I wanted to share some experiences I have built up over the last year or so of some London investors – especially since the opportunities and patterns I am seeing there are quite different from locally in Scotland.
VCs Invest at £1m+
The vast majority of the funds I have come across have lower investment limits from £1m to £2m (I hear there are some that start at £500k – but I’ve not met them). I’m basing this on a sample of 8 where I have had detailed conversations, plus published information (either on their own websites or looking at historic deals) for about another 10. They simply can’t justify the costs of a deal (legal, diligence) for smaller investments, and they are looking to invest where there is commercial traction, early revenue, and a clear path to growth (replicable sales model).
Some of these VCs are the goliaths of the industry, but I’m also seeing a lot of activity from small teams with a mix of startup and finance sector experience building £10-50m funds, often focussed on areas where the partners have experience. The projects I am working on mean I am engaging with people with enterprise and cybersecurity interests, but there are folks interested in SaaS, consumer, mobile, wearables – the list goes on.
While the goliaths may be “Unicorn Hunting”, seeking to invest in the next Google or Facebook, many of these specialist funds are interested in investing in businesses that offer a solid path to growth and exit (at a few tens or hundreds of millions) – without necessarily getting to a billion dollar valuation and IPO.
Angel Investments from Partners
Since even the smaller funds don’t do seed stage investments, I’m finding that some of the partners are making investments out their own pockets at seed stage (usually under SEIS). Clearly there is no guarantee these will lead on to investment from their funds, but at the same time they are seeing personal investments as part of their strategy to build pipeline, and startups are seeing these guys as attractive investors because of their fund connections.
I have also come across two examples of SEIS funds, and these are investing at seed stage. I have only spoken in detail to one, and they had a very clear view of what they were doing. They invest £150k (no more, no less) in early stage, taking 20% in post revenue companies (valuation £600k pre money) and 30% in pre revenue companies (valuation £350k pre money).
Again, these SEIS funds are not run by or formally run by or connected with bigger VC funds, but there are important overlaps. In one case, two VC partners are also directors of an SEIS fund. Clearly they view the SIES fund as a source of dealflow.
How do I find Investors in London?
One of my London contacts came from a meeting at EIE a year or so back. Others have come from my network – once I knew what I was looking for I was able to use contacts (and LinkedIn) to find connections to people.
The best single source of connections however was TechCrunch Disrupt. Last December I exhibited there with a company, and there were a huge number of investors attending. I met a lot of people that I am still in touch with. For anyone in the digital or hardware space looking to widen their investment horizons, I can’t recommend it highly enough.