Frontiers Capital, nCoTec Ventures merge

Early-stage venture capital firms Frontiers Capital and nCoTec Ventures have merged in what may be a precursor to a broader consolidation of the venture capital market in Europe.

Frontiers Capital, a spinout from Carphone Warehouse, and nCoTec Ventures have merged to create a new player in the UK technology venture capital market, which will retain the Frontiers Capital brand.

Frontiers Capital will be run by Nigel Spray, formerly the managing partner of Frontiers, and Tim Horlick, the former managing partner of nCoTec, as joint managing partners.

A joint management company has been established to manage the two firms’ existing funds, nCoTec I LP – which has been renamed Frontiers Capital I – and Frontier’s Wireless Frontiers I LP, which becomes Frontiers Capital II. The funds have total assets of approximately E125m. NCoTec was formed in 2000 and Frontiers in 2001 to invest in the wireless, communications and enterprise software sectors.

Frontiers has been the busier of the two firms, having built up a portfolio of ten companies including Pervasic, a corporate remote access platform used by Orange, and WeComm, a wireless data streaming company. NcoTec hands over five companies to the combined portfolio including Comprendium, an enterprise software company, and Digital Route, a Swedish developer of communication software.      

The firms see the merger as a first step towards further consolidation of venture capital firms that were set up during the technology boom, only to suffer during the subsequent crash. “We see this as an innovative process that could replicated,” said Spray. “We could take on assets from sub-scale VCs created during the boom, or from unwanted corporate funds looking for a home. By merging, we can create a stronger offering.”

Horlick added that no specific opportunities were being examined at present but approaches had been received from ‘one or two’ firms. He anticipated further mergers over the next year to two years.

The company cited critical mass as one of the main reasons for the merger. The two companies both set out to build strong corporate partnerships and Frontier’s advisory board will feature representatives from the likes of Carphone Warehouse (an investor in Wireless Frontiers I), Ericsson, IBM and Orange.

Spray said these corporate partners would provide existing and future portfolio companies with a channel to market. But he added that, while corporate IT spend was increasing, the larger telcos were only buying from companies they perceived to be in a strong position, so ‘investing in early-stage companies is still problematic’. He said that Frontiers would look for ‘good companies needing additional capital and connections’, implying that the focus from now on will be on established companies looking to expand.

Frontiers Capital was formed by Spray from the Wireless Internet Portfolio, which was part of Carphone Warehouse Group’s corporate venture fund. He was previously managing director in the investment banking department of Credit Suisse First Boston in London. Horlick set up nCoTec having been managing director and head of European technology investment banking at Salomon Smith Barney in London.