will be more positives.
“In the meantime, we will be looking at whatever funding options are available to us so that we can continue to support the people that we work with.”
Northstar Ventures – www.northstarventures.com