Case StudyCase Study: Radiation Watch, maker of personal radiation meter

Isle of Wight-based Radiation Watch was founded in 2003 by Peter Doughty, who spent seventeen years in the data storage division of Hewlett-Packard and then one year as the CEO of iXimaging. Doughty and his three co-founders spent about 1m of their own money to prove their concept and generate initial customer interest. The company lined up several business angels to provide it with additional 450,000, and then turned to Ian Page’s Oxford-based Seven Spires. Doughty and Page met through the Thames Valley Investment Network, a networking club run by Oxford Innovation. The Network meets nearly every month and generally has about thirty attendees — a mix of angels, VCs, and third-party service providers. They typically hear six presentations (Pages calls them elevator pitches) and then network. Most VCs are interested in short-term, in-and-out approach to investing. Seven Spires, however, prides itself on offering “patient capital”— that is, sticking with the business through subsequent rounds of investment (Page is also founder of Oxford University spin-out company Celoxica, which develops design systems for electronic engineers). In February 2005 Radiation Watch, as planned, managed to raise another 2 million without diluting Seven Spires.

Page says that one of the reasons which drew him to Radiation Watch was that, as a business angel, he had once invested in a sensor company that failed. Based on that experience, he felt that the important thing about Radiation Watch’s D3 sensor technology was its potential as a platform for other things — chemical and biological threat detection, for example. The founders of the company agreed — they could see, from the start, the big picture and were making sure everything they did was scalable. Page saw immediately that this strategy could play especially well in the homeland security market.

Seven Spires prefers to invest in high-tech companies which can scale to a market capitalization in excess of $100 million — even though these companies may still be at pre-production stage, sometimes even pre-prototype. The discussion between Radiation Watch and Seven Spires reached a point most common in talks between entrepreneurs and investors: Seven Spires offered to fund the company over two funding rounds, reasoning that the idea was good and Seven Spires had deep enough pockets. Radiation Watch wanted to take an initial sum, do a bit of work, and then raise another round at a higher valuation. This an inescapable decision point for a founder: How much equity to give away in return for cash. A fonder would typically want to wait as long as possible to minimize dilution, but at the same time he or she cannot afford to leave raising additional funds until too late and end up with cash-flow problems. Peter Doughty won the debate, and took less money from Seven Spires than the VC was willing to invest. Radiation Watch, as said, managed to raise the additional funds, but it took them longer than expected. In hindsight Doughty says he should have listened to Page.

Page says his confidence in the company and its technology was justified, as customers now seem to be desperate for the product. Doughty says that a senior U.S. homeland security official told him that “If half of what you’re telling me about this device is true, then you’re two years ahead of anything in the US.

-read more in Paul Tyrrell’s FT story; for more about Radiation Watch see company Web site; for more on Seven Spires see company Web site