Newsletter #1 – Fund Environment, Investment Tax Credit, New Investment
August 5, 2011
Independence Equity Management Launches New Early Stage Venture Fund
Earlier this year, Independence Equity Management LLC (“IE”) announced the launch of its early-stage venture capital fund (Independence Equity I, LP (“Fund”)). The Fund is now actively investing in companies commercializing technologies that improve resource utilization (reducing input costs including materials, labor and energy). There is growing supply/demand imbalance in the early-stage venture sector (see next article). In observance of this opportunity, IE is targeting a second close for the fund by end of this year, and is in the process of this raise. For more information on the Fund and its investment criteria, please visit our new website at https://independence-equity.com.
Venture Capital Fund Contraction
According to a recent (Q2 2011) report from NVCA, the formation of new and follow-on venture capital funds continues to decrease. Further contraction is expected.
“The fact that the number of firms raising money successfully remains at such low levels confirms an ongoing contraction of the venture capital industry, which will serve well those funds that can obtain commitments – but that group is becoming more and more narrow,” said Mark Heesen, president of the NVCA. “While a smaller venture industry will intuitively produce higher returns, it is critical that the mix of funds remain geographically diverse and cover a broad base of industries if we expect to contribute to economic growth and innovation at the levels we have historically.”
One of the concerns is that during periods of contraction, venture activity may consolidate around traditional industry themes and geographical centers such as Silicon Valley leaving a dearth of capital available elsewhere. At Independence Equity, we are seeing excellent opportunities to invest in our areas of focus on favorable terms. Some of the sectors in which we have been seeing a number of interesting opportunities include – Energy Management/ Smart Grid, Water/Wastewater Treatment, and, Advanced Materials.
The NVCA report on VC Fund raising can be found by going to this link.
Investment Tax Break Window Open until End of 2011
Subject to certain conditions, individual investors who acquire qualified small business stock prior to December 31, 2011 and hold it for more than five years may be able to avoid taxes on their capital gains. The transactions must close prior to December 31. The 100% exclusion was initially created by the Small Business Jobs Act of 2010 and was applicable from Sept. 27, 2010, through Dec. 31, 2010. An additional year was added by the Congress in early 2011 to stimulate small business growth. For further details on the type of investments that qualify for the tax break, please follow the link here.
Portfolio Companies
IE completed its first portfolio investment in Dayton, Ohio-based Tagnetics in February. The company provides Electronic Shelf Label (“ESL”) systems to retailers. As part of a preferred stock deal IE has received a Board Seat in the company.
ESLs provide an electronic alternative to manually-placed plastic or paper labels that display prices and other purchase information at retail stores (including grocery, convenient, drug and other shelf-based retailers).
“Tagnetic’s ESL solutions enable retailers to maintain superior pricing accuracy and vital product data; change pricing and other data instantaneously on thousands of items in-store; and reduce labor and other costs and inefficiencies associated with conventional printed and manually-placed plastic tags,” states August P. Klein, Tagnetics CEO.
The Tagnetics system can be found in several leading-edge retailers including a major grocery chain known for its innovation in the industry. According to IE Partner Laurence Hayward,“Tagnetics provides a disruptive technology backed by unique intellectual property. It targets a large and rapidly expanding potential market that “needs” accurate product pricing information. , and is a “process improvement” that reduces key input costs while enhancing operational performance”
The fund completed an investment this week in Libertyville, Illinois-based 10x Technology, LLC. 10x develops and manufactures micro- and nano-structured polymer substrates that have applications in the Energy, Medical, Electronics, Transportation and Military sectors. Products range from micro-needle arrays for transdermal drug delivery to Fresnel lenses for solar concentrator systems. The founder of 10x Technology, Mr. Robert Pricone, is the inventor behind the first micro-prismatic retro-reflective sheeting for high brightness traffic signs which are now found worldwide. EVONIK Industries, a world leading manufacturer of acrylic sheet and molding compounds and bulk and performance monomers, is a strategic alliance partner of 10x.