DeepStream Technologies
What it does: Digital sensors in 3D packaging
Deal size: £2.8 million

'I went to meetings with very well known fund managers in the City who were unbelievably rude. They walked out within five minutes of my presentation'.

Launched in 2004 by four work colleagues who were made redundant, DeepStream is one of the few manufacturing start-ups to have raised venture capital in recent years. As a starting point, founder and managing director Mark Crosier hired corporate finance house Icon (which specialises in high-tech businesses) to 'shotgun the VC market'.

After contacting 98 potential investors, DeepStream received funding of £2.8 million in September 2004 from Doughty Hanson Technology Ventures. The firm also received money from the Welsh Assembly Fund and has used asset finance to raise a total of £10 million.

Crosier had originally attracted interest from a syndicate of investors, but the deal fell apart – 'a case of not much cash and constant arguments about the company's valuation.' The future for the business though, is looking bright: DeepStream has just secured a £5 million contract with an unnamed European customer, to add to its first order worth just over £3 million.

'Doughty Hanson understood both the manufacturing and the technology side of the business. Other investors walked out when I mentioned manufacturing. They were horrified by the idea – which I found unbelievably rude and annoying,' explains Crosier.

Stage Three Music

What it does: Music publishing
Deal size: Up to £40 million for acquisitions

Founded by former Chrysalis Music group head Steve Lewis, Stage Three Music acquires copyrights from individual songwriters and is seeking to build an extensive music publishing catalogue. In August 2004 it closed a deal with Apax Partners and media and entertainment investor Ingenious Ventures, enabling the business to spend up to £40 million on acquisitions.

Says Lewis, 'There's a general perception in the financial world that the music industry is peopled by executives who know very little about how to run a business. There were times when I felt the fundraising would drive the strategy [ie, those investing would dictate how much the company would raise and therefore how it would develop], but it has to be the other way round. I had fantastic help from Ingenious and I wouldn't have been able to do it without them. They did a better job of selling me than I could have done myself.’

Music publishing being an intensely competitive market, Lewis is under no illusions that his is the only business with good prospects. But with a couple of hits thus far in the charts, and having completed three acquisitions, there is no doubt that Stage Three is beating an aggressive path to growth.

Quest Hotels

What it does: High quality, limited service hotels
Deal size: £18.4 million

‘It’s a big tick in the box when there is an individual involved who’s achieved something truly spectacular already’.

When you are looking to raise close to £20 million to help fund little more than an idea you need a unique selling point. Luckily for Quest Hotels, the reputation of managing director Sinclair Beecham (co-founder of Pret a Manger) was just such a draw.

Beecham established Quest with a view to building a new upmarket hotel in Shoreditch, London – due to open in the spring of 2006. Targeting primarily the business market, the idea is to provide high quality lodgings with a limited level of service. While many in the hotel industry feel this is the shape of things to come, the youthfulness of the venture marks it out as a high-risk investment.

‘It was a complete start-up,’ notes Claire Madden of venture capital investment network Hotbed, which invested around £1.5 million in the project alongside Bridges Community Ventures and others.

‘But the management was a big part of our decision (to support it), Sinclair Beecham in particular… it’s a big tick in the box when there is an individual involved who’s achieved something truly spectacular already.’

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