What diamonds can tell us about venture capital

by | Dec 12, 2022

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For professional advisers and paraplanners only. Not to be relied upon by retail investors.

Hundreds of kilometres below ground, intense heat from the Earth’s core and unimaginable pressure combine.

It’s hard to believe that these harsh conditions produce something as prized and unique as a diamond.

 

We can draw a comparison to the formation of unicorns, those rare private businesses able to reach a $1 billion valuation.

You’d be forgiven for thinking start-ups that become household names always form in a thriving economic climate where capital is easy to come by and sentiment is buoyant.

The reality can be quite different.

 

It is clear, periods of recession create difficult conditions for all businesses – new and old. Some businesses will therefore fail, and unemployment can rise. These are well-documented effects of a slowing economy.

But some of the best-known businesses backed by venture capital were formed in uncertain periods and a struggling global economy.

Recognise these names? Zoopla. Uber. Airbnb. These venture capital-backed successes all flourished following the 2008 financial crisis. 

 

As unemployment rises, you can expect to see better availability of top talent. Funding can become scarcer in a recession, reducing the level of competition around investing in the best businesses. And incumbents will often cut investment in innovation, creating windows of opportunity for new start-ups. For these reasons, it’s possible to invest in some early-stage businesses with enormous potential when the global outlook is shifting and challenging.

So investors should be excited about venture capital in the UK right now.

Malcolm Ferguson, a fund manager at Octopus Ventures, explains:  “We may be in the best period in over a decade to start a new business, and therefore invest in, a new company.”

 

“Some of the biggest household names were formed the last time we faced a challenging global economic environment.”

“Although new challenges and headwinds exist in 2022, there are a number of very powerful tailwinds.”

Don’t miss these seminars on venture capital investing

Taking place across 20 locations around the UK, between 5 January and 7 February 2023, Octopus Investments is hosting tax year end seminars focused on venture capital investing.

 

You’ll hear directly from the investment managers at Octopus Ventures, one of the largest venture capital teams in Europe.1 You’ll also hear from some of the early-stage companies Octopus invest in. 

What to expect:

  • A panel of industry-leading venture capital investment specialists join from the studio for a Q&A.
  • Why there’s a huge opportunity in venture capital investing right now.
  • Hear from the founders of inspiring venture capital-backed companies. 
  • How to access venture capital through Enterprise Investment Scheme (EIS) and Venture Capital Trust investments (VCT) and how this can support planning at tax year end.

Secure your place >>


Key risks to bear in mind

 
  • The value of an investment, and any income from it, can fall as well as rise. Investors may not get back the full amount they invest.
  • Tax treatment depends on individual circumstances and tax rules may change in the future.
  • Tax relief depends on the VCT or portfolio companies maintaining their qualifying status.
  • VCT and EIS investments are by their nature high risk, their share price may be volatile and they may be hard to sell.

For more information, click here


12021 Annual Interactive Global League Tables, PitchBook, 4 March 2022.

Personal opinions may change and should not be seen as advice or a recommendation. Issued by Octopus Investments Limited, which is authorised and regulated by the Financial Conduct Authority. Registered office: 33 Holborn, London EC1N 2HT. Registered in England and Wales No. 03942880. We record telephone calls. Issued: November 2022. CAM012568.

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