Like everybody else in lockdown, Octopus Ventures co-CEO Alliott Cole is worried by his hair – although he looks trimly tonsured on our Zoom call compared with my Gandalf locks.

Octopus Ventures is one of Britain’s busiest venture investors, with over £1.3bn under management.

Based in the UK, with offices in London and New York, Octopus Ventures has backed over 134 companies to date, including some of the UK’s best-known consumer brands including Cazoo, Secret Escapes and Zoopla.

Its £1.1bn Octopus Titan VCT plc evergreen venture fund invests over £50m annually into between 15 and 20 companies, with over £60m worth of follow-on Series B investments into existing portfolio companies.

A typical investment will be from £1m for Seed to £10m for Series B, although it can continue to fund portfolio companies through to IPO.

Because Octopus Ventures wanted to participate in later-stage funding rounds for its portfolio companies, it has raised three more funds worth a combined £300m through institutions.

These three institutional funds can invest up to £20m at a time per company in later funding rounds.

>See also: Octopus Ventures plans to launch a £100m fund for health tech companies

Cole joined Octopus in 2008 and as CEO has focused the VC down on four verticals: health, fintech, deep tech and consumer. Each of these four “pods”, as Octopus calls them, makes between three and five investments apiece each year.

Octopus’s leading market position means it has a high attrition rate when it comes to sifting through investment proposals.

Out of 2,101 investment pitches, the 30-person Octopus investment team only made 15 new investments in 2020. That’s a conversion rate of just 0.7 per cent.

‘Authenticity and passion are what get you over the line’

So, what is it that Alliott Cole and the team look for when it comes to entrepreneurs getting their foot in the door?

The number one thing he wants to see, he says, is passion and authenticity. Without those two things, says Cole, a founder faces a long hard road when running a company. By authenticity, Cole means conviction.

Authenticity and passion are what get you over the line, says Cole.

>See also: Seedcamp makes first 17 investments through £78m Fund V

Cole says that a common problem when being pitched by founders is that they’ve overprepared and by the time the founder presents, they’ve lost all their passion and conviction to attract investors, he says.

“When an entrepreneur is authentic and true to themselves then the presentation comes alive. It’s much easier to support and advocate for an entrepreneur who’s speaking from her own personal experience and not trying to hit every piece of jargon or VC script.

“It’s so hard to start these businesses. If your decision is not authentic, then it’s going to be so hard for the entrepreneur to sustain themselves over the highs and lows of building these companies. You need that passion, that authenticity. And when there’s that tenacity, it’s far more likely that the entrepreneur will be able to realise their vision.

“When an entrepreneur speaks to us like that, it’s much easier for us as an investor to commit to the very long journey from seed and Series A. Often we’re committing for over 10 years.”

One indicator that Octopus Ventures is easy to work with are the number of repeat entrepreneurs who keep coming back.

A bit like one of those rock family trees where multiple bands stem from one combo, so many of Octopus’s investments sprang from the founders of DVD rental service Lovefilm.

Former Lovefilm founder Alex Chesterman stuck with Octopus when raising money for his next ventures, online estate agency Zoopla in 2007 and then second-hand car platform Cazoo in 2018, which is now raising $1bn on the New York Stock Exchange.

Other Octopus-backed start-ups created by entrepreneurs connected to Lovefilm include the now Unilever-owned Graze, Tails.com, Skin + Me and Secret Escapes.

Cole says: “Back in 2008 when we raised our first £30m fund, we were on the hunt for exceptional entrepreneurs with big ambitions. We were fortunate to invest in Alex Chesterman early on with Zoopla. We’d known Alex from Lovefilm, which was an extraordinary stroke of luck that got us going.

“We always had the conceit that the most talented entrepreneurs would always have a choice where to get money from and we had to have the right to be on that shortlist. And that sense of customer respect for investing in entrepreneurs was quite rare at the time. It’s something that we’ve held dear at Octopus. Those entrepreneurs keep coming back to us.”

Cole is not afraid to ponder his answers to questions, which strikes me as very smart. Indeed, Cole comes across as one sharp tack.

Despite trying to bowl him bouncers to catch him off-guard, such as whether the Government has wasted taxpayer money supporting failing start-ups through the Future Fund, Cole remains imperturbable.

Cole shrugs off talk of a shortage of start-up capital (“runway cash”) for UK start-ups as investors take fright at true start-ups, wanting to put their money into later, safer funding rounds.

Nor does he recognise talk of US investors putting money into ever earlier stage start-ups, driving up the costs of deals for other investors as dollar-dazzled founders sign away for American cash.

Cole believes that the success of a European start-up like Spotify, now a $67bn business, has inspired other entrepreneurs to raise their own game. Capital is coming to Europe in a way that it’s long struggled with in previous years, he says. A $1bn valuation, so-called unicorn status, is simply a milestone, he says.

Says Cole: “The capacity for European entrepreneurs to build substantial, enduring businesses is now proven beyond doubt There’s no shortage of capital for great entrepreneurs building large businesses at any stage now. Of course, it’s always been hard to raise money. But within the UK particularly there’s an increasingly professional cohort of angels and a growing number of investors at Series B stage and beyond.”

Further reading

Bethnal Green Ventures £10m tech-for-good fund makes second exit