In this exclusive interview with GBI Magazine, Blackfinch‘s Dr Reuben Wilcock discusses the company’s journey to becoming one of the most active Venture Capital investors in Europe.
Wilcock explains the key lessons he and his team have learnt over the years, outlines their methods of deciding which companies are worth investing in, and provides his view on EIS and VCT investments in the current landscape.
Q: Can you explain your role within the company and tell us what Blackfinch does?
I’m the Head of the Venture Capital Team at Blackfinch. We invest in early-stage tech-enabled companies, focusing on disruptive businesses that address real world needs. The Ventures Team forms part of the wider Blackfinch Group which is a multi-asset specialist. Blackfinch has over 150 people with teams that invest in a range of sectors and asset classes.
These include multi-asset listed funds, property, technology, and renewables. Blackfinch Ventures has an Enterprise Investment Scheme (EIS) and a Venture Capital Trust (VCT) and our team of nine are nearly all ex-founders. I’ve founded four tech companies myself and am one of two technical PhDs on the team, with other specialisms including software and mergers and acquisitions (M&A). This unusual range of operator and expert experience gives us an edge in assessing companies.
Q: What are the key lessons you’ve learnt at Blackfinch, on your journey to becoming one of the most active investors in Europe?
We’ve been investing in high-tech companies at Blackfinch Ventures for around five years now. In the last 12 months we looked at over four thousand opportunities and we typically make ten or so new investments each year.
It all starts with sourcing. We look in all the usual places like accelerators, innovation hubs and universities but one aspect we’ve refined over the years is the use of specialized research tools combined with our own algorithms. We use the tools to curate lists of high growth companies that meet our criteria and are likely to be raising capital. Then we employ our own algorithms to narrow the list down, prioritizing the best opportunities. Taking this outbound approach means we sometimes gain early access to companies before they hit the market.
Revenue growth is a good indicator of performance but there’s more subtlety to selection than just the headline numbers. A company might be growing fast but might also be overspending on marketing. The team might be very good at selling, but all their customers could churn in a year because the product doesn’t perform as expected. So the top line doesn’t tell the whole story.
That’s why one of the areas we’ve learnt to assess in depth is the product’s engagement metrics. Knowing how often a customer is using a platform, and whether this is increasing, gives a good forward indicator of churn risk. We’ve also developed some proprietary metrics of our own over the years to measure long term growth efficiency. As a team, we’re constantly iterating our processes to improve our assessment of companies.
Another learning has been knowing when to step away from a portfolio company if the investment thesis no longer holds. A huge amount of time can be spent trying to save a failing company that might never make it, when instead this could be spent helping the best firms achieve a higher multiple which will more than cover the occasional loss.
Our VCT is intending to begin dividend payments from 2024 which is an exciting milestone for us as a team. Not only does it help to reassure those advisers who may be more cautious of younger VCTs, this milestone also recognizes the journey we have been on as an investment team.
We were recognized as the 7th most active Venture Capital investor in Europe earlier in 2023, and IFA Magazine’s own article, backed by Wealth Club data, recently showed how our underlying companies, by value, are growing faster than all other VCTs on the market. It’s been quite the ride, and there’s so much more to come!
Q: So how about the types of companies you invest in? How do you differentiate between what’s worth investing in and what isn’t?
We’re looking for companies that address some of the biggest challenges in the world. We want our portfolio to create sustainable, positive, long-term change that enables businesses and communities to thrive.
Over the years, we’ve learnt that it’s the team that really makes the company. We go as far as to look for three characteristics: a hacker, a hustler, and a hipster. The hustler is normally the CEO. They need the vision and the grit to sell products, secure the best hires and raise investment.
The hacker is usually the tech expert who’ll be up late at night trying to get the product right and built on time. They are the ones that obsess about delivering great technology.
Lastly, the hipster understands people, how to position a product, and how to hack growth. We’ve gotten pretty good at spotting these characteristics over the years. It’s not often that companies have all three, but those that do tend to have a better chance of success.
We invest across technology sectors, for example into companies like Tended, which we have backed since 2019 and are now a leading player in wearables for safety-critical industries. Tended’s unique high-accuracy positioning device protects the lives of construction and rail workers around the country. The product is so good that Time Magazine declared it one of the best innovations of 2023.
We also invest in more established early-stage companies that are generating revenues of over a million pounds a year, have good product market fit and are growing consistently. One example is Up Learn, which guarantees students to get an A or A* in their A-Level subject, if they complete its online learning material. We were skeptical too when we first met the company but incredibly 97% of users that complete the course achieve just that. Its CEO, Guy Riese, is one of several founders in our portfolio that have been named in the highly acclaimed Forbes 30 under 30 list of young innovators.
Our clients like that we target a 3-times return on their investment quite aside from the generous tax reliefs that are available. Moreover, they also benefit from being part of the journey of brilliant companies that are helping to shape the way we live and work in the world.
Q: What’s your view on EIS and VCT Investments today in the current landscape?
There was a study a few years ago that looked at the top 1,000 high-tech, high-growth start-ups in the whole of Europe. An incredible 319 came from the UK, with the next most highly ranked country being Germany with 149.
The reason for that is, through our ElS and VCT incentives, the UK has become excellent at injecting and directing private capital into these companies, at the crucial early stages of product development. This helps them get through the so-called valley of death and move towards success.
Although in the last 12-18 months it’s been a hard time for companies, this period has helped reveal to us which are the strongest and most innovative opportunities. The good news for investors is that, provided we can spot them, we can invest in these great companies at more attractive valuations because the market is down.
Also, the autumn statement confirmed that VCT and EIS will be extended for another ten years and looking at the Mansion House reforms, up to 5% of the pension investments will have to go into unlisted equities by 2030. That’s a huge sum of money, around £50 billion.
This is an amazing time to invest in early-stage high-tech companies because you’re investing at a low point in the cycle. Combined with the government’s commitment over the next ten years to put more support into this space, the potential for ElS and VCT qualifying companies looks to be getting more and more exciting.
Dr Reuben Wilcock
Reuben is an award-winning entrepreneur with over 20 years’ experience founding and growing start-ups. He is currently Head of Ventures at Blackfinch where he has led over 80 investments worth more than £60m into a portfolio of high-tech high-growth Seed and Series-A stage companies.
To find out more about Blackfinch’s EIS fund, access your complimentary of the EIS Annual Report 2024 here
