We believe our investment strategy should not be one dimensional, in order to capitalise on a significant market opportunity.
The Management Team expects to invest the Company's assets predominantly in the areas of opportunity outlined below.
Series A and B
These are early stage investments in fledgling fintech businesses. To help to mitigate risk by investing after proof of concept has been delivered, the Company will not invest in seed stage businesses. The Management Team will, however, meet and track seed stage businesses so that the Company is ready to make potential investments when these businesses come of age. This can be a highly effective way for the Company to secure lower valuations by pre-empting a more widespread fundraise and, in addition, it benefits the investee company by avoiding the need for the founders to be distracted from the business meeting potential investors at what could be a critical inflexion point for the Company.
On occasion businesses are launched before the market is ready or raise money at an overambitious valuation which the business may struggle to justify. When those businesses look to the market for further capital, they often have to check their valuation expectations and seek a lower price. Typically venture capital funds steer clear of these businesses and focus instead on younger and higher growth companies without the “chequered” past. The Management Team sees opportunity in this area and will look to unlock value that has been built using capital already deployed in previous funding rounds.
The fixed term nature of traditional venture capital GP/LP funds means that capital that has been invested in a business for some time may create the need for the fund to seek an exit prior to the opportunity reaching maximum potential. The Management Team sees this repeatedly and is keen to capitalise on the opportunity. In addition, with the tightening of the IPO markets the Management Team sees opportunities to provide liquidity to founders and other funds winding down by buying secondary stakes in attractive businesses at value prices.
The Management Team aims to seek out high growth fintech focused businesses originating from across Europe that demonstrate a number of the following characteristics:
- disruptive – businesses that aim to challenge the status quo and take a fresh approach to addressing customer needs;
- disintermediation – businesses that compress the layers between provider and consumer. Even before compressing margins, minimising the number of layers provides financial benefits for everyone left in the chain;
- capital efficient – businesses that will be able to scale efficiently and will not require large amounts of capital to sustain growth, particularly before proof of concept;
- strong founder team – the Management Team’s preferred investment opportunity has a three-person founder team: one product orientated; one technology orientated; and one commercially orientated. Not all businesses will have these three roles and the founder team may have other roles or combinations of two of the three. However, the Management Team seeks to avoid single founder propositions, particularly where that founder has voting control of the business. In the Management Team’s view, the ability of the founder team to execute is critical, even more so than the quality of the idea. Accordingly, the Management Team spends time before an investment assessing the team and after the investment in building it out;
- compelling unit economics – the Management Team undertakes significant amounts of due diligence to understand how the business will ultimately become profitable. It is critical that the lifetime value of a customer is higher than the cost of acquiring that customer. The Management Team will not originate opportunities with business models that rely on intangible revenue streams;
- market opportunity – in financial services, significant businesses can be built in even the most specialised of sectors. Nevertheless, the Management Team seeks clarity that the scale of the opportunity is such that the investment can deliver outsized returns if the business is successful;
- barriers to entry – the Management Team looks for businesses that have competitive barriers to entry to encourage strong margins and efficient marketing spend;
- ability to exit – the Management Team will invest in businesses which, based on the above criteria, are anticipated to be attractive candidates for acquisition by large corporations or public ownership by institutions or by way of an IPO, with valuation return targets ranging from £50 million to in excess of £1 billion; and
- return – the Management Team will invest in opportunities that have the potential to generate multiples of invested capital for investors.
The Company’s investments, whether primary or direct secondary transactions, will typically:
- secure a significant minority stake with board participation and rights in portfolio companies;
- allow the Company to participate in later follow-on funding rounds in order to minimise any dilution where possible; and
- potentially require the Company to invest £5 million to £10 million of equity over the course of several funding rounds in primary and secondary transactions.
The Directors believe that the Company has a number of competitive advantages including:
- Available investment pipeline: Through the Management Team's existing industry relationships, the Company expects to be able to benefit from access to an identified pipeline of assets currently in excess of £100 million. It is also envisaged that, due to the demand that currently exists for post-seed venture capital in the European fintech market, the potential pipeline available to the Company will continue to increase.
- The Management Team’s extensive experience and networks: The Company will leverage the Management Team's expertise, experience and networks in the fintech sector to drive value creation in its investee companies. The breadth of the Company’s team encourages deeper involvement by each member of the investment management team in transaction origination as well as the execution of growth and business plans, working closely with investee companies’ executive management usually as a board director or observer.
- Europe offers a large addressable and attractive fintech investment opportunity with a funding gap: London has a long history as a global financial centre. This financial "DNA" breeds new ideas as well as providing a natural market for them to take off. In addition a supportive government and progressive regulator provides the ideal backdrop for it to become a fintech hub. Beyond London the Management Team is also seeing fintech innovation in Berlin, Paris, Scandinavia and Amsterdam. As well as being a fertile ground for fintech businesses to be built, the Management Team also sees the opportunity to capitalise on the lower valuations of early stage businesses in Europe as compared to the US resulting from less availability of capital at key stages of a company’s growth.
- No seed stage risk: The Company will invest in opportunities after the riskiest proof of concept phase has been passed. The risk inherent in these seed stage businesses is considered too high for the Company and is better served by the angel networks and seed funds. However, the Company maintains strong relationships with these types of investors which will become a strong source of dealflow.
- Early mover advantage: The substantial demand for post-seed venture capital funding in the European fintech market is being underserved and the Company will be well positioned to capitalise on the best opportunities available in the market. The Company’s focus on fast growing and/or high potential private fintech businesses offers a targeted investment into a sector that is difficult to successfully gain access to as an investor.