Internet Indirect, the internet investment group, is to be taken over by its larger rival Newmedia Spark in a deal which values the company at £80m.

The group was set up by Mark Slater, 30-year-old son of the colourful seventies financier Jim Slater. He launched Internet Indirect to invest in small start-up companies designing internet software.

When it floated last December the shares rocketed from 5p to nearly 90p.

They have since crashed back down, and yesterday's bid from Newmedia values the shares at 25p. Before the announcement of the takeover they were changing hands at 18.5p.

The bid is an all-share deal - 3.7 new Spark shares, 1 new Spark Warrant and 0.266 ordinary shares in EO (a Spark investee company) for every 10 Internet Indirect shares.

The offer values the 10% stake held by Jim and Mark Slater at £8m.

Mark Slater and his co-director Roger Parry, will join the Spark board as non-executive directors. The company, which already has irrevocable undertakings to accept the offer from directors and investors, who account for 29.9% of its shares, said the enlarged group would be the "best resourced technology investment company quoted in London". It will have more than £90m available for further investment.

NewMedia Spark, with entrepreneur Luke Johnson as a director, is the largest internet incubator fund in Europe, and one of the largest original backers of Lastminute.com.

It has 56 investee companies, which have each received an average backing of £1m-£2m. It also hopes to bring at least two of these companies to market next year. They are likely to be ETV, a Scandinavian digital TV company and DX3, a digital music distributor.

Michael Whitaker, chief executive of Newmedia Spark, said the deal showed that now was a good time to invest in e-technology. "Internet Indirect has been very bearish about the sector recently and has £70m in unspent cash. The company has accepted our shares because it thinks now is a good time to invest.

" We are a bigger operation, with 60 people here and abroad who can help make these investments work."