In order to build a diverse portfolio I invest modest sums in 5-10 startups annually (including follow-on rounds). I invest a fixed amount and don’t exceed it. Sometimes I will invest a reduced amount in order to further diversify or support a worthwhile social enterprise that I might otherwise not have invested in due to risk or returns.
Having evaluated a number of investment platforms I have doubled down on Seedrs as the best option for investors looking for the deal flow and investment size I currently pursue. This is due to Seedrs having struck a good balance (and aligned incentives) between founders, investors, and the platform. Seedrs also provides mechanisms for ongoing communications and exchange of ideas, protecting pre-emption rights, and operating a functioning secondary market. If you aren’t on Seedrs - I’m very unlikely to invest at this time.
The income tax rebates, capital gains shielding, and loss offset makes the risk-adjusted return on investment significantly more attractive for SEIS and EIS enterprises. This makes it very unlikely I will invest in an startup that doesn’t fall under these schemes (even though this limits international diversification).
The founders and executive team should own the majority of the business - in order to allow them a meaningful ownership after multiple investment rounds. I am extremely wary of dependencies on intellectual property that requires significant royalty payments to another party, or incubators that extract significant cash from the business.
You must have a clear exit opportunity (and intent) of at least 4-10x in 3-6 years, or 100x in 10-12 years. I’m not interested in plans for dividends or supporting a lifestyle business. I generally prefer investments with a realistic prospect of early exits.
I will not invest at idea-stage unless you are a successful serial founder, or I know you personally. For definition of successful see “Exits” above. You need to have demonstrated the capability to execute effectively on your idea, proven there is a market demand for what you offer, as well as the ability to survive competition.
You need to have a strong and balanced capability across business development and technology. This usually requires a team - but sometimes a sole-founder will be well-rounded enough. If you can’t build something great, and most importantly sell it at scale - I’m not interested. I am happy for the founders to draw a modest salary.
The market has to be of sufficient size to provide realistic prospects of an “Exit” as described above. I also have a strong preference for scale businesses where revenue opportunity is not linearly proportional to overheads. This is often but not always digitisation or technology startups - areas I know well. There needs to be an extremely strong go-to-market plan based on research, expertise, experience, and experiments - not wishful thinking. I will consider investing in product businesses where there is patent protection or some other barrier to competition in order to protect margins.
I welcome connections on LinkedIn from portfolio founders. I expect to see quarterly updates including progress against plan, changes to plan, and future plans - usually through the Seedrs portal. A commitment to ongoing engagement with shareholders through the investment forum is also important.
I am happy to spend a modest amount of time with portfolio companies for support and advice in the areas of information security and technology strategy and architecture. This is never imposed but rather offered in order to help assure successful outcome.