Playfair Capital, the early stage venture capital fund, occupies the top floor of an insanely cool space in Clerkenwell, London which simply breathes creativity. Hip-hop beats from Doctor Dre greet you in reception, as various bearded too-cool-for-school hipsters wander past.

Turns out, Playfair Capital shares its offices with millennial fashion TV channel Kyra TV – which bills itself as a “new age TV network” – and is, in fact, one of Playfair Capital’s investments.

Playfair Capital was founded in 2013 by Federico Pirzio-Biroli, who continues to be the seed fund’s sole source of finance and the only limited partner.

It has launched two funds to date.

Its first £20m Fund I closed 55 deals across 11 countries between 2013 and 2018. There have been three exits so far, including cryptocurrency exchange Crypto Facilities, which sold for $100m. Live investments include banking software developer Thought Machine, payments security firm Ravelin, and independent fashion boutique aggregator Trouva.

In March, Playfair Capital launched a £25m Fund II with a focus on deep tech (AI, machine learning and computer vision) and B2B, which it plans to deploy over three to four years.

Fund II has made three investments so far:

• SensorFlow – an IoT business based in Singapore that helps hotel owners and operators reduce running costs by optimising heating and cooling systems in bedrooms.
• Sightec – a Tel Aviv-based company that uses AI and computer vision to power autonomous flights from drones to UAVs and eventually to flying taxis and flying cars.
• uMed – a UK business that partners with UK and US healthcare providers to enable patients to take part in clinical trials and research.

Managing partner Chris Smith, 37, joined Playfair Capital in November 2018, having spent four years with Isle of Man-based business communications provider Plan.com, where he oversaw sales and led software development.

Before that, Smith – who founded his own telecoms business while in his first year at university – spent over eight years as a corporate lawyer at a New York law firm in London working in M&A, while also being an angel investor himself. Among the 14 companies he has backed personally is Mexican fast-food chain Wrap It Up!.

Growth Business sat down with Smith to discuss Playfair Capital’s investment ethos, what it looks for in a start-up and unforced errors which founders make pitching to a VC.

What made you want to move from telecoms to become a venture capitalist?

The thing I always enjoy most is the first 12 to 24 months of a company’s life, so for me seed stage venture capital was an obvious place to go.

Why did your chairman Fede Pirzio-Biroli pick you to run his fund?

Perhaps because Fede was an angel and I was an angel. He feels very strongly about an empathetic, hands-on, helpful approach to founders in contrast to some VC funds, which approach things through the prism of a spreadsheet. They’re only interested in the size of the market and the potential size of the company. We see the people we want to build a relationship with, and the quality of the founder is the thing which excites you most as an angel investor.

When founders approach us, they find the initial conversation a little easier than going into a meeting with ex-investment bankers who are just focused on the numbers.

Weren’t you intimidated walking into somewhere with an established business culture?

That was one of the reasons they brought me in. Because I had a background as an angel investor, they wanted me to respect the culture. I found it exciting rather than intimidating.

Apart from being bigger, what’s different about Fund II?

It’s aimed at companies involved in Deep Tech and B2B. We think it’s incredibly difficult to launch a consumer-facing technology business today, especially an app, because it’s incredibly expensive to acquire customers. We’ve reached peak screen time – I can’t imagine spending any more time on my mobile or laptop than I currently do.

How many pitches do you receive a month?

We’re currently getting between 300 and 400 a month. Entrepreneurs can pitch us through an online form. Access to venture capital should be meritocratic, not just about who you know.

Can people approach you cold or do you need to see interest from other investors?

It’s always nice to co-invest with other funds. But I’m equally happy if we’re the only fund looking at a deal. If we’re just following the market and investing like everybody else, we’re only going to generate average market returns.

Of those 300-400 pitches, how many convert into meetings?

Between 10-15pc.

‘We’re aiming for companies to become one of those $1bn plus fabled unicorns’

Why don’t the other 90pc progress to a meeting?

What we’re looking for is either companies that can address a very large market or can scale quickly. Some of the reasons we don’t progress to meetings is that the company is not suitable for external finance; what that usually means is that the size of the market is not big enough to generate a really large company. It’s called the ‘power law’ – the vast majority of returns are heavily concentrated in the top one to three per cent of companies. We’re aiming for companies to become one of those $1bn plus fabled unicorns.

What’s the most common thing that goes wrong in pitches?

The pitches often don’t go well because founders talk far too much. Because they live in the business 24/7, it’s almost as if their excitement and passion gets the better of them. They end up taking 45 minutes of a pitch meeting without pausing for breath; it means we don’t get into a dialogue.

What I like to hear is the concise background about the founders, their personal story, and then you can jump into the specifics.

What’s the one thing that founders need to think more about?

Usually what they can’t articulate is their sales strategy. We’re fortunate to meet lots of technically brilliant founders who’ve done PhDs in machine learning or doctors who have a technically brilliant solution to a problem. But they haven’t taken the next step of how do you turn this into a product, and the step beyond that of who do you sell this product to? Sometimes sales is considered something you bolt on afterwards, but the strongest companies are the ones who have sales built into their DNA. They’re always thinking, who is my customer and how can I sell to them?

What else do you offer besides just money?

We don’t pretend to offer everything, but we can offer support that fits the early stage of your company, including recruitment, financial knowledge and practical experience of what it’s like to scale up from a sole founder to one hundred people.

How do I know if my pitch has gone well?

If you’re a founder, you should start to see communication expand out to the rest of the team. That’s one positive sign. It suggests you’re doing well and that your proposition is being taken seriously. If we like a company, we like to get that company introduced to the whole team within a couple of weeks.

How long do you take to decide whether to offer seed money?

We like to say no quickly within a couple of days or within a week after a meeting.

When it comes to our investment committee, one of the key things is, is everybody excited about this deal? – and if we’re not excited, we won’t do it. That’s the angel mentality coming through. I want to be excited about the companies in our portfolio.

What is your average investment?

Our average cheque size is between £250,000 and £500,000, and that could be inside funding rounds of anything between £250,000 up to £2 million.

How long do stay invested for?

Although we invest at seed stage, we will follow our money on to a Series A round. Sixty per cent of our money is reserved for follow-on rounds. We may not lead that Series A round, but we have a pretty good track record of supporting companies into successive rounds. Of course, when a company becomes successful there will be much bigger funds which do come in.

One of the advantages of Playfair as opposed to a fund that has lots of external LPs is that we don’t have a set timeline – if it takes us 10, 12 or even 15 years to get a return, that’s not a concern. We’re very much long-term patient capital.

How much do you charge as a fee?

No fees but we do take a percentage of a company. There’s no science to valuation. At this stage of investment, it’s an art. As a range, we take between 10-20pc.

VCs have been criticised for women having a harder time pitching for funding than men. What is it that female founders stumble over when they pitch to you?

I’m not sure that’s true. We are seeing more female founders coming through. The old stereotype was that women hold back and don’t assert themselves enough, but I would apply to that some male deep tech founders as well. You need to sell yourself. If you’re a bit reticent or a bit humble you need to shake that off.

Why should I come to Playfair Capital as opposed to any other VC?

If you intend to raise Series A, having a fund like Playfair will send a very positive signal to the market. In this industry, we talk a lot about signalling. Playfair has a deep network with Series A funds.

You should only take money from us if you feel good about the relationship and what we can do for your company.

Further reading

European companies raise £4.4bn of venture capital in first three months