September 2008 Viewpoint
Welcome to our monthly email newsletter for
clients and investor contacts.
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Since our last newsletter in July, we have had a very busy period. We have acquired together with management of the company the trading assets of Endeavors Plc from the administrator, received the final realisation amount from 366HS Ltd, helped sales-i and 3BView Ltd with their current fundraising plans, and we have been instrumental in Selfserve (UK) Ltd entering into merger terms with a US company.
Current Investment Opportunities
We took this US/UK technology business (previously Tadpole Technologies Plc) private on 8th August and have led a restructuring of the business which operates in the growth market for streaming and virtualising software applications. This is increasingly seen as the future of software delivery by the major vendors. The IP assets are very strong and the sector is hot - “the market has already seen $1.5bn in M&A activity related to desktop and application virtualization over the past 24 months” and “there is more to come” (451 analysts June 2007).
The business owns 28 patents in application streaming. This technology is licensed to major players and competitors. The strength of the patents has been tested in the US legal system and out of court settlements have been achieved in the company’s favour with companies such as Microsoft and Citrix. Gartner said on the 16th of May 2008 that “Application virtualization will become a mainstream application deployment approach that will complement PC configuration management tools in two to five years”, and, “we believe that by the end of 2010, 50% of large organizations will use application virtualization as part of their PC life cycle management practices.” “Endeavors is bringing something to the market that could change these dynamics” said Dan Kusnetzky of Computerworld. Key players (such as Microsoft, VMware, Red Hat and Symantec) have already made acquisitions of competing, less sophisticated companies with low or negligible revenues at very high multiples. This is an exciting deal where Endeavour Ventures clients have the opportunity to co-invest at an attractive entry valuation alongside an institutional investor in a dynamic business with real prospects for an early exit at a high valuation.
There is a second chance to hear the management presentation at our offices at 11.00 am on Wednesday 1st October,RSVP to Bill@endven.com to attend.
This company has a Software as a Service (“SaaS”) solution delivering sales productivity information to its customers who are characterised by having many product lines and many customers, office supplies being a good example. It has performed consistently to plan since it started trading at the end of 2007. It has won its first US customers and growth is accelerating. The company is starting to look very exciting.
The current funding strategy is to raise £1m and grow fast. Negotiations are in hand with two VCs but terms are not agreed yet. In the meantime there is opportunity for clients to invest.
The company is EIS qualifying. Interested investors should contact Richard Hargreaves, Richard@endven.com.
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This existing Endven client’s business is the topical and increasingly important issue of prevention of data leakage. As already reported, after a slow first year the company is poised to grow strongly. It has closed on £215,000 of funding from existing investors on discounted terms and is prepared to offer up to £100,000 to new investors on the same terms before looking to raise a further £250,000 later in the year.
The business is EIS qualifying. Interested investors should contact Richard Hargreaves, Richard@endven.com.
The company makes patented plastic tube that is used to protect fibre optic cable from the degradation in performance that results from crushed or kinked cables. It sells its products to the cable, aircraft and automotive industries and sales are beginning to develop encouragingly.
The company is raising a further round of finance totalling £500,000, half of which is now secured. A sophisticated syndicate of investors who can add value as well as money is expected to join the shareholder list. There is still opportunity for new investors to participate.
If you would like to learn more, please contact Guy Macpherson-Grant at Guymg@endven.com. EIS relief is available.
Rainbow Rewards operates a retailer-funded credit card reward scheme which is attracting the attention of some very large financial institutions. The total boarded card numbers have now reached 1 million. During August RR also processed its 1 millionth transaction. Bigger milestones are to come in the next 6 months. It is expected that Rainbow Rewards will have 3 million plus cards in CO, OR and N.CA sometime in Q1 2009. Their Citibank trial proceeds to plan and management estimate RR will board 1.4 million Citibank cards in CO, OR and Northern CA, some in November and the balance in Q1 2009. We expect to know by the end of 2008 if Citibank will adopt the Rainbow Rewards approach in a major way. Bank of America and Barclaycard are also engaging with the business and trialling the system.
The business is currently raising money in the Gulf, the US and the UK, and has offers of debt to roll-out nationally once regional profitability has been achieved. The CEO is in London at the first week of October and will be presenting to interested investors.
Prospective Investment Opportunities
We have a strong pipeline of opportunities and will be circulating these as they become available for investment. If you want to register interest on any opportunity – with no commitment – please email Bozena Ilencikova, Bozena@endven.com.
The Endeavour Enterprise Capital Fund
We are planning to bid for an Enterprise Capital Fund. These government supported funds are structured as limited partnerships which means money is only drawn down from investors as needed and distributed to them when returned. The funds get £2 of government investment for every £1 raised from the private sector. The government gets a 4.5% interest rate as its only prior payment. Thereafter capital is returned pari passu to all investors but profits are returned 12.5% to the government and 87.5% to the private sector investors. The carried interest to the manager (Endven) has to be taken from the private sector investors, leaving them with 70% of profit in return for risking 33% of capital. An ECF can invest in most businesses which benefit the UK economy but may not invest more than £2m in any company.
Endven requires letters of support from investors to give its bid credibility and demonstrate that the formal fund raising is likely to succeed. Any client who would like to receive the summarised description of this opportunity should contact Bozena Ilencikova, Bozena@endven.com.
Portfolio News
The following in a selection of news from the portfolio.
In July we reported that the last flat has been sold. Following HMRC approval, the company has made a capital distribution from the company before formally liquidating it. This has resulted in investors making a 60% profit after costs which is a pleasing result in today’s hostile property climate.
Foreign currency help
Endven and its clients have often experienced problems with reliably sending USD investment funds to US businesses. The solution we have found and used successfully is Currency Solutions. Endven has a corporate account which clients can use at no cost or clients can approach the company direct.
The following is an extract from their marketing material:
“When exchanging large amounts of money for investments or purchases, the solution is simple, use a Currency Specialist. The exchange rate they provide is far superior to what you can obtain from your Bank, and by them monitoring the market and pro-actively contacting you at the most opportune time, the potential savings can be massive. Typical savings when compared with your bank is anywhere between 0.5% and 5% of the exchange amount!”
“Transferring funds in foreign currencies using your Bank can be a hit or miss affair. It’s difficult to guarantee when funds arrive and the exact amount hitting the beneficiary account on the other side, putting your reputation at risk. With a Currency Specialist, these variables become constants.” Investors should speak to Gary Hasell on 0207 740 0000 to see how Currency Solutions can help.
SIPPS
Any clients seeking to establish a self-invested pension vehicle that allows investment into unquoted companies should contact Endeavour and we will assist in the process.
If you are not yet a client
If you have received this email and are not a client but would like to become one all you have to do is fill in a Client Form, certifying yourself as either a High Net Worth Individual or a Sophisticated Investor. It costs nothing and we can send you the Investment Summaries for the investee companies that we are working with. You will find the Client Form on the Client Criteria page of the website www.endven.com or email Bozena Ilencikova, Bozena@endven.com. 
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