ARIE Capital, the London-based venture capital fund, is raising a £10m Enterprise Investment Scheme (EIS) fund to back up to six tech start-ups.
What makes ARIE Capital different is that it offers portfolio companies not only follow-on funding through its £26m VC fund but also a way into the Chinese market with its 1.4bn customers.
The fund manager is giving itself until March 31 to raise the £10m and has already identified its first four investments.
These are enterprise-grade IoT solutions tech company NET 4 Holdings; Vitabeam, which uses LED technology to encourage food production; Hip Impact Protection, which manufacture hip protectors with built-in sensors to help prevent fall-related injuries; and white-label mobile app developer engage.do.
ARIE has identified four silos it wants to invest in:
- Technology, data, internet, connectivity
- life sciences
- sports technology and content distribution
ARIE invests between £250,000 and £1.5m in each company with the promise of follow-on investments from its bigger VC fund, whose average investment to date have been $2m.
Stephen Margolis, chairman and founding partner, said: “The good thing about having a defined investment policy is that we can say initially what’s suitable and unsuitable to look at.”
ARIE will only invest in B2B – businesses which have their own intellectual property to protect – and they have got to have revenues.
Margolis says that, on a personal note, he also needs to get on with principals as he is hands-on when it comes to advice and mentoring.
Investors can invest either in the EIS fund or in an individual portfolio company.
Margolis previously ran film financier Future Films, where he raised over £2bn for film and TV production.
Margolis says that it wasn’t such a difficult transition from film to technology: in both sectors you have creative people making a product that needs distribution. What he was interested in wasn’t just investing in a start-up but extending them a runway into the vast Chinese market as well.
Margolis said: “If I can get one of our companies to grow in China, then I’ve grown the value of the company.”
Margolis’s Chinese connection began in 2014 when, through his chairmanship of the Jewish Film Festival, Margolis found himself as part of an Israeli trade delegation to Hong Kong, Shanghai and Beijing.
At the time he was investing in Israeli-sourced technology with a view to developing it outside Israel with an eye on the Chinese market.
The ARIE VC fund launched in 2016 after raising $35m for tech companies.
In 2017 Margolis raised more money in China but found himself blindsided by Chinese legislation blocking him from taking some of the funds raised out of the country.
The ARIE VC fund had completed 15 investments by 2018. Redux, its first investment, was sold to Google that same year. As of 2020 these 15 companies had a combined valuation of approximately $63m and Margolis expects them to be ultimately worth $80m.
Stymied from further Chinese fundraising, Margolis decided to concentrate on fintech and established a digital bank in Mauritius, ACBM, which is set to be licensed as an asset manager in China with an office in Nanjing and a joint fund with the local government to encourage inward investment.
Margolis said: “We’re a minnow staring up at the likes of JPMorgan and Goldman Sachs with the Chinese asset management licence, but we have good relationship with local governments in China.”
Margolis is self-effacing when it comes to whether ARIE Capital will hit its first £10m investment target. The EIS market is difficult to break into, especially, he says for what he calls a challenger fund such as ARIE.
“However, I think we will have done extremely well if we are able to raise anything between £2m and £2.5m,” Margolis said.
But if ARIE does bust its £10m investment target, it will not be a question of throwing more money at existing investments.
“It’s important that anything we invest in is efficient with our money. They’ve got to be increasing value for shareholders, not just spending more on R&D,” said Margolis.