With record numbers of companies being formed, finding the next big thing can be difficult for advisers, but founder of Intelligent Crowd TV, Shane Smith, believes he can help.
The UK saw a record number of new company formations last year, just short of 600,000, and the most recent data for 2013/14 shows 2,000 companies receiving SEIS funding.
When we consider that investing usually or ideally requires a meeting, that represents a lot of investment opportunity, but also drives a lot of work – for both investors and entrepreneurs. Just a thousand companies meeting a thousand investors over the course of a year adds up to a million meetings. There has to be a better way.
Late last year, Intelligent Crowd TV launched The Seed & EIS Hour, a weekly one-hour chat show and pitching format to give founders a stage to explain their propositions (live-streamed), and to give investors a way to gauge the quality of the founding team and its proposition, quickly and efficiently. With support from Argus Research, the leader in pre-IPO research in New York City, and audience Q&A via Skype, the program is designed to be a 15 minute fast-track to getting under the skin of a deal.
Here we’ve selected three recent pitches which are currently open for investment, as well as Edukit which successfully seed-funded in our first series and is preparing to return for Series A funding:
About: “Clinic-based doctors lack ready access to reliable blood tests and today’s solution – sending the patient or a blood sample to a lab – is fundamentally inefficient, with waits of a day or more leading to delays in diagnosis and treatment and unnecessary costs. Jupiter Diagnostics’ answer is faster and cheaper blood testing using a low-cost handheld reader. Thanks to our patented technology, we can replace the lab, delivering similar quality results in 10 minutes from a prick of blood – and at prices a third cheaper. The global market for blood testing is worth £100 billion, but our first products are for the £100 million IVF test market, where we have proven demand from private IVF clinics, and distributors already selling point-of-care tests to our target customers in Germany and Spain. Jupiter is a newly-formed UK limited company, combining technology from US and UK companies based in London and is EIS eligible.”
Sector: Consumer staples
About: “FilmDoo is an online video-on-demand (VOD) platform focused on helping people to discover and watch great films, short films and other content from around the world. Unlike other VOD platforms, FilmDoo focuses on building a thriving film community and empowering users to drive social recommendations and to help bring a film to their region, a game changer and disrupting the way traditional film distribution currently works. FilmDoo makes it easier, fun and engaging for people to discover films they would otherwise not hear about while bring greater transparency and data analytics to the film industry.”
About: “Rotor is a new technology for making music videos online, in a matter of minutes. It is a cloud-based tool, so everything takes place in the Rotor website. All the user needs to do is sign up and follow three simple steps – load in their song, choose how they want their video to look with one of our style templates and choose which video clips to use. If the user doesn’t have their own clips, we have a stock library they can choose from (currently, 75% of our paying customers use only stock clips). Rotor creates a preview of the video in about 3-5 minutes. If they like the preview, they can buy the high resolution version – starting at £5 and up to £25 for full HD. If they don’t like the preview, they can change the clips and style. Rotor is fast, inexpensive and simple to use. We have early traction with the consumer market and also with the B2B offering. We’re now entering our next phase of development.”
About: “EduKit is an online platform that connects schools with thousands of opportunities and programmes that can help children and young adults. Youth service providers spend over £350 million annually on ineffective marketing to schools. We will be the place where a significant proportion of this is spent. Given that schools receive £2 billion-plus annually specifically to support low-income pupils, EduKit helps schools to identify suitable programmes for pupils and to demonstrate to Ofsted, their governors and other stakeholders that these have achieved tangible results. We have strong traction with thousands of users at 78 schools and over 800 providers actively using our platform. We have also won awards from the Department of Education, UnLtd BVC and Sirius (UKTI).”
How Intelligent Crowd TV works:
We advocate a simple portfolio selection process, guided by these principles:
- Focus on SEIS, where your exposure to any individual company is typically limited to around 28p/£
- Focus on the team behind the company/idea
- Understand the “big picture”, from an independent analyst
- Recognise that one or two big “winners” will massively skew your portfolio return, but don’t try to find that single “winner” or the unicorn. Rather, if the chances of a winner are 1 in 100, make sure you have 100 companies in your portfolio
- Focus your effort on selecting these 100 from a curated pool, where the more obvious non-starters have already been eliminated – and your time requirement is reduced
- In your selection process, avoid the pressure of herd mentality
For The Seed & EIS Hour every Monday evening, the aim is to apply these principles to make it a manageable one-hour-a-week commitment, to building a highly diversified SEIS portfolio, with nil fees to erode net returns. Having watched and evaluated two or three entrepreneurs pitch their businesses, you’re invited to express interest online. But – unlike the total investment slider-bar beloved of crowdfunding platforms to whip the herd into a stampede – these expressions of interest are not divulged until/unless the moment when their cumulative total reaches the pitch target. At that point, each member of the audience who expressed interest learns that enough of their peers formed the same view and therefore the pitch is likely to move to the next stage. Or, not.
Making SEIS easier
We think the outcome offers an improvement on current prevailing investor behaviour which falls into three camps, typically:
- Investment into SEIS funds, which are characterised by significant fees and concentration of risk/limitation of reward through small portfolio size. Consider that even if the selection is basically sound, luck also plays a part in their eventual performance. So when you’re looking at the six or seven expensively-selected companies in your fund, ask yourself: do you feel lucky today, punk?
- Direct investment through equity crowdfunding platforms, where deal quality can be poor, valuations can be high, and the average SEIS portfolio is less than three holdings
- Sink your £100,000 SEIS allowance into your brother-in-law’s business.
We think that the main constraint on SEIS investing generally (and the main driver of SEIS investing through funds) is that until now, it has simply been too hard for individual investors to find viable opportunities with only a modest time commitment.
And for the future, seed investing through equity crowdfunding platforms will depend totally upon efficiently connecting the best opportunities with investors who understand the benefits of building a diverse portfolio, rather than placing ad-hoc bets.
How to participate
Series 4 of The Seed & EIS Hour will resume in January 2017 together with an additional format, The Series A Hour with Match Capital. We regularly host key figures from the industry, for example UK Business Angels Association’s Jenny Tooth OBE, and EISA’s outgoing Director General Sarah Wadham, as well as exceptional company founders.
Your client wants SEIS suggestions. You can’t advise. Now what?
We operate as an Angel Association, which is free of charge for members. Of course, there is the standard FCA registration requirement in order to access the free content (via any device). So while you can’t give advice to clients on particular deals, you can nevertheless provide guidance for where to look. Once registered, you’ll receive a weekly email with notes on the up-coming presentations for the week so that you can login, watch, ask questions – and move forward armed with insight and information.