Sean Seton-Rogers may have been born in Texas but this affable American is the very opposite of a redneck huntsman. Nevertheless, he leans forward in the Knightsbridge office of PROfounders and says earnestly, “We’re in the unicorn-hunting business.”
For Seton-Rogers, the difference between a good venture capital fund and a great on is the number of unicorns it generates.
By unicorns, he is of course referring to companies whose revenue is over $1bn a year.
To date, PROfounders, the VC fund he co-founded in 2011, has grown four unicorns: online furniture seller Made.com, tourist activity platform Getyourguide, Finnish mobile games developer Small Giant Games and mobile software platfrom Unity.
So far, PROfounders has raised £75m through two funds, investing seed money in 48 companies.
It is now raising a third €100m fund, which it hopes will back just 20 businesses.
PROfounders takes equity stakes of between 8 per cent and 10 per cent in businesses it backs, investing between £500,000 and £2m in start-ups – although its sweet spot, says Seton-Rogers, is investing £1m in a company raising £2m.
Seton-Rogers says: “We’re not the first capital into a business but we’re the first institutional capital. There’s likely to have been between £500,000 and £700,000 worth of angel investment already, so that we have some idea if there’s customer traction.”
The fund is also swinging its attention more towards continental Europe. The first two funds spent 60 per cent of their cash on British start-ups, while the new fund will spend the majority of its dry powder on fledgling European businesses – nothing to do with Brexit, Seton-Rogers adds, more to do with the rest of Europe catching up with the UK when it comes to start-ups with vision.
Indeed, the American is bullish on UK plc going forward, saying that the next ten-billion-dollar businesses is bound to come out of Britain, whether they’re in fintech or education or gaming.
PROfounders, which sits under private equity firm Oakley Capital and shares offices with it, raises money through a mixture of institutional capital, family offices and founders who have been successful themselves – hence the company name.
Oakley Capital founder Peter Dubens, whose personal fortune is estimated to be £150m according to the Sunday Times Rich List, is also an investor and sits on the investment committee, deciding which start-ups PROfounders will back.
And the attrition rate is high – PROfounders only invests in 0.5 per cent of the businesses which pitch to it, which means the other 99.5 per cent go away emptyhanded.
So, what is it these other businesses are getting wrong with pitching?
It’s not that they’re getting anything wrong, says Seton-Rogers, more that they’re not big enough investment propositions for us. They may be million-dollar opportunities but not billion-dollar ones, he says.
Okay but other warning signs are you looking for when founders come to see you?
Seton-Rogers says: “For us, there are two red flags. First, if we’ve identified a business risk, a flaw in the model, which the founder is unaware of. Second, a lack of numeracy – if founders aren’t obsessed about the measuring side of things, knowing the metrics, that’s alarming.”
PROfounders wants to see more pitches from two sectors: digital health and what’s becoming known as the metaverse – what used to be called virtual reality. Indeed, it has made four investments – two in digital health, two in the metaverse, in the past four months. One of these was in Side Quest, a Northern Ireland-based app store for VR games.
Seton-Rogers says: “When it comes to the metaverse, we’re thinking about it from a pick-and-shovel perspective. What are the tools you need to build in this space?”
Overall, what PROfounders is looking for from founders are products that fix broken customer experiences, whether that’s in B2B or B2C.
“It’s all about identifying the pain point, the problem, and what is that product-led solution to that pain point?” says Seton-Rogers.
Once PROfounders is in your corner, that’s when it comes into its own. Unlike some other venture capital funds, whose seed-stage investment may be a one-off, PROfounders reserves three times its original investment for follow-on funding.
Seton-Rogers says: “We need to continue to fund the growth of that company. If a company is showing traction, we will continue to provide later financing rounds. We over-reserve compared to other funds. If a company is doing well, we want to maintain our ownership stake in that company or even increase it.”
PROfounders sees its advantage as having a network of investor founders who can advise you on growing your business, and it also taps into US and European investors who can write big cheques when the time is right.
Seton-Rogers says: “If somebody is globally ambitious, tapping into that network can be incredibly helpful.”