IQ backs mobile exchange business(2)

IQ Capital, a UK government-backed venture fund, has made a third investment since its launch last year, backing mobile telecoms business OnRelay.

UK enterprise capital fund IQ Capital has led the latest investment round for OnRelay, a mobile exchange business at the forefront of a market that could be worth $15 billion by 2012.

IQ has invested about £1.5 million (€2.2 million; $3.1 million) to take an equity stake of just under 10 percent in OnRelay’s fourth funding round, according to a source. It has teamed up with chairman Richard Cunningham and a number of existing shareholders, mainly seed funds and business angels.

UK-based OnRelay, founded in 2000 by Ivar Plahte and Marie Wold, has developed the world’s first mobile exchange, which allows business to integrate employees’ mobile phones with their fixed line network. The company has also established substantial intellectual property rights around its product, leaving it well-placed to benefit from the substantial growth expected in the mobile exchange market – which could be worth $15 billion in five years time, according to some industry estimates.

OnRelay only started its commercial deployment last year, but is believed to have made a profit of about £350,000 on revenues of £1.6 million in its first year. It has already attracted Swisscom and IBM as distribution partners, and an illustrious list of technical partners including Cisco, Nortel, Avaya and Siemens.

Wold said the injection of new funds would be used to “extend our international expansion into North America and further into Europe, whilst also supporting our investment to maintaining our product’s leadership in the market”. A “significant war chest” has also been reserved for IP protection, she added. 

IQ’s tie-up with Cunningham – an experienced telecoms entrepreneur who previously sold airtime reseller Project Telecom to Vodafone for £160 million – is typical of its approach. The firm has developed a network of “IQ Angels”, comprising successful entrepreneurs looking to re-invest the proceeds from previous sales and experienced industry executives.

The £25 million IQ Capital Fund, which closed in December 2006, is managed by early stage investor NW Brown & Company in partnership with three leading angel networks, and includes a £16.7 million cornerstone investment from the UK government. It was the first of the government’s Enterprise Capital Funds, a new scheme designed to boost investment in small and medium-sized businesses in the UK.

The fund’s previous deal was an £650,000 investment in Spikes Cavell, a company that helps public sector bodies analyse their budgets and spending. It invested in partnership with Andrew Rickman, the founder of Bookham Technologies. Its first investment was a £1 million funding round for Short Fuze, a film and video game making tool, in March.