In 2014, having been successfully investing in start-ups for over eight years, Paul & Matthew settled down for a couple of pints and scribbled down some reflections on their startup investing approach – what was behind the wins along with the reasons for picking a couple of duds. Examining this insight a few days later led to them deliberately designing a unique approach to seed investing that could ‘stack the odds’ for investors.
They created Worth Capital and ‘competition funding’ an approach that creates a regular, sustainable and unique source of deal flow-meaning:
• deals other fund managers do not necessarily see:
o beyond the London bubble – from across the UK
o beyond the old boys’ network – from founders with diverse backgrounds
• fair valuations for both entrepreneur and investors – not valuations inflated by investors competing in the same pool of deals or by crowdfunding
• regular deployment of capital.
Having experimented with this ‘competition funding’ approach (with Metro newspaper, Facebook and Channel 5 as media partners) they settled on a monthly competition, The Start-Up Series, promoted by startups.co.uk which has now been running since October 2016. As well as unique deal flow, they:
• believe when spotting entrepreneurial talent is ‘takes one to know one’ – they make use of their own entrepreneurial experience
• sit as a Director on every business they invest in helping the start-up teams to accelerate growth and avoid risks
• focus only on businesses they understand and can add value to
• back their own judgement by investing personally in every new business into the Worth Capital portfolio.
Worth Capital now has a portfolio of interests in 22 businesses across different investment funds.
The founders of Worth Capital are experienced commercial entrepreneurs. They have each had 25-year careers covering both large corporates and growing their own businesses. They have deep expertise in marketing, brand building, innovation and retail. They cut their investing teeth 15 years ago and have since made dozens of investments, building successful personal portfolios, before setting up Worth Capital 4 years ago.
Retail: Senior positions in Kingfisher Plc & the John Lewis Partnership.
Innovation: Recently on the European Management Board of ?What If!, the global innovation consultancy. Still advising the leadership teams of huge businesses including IKEA, Waitrose & AB InBev.
Angel investor: 15-year track record of angel investing, including a £376k return after 4 years on first £58k invested.
Marketing: Founded iD in 1994, grown into a top 10 UK experiential agency with clients include Nespresso, Unilever & Britvic.
Brand: Founded Brandspace in 2004, exited to private equity after 4 years for £4.9 million.
Angel investor: Since 2006 with significant exits including iChild (18 x return) and Yocuda (4 x return).
Worth Capital hunts for:
PRODUCT, SERVICE & CHANNEL INNOVATION, IN UNDERSERVED AND/OR GROWTH MARKETS, WITH THE POTENTIAL TO CREATE HABITUAL CONSUMPTION (B2C OR B2B) & A LOVED BRAND.
Whilst both consumer and B2B propositions might be attractive, in either case the habitual consumption is important as this is what establishes brand equity – and therefore exit values beyond a benchmark multiple of EBITDA.
Examples to illustrate this approach include:
The most comfortable bedding essentials, ethically made in the world’s best mills, delivered direct at remarkably good value – by cutting out the retailer and the complexity of traditional bedding retail.
Smart motion detection and depth sensing hardware and software for occupational and physical therapists to improve the accuracy and efficiency of functional assessments.
Subscription software for companies to measure and improve employee engagement and business culture, and performance on business objectives and goals.
What makes them different:
• The Start-Up Series – a monthly competition promoted by startups.co.uk – highly competitive, an exclusive source of deal flow, attracting a diversity of entrepreneurs from across the UK.
• A rigorous and systematic distillation process over two months, developed from established innovation consulting techniques.
• Businesses selected by real world, commercial entrepreneurs with deep brand, marketing, retail & innovation expertise.
• Ongoing oversight from experienced battle-scarred investor directors, skilled in accelerating growth & reducing risk.
Regular deployment of capital:
Worth Capital’s dealflow origination is directed through the Start-Up Series Fund – with a choice of SEIS and/or EIS investing, with ‘mini portfolios’ invested broadly each quarter.
Worth Capital assess the deal flow, negotiate a fair valuation and make a commercial recommendation to Amersham Investment Management, the Start-Up Series Fund manager. who challenge the rationale and choose to accept (or reject) recommendations, before conducting further independent due diligence, completing investments and administering the fund on behalf of investors. Amersham are authorised and regulated by the Financial Conduct Authority with firm reference number 507460.