Venture capitalist 3i is targeting Internet related businesses for investment with a "money no object" attitude because of the enormous growth potential of these companies.
Last week 3i announced it is to spend £300 million on establishing two US offices purely to explore technology investment opportunities, underlining the company's new investment approach to Internet technologies. So says Paul Rivers-Latham who runs the due diligence team responsible for Internet investments and who, in August, will become a director of the new US West Coast team.
"The current focus of interest is in business to business opportunities and those having a clear business model," he said.
3i calls this type of operation Internet delivery businesses. He gave the example of a company offering an EDI service between manufacturers and their sub-contracting buyers using the Internet to execute that service, because doing so is cost effective and the user interface is easy to use.
"There is a very substantial value in companies with rock solid businesses that are choosing to exploit the move to the Internet. We are also interested in companies that provide the tools for Internet activity because our belief is that the earning opportunities are often in the provision of tools rather than the services," he said.
Last year 3i made 15 investments in Internet related businesses, which it said represented a "substantial uplift" on the previous year. The upward trend is set to continue with another handful of deals that are soon to be finalised. Rivers-Latham expects the total number of investments in the coming year to outstrip those that were made in 1998.
Although unable to provide a figure for the value of Internet investments made last year or planned for 1999, he said that the total technology portfolio including Internet related businesses and other technologies approached £1 billion.
"It's not something we worry ourselves with at all. We don't seek to limit investments on a per sector basis," he said.
Instead the firm evaluates each proposition on its own merits and if it receives 50 good propositions then it will invest in all of them: "We don't have any difficulties on the availability of funds to us," he added.
3i invests predominantly in second and third stage funding. Although it sometimes provides very early stage funding generally the company prefers to leave this type of investment to smaller, specialist venture capitalists. These small businesses can be very labour intensive and the firm believes its highly trained staff can maximise opportunities elsewhere.
In 1998 3i invested £291 million, including co-investment funds, in 240 technology businesses, representing an increase of almost 80 per cent on the previous year. 3i's technology portfolio has grown to 542 investments and, at the year end, it was valued at £974 million, representing 21 per cent of the company's total portfolio.
Some of last year's Internet related investments included: a provider of sports content over the Internet; a wide band distributor channel for software components such as Java; a company producing PKI Web security software; and a company that provides the systems for ecommerce operators.
Source: VNU Newswire
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