TMCNet:  Business: VENTURE CAPITAL BACKERS HOPE FOR A PAYDAY

[January 06, 2013]

Business: VENTURE CAPITAL BACKERS HOPE FOR A PAYDAY

(Observer (UK) Via Acquire Media NewsEdge) Looking to cash in on the roaring success of Wonga is a small band of former Goldman Sachs executives who are among the leading investors in funds managed by Balderton Capital, one of Europe's largest venture capital groups.


Wonga is one of Balderton's most promising investments in recent times. Although plans for a US stock market flotation are currently on hold, Wonga has been in talks to acquire On Deck Capital, a small American lender, in a deal widely seen as a precursor to a future listing in New York. Some estimates have suggested Wonga could be valued at between pounds 1bn and pounds 1.4bn.

The venture capital group, which takes its name from Balderton Street in Mayfair where its offices are located, is thought to have attracted many millions to its funds through close links to several former Goldman Sachs bankers. At the heart of this connection are Goldman veterans Tim Bunting and Mark Evans, who are now among the four Balderton general partners who oversee the group's pounds 1.2bn investment empire.

Wonga is not the only controversial British dotcom that Balderton is grooming for a stock market float. The venture capital firm is also the largest backer of The Hut Group, one of Britain's fastest growing online retailers, which specialises in supplying low-value goods by post.

The Hut's use of an offshore warehouse in Guernsey to avoid VAT helped provoke a tax crackdown by George Osborne last year. The chancellor said such trade amounted to "exploitation that has left our high street music stores fighting a losing battle".

Nevertheless, The Hut, which operates websites including Zavvi.com, has restructured its distribution arrangements and is believed to be considering a float. It had attempted a stock market listing in 2010 but pulled back at the last minute. Analysts believe a listing could value it at more than pounds 300m.

Some reports have suggested that Sir Terry Leahy, the former Tesco boss, who has a stake in The Hut, could take over as chairman before a flotation, but it has other well-known shareholders, including Sir Stuart Rose, formerly of M&S.

Successful floats of The Hut and Wonga would be welcomed by Balderton investors who have watched three other businesses they have funded through early growth phases - Betfair, Circle Holdings and Payzone - greeted with disappointing stock market receptions in recent years. In each case, Balderton funds sold little if any of their investment in the flotation process. Chief executives at all three firms have since stepped down.

Performance figures for Balderton's four funds are rarely released, but the Observer has seen financial statements that give an indication of accounting writedowns booked in Balderton Capital II, the poorest performing fund. Despite receiving a huge boost from the $850m sale of social networking site Bebo to AOL five years ago, annual statements seen by the Observer show negative cumulative returns for Balderton II of 2.06% for 2009, 13.46% for 2010, and 18.12% for 2011.

The group stresses these figures are only accounting valuations and no indication of real investor returns delivered by the fund, which has been investing for eight years. Balderton founder Barry Maloney said: "We are confident of getting capital back plus [a premium] to our investors [in Balderton II]". He said it was not clear yet what the premium would be, but did acknowledge Balderton II was the group's most challenged fund, having been hit with heavy writedowns on investments in Codemasters, the software publisher, and DisplayLink, the graphics chip group.

(c) 2013 Guardian Newspapers Limited.

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