SFC, the UK’s most active early stage investor, is set to invest £11m in early stage start-ups this year.
The seed investor, which invests between £250,000 and £300,000 apiece in early stage start-ups, has raised £6m so far this year through its twin Seed Enterprise Investment Scheme (SEIS) funds.
This, combined with a further £2m raised through its wider angel investor network plus another £3m through its partnership with the British Business Bank’s regional angel programme, brings the total to £11m for 2020.
SFC invests in between 50 and 60 start-ups each year, although that number is increasing.
Contrary to reports that venture capital investors have taken fright at investing in start-ups, preferring to invest in later – and safer – funding rounds for established companies, SFC founder and CEO Stephen Page says that his angel investors have literally doubled down on early stage investment.
Last year, SFC just raised one third of this year’s total through its twin SEIS funds: the SFC Angel Fund and the Start-up Funding Club SEIS Fund.
Page said: “We’ve seen no diminution in angel investing. We’ve seen a positive increase from investors putting money into the fund. At the angel level, it’s a different perspective to venture capital. We’re not seeing anybody running for the hills. It’s almost the opposite. During lockdown they’ve had more money to put into risky investments.”
This angel investor appetite for pre-revenue early stage companies will be good news for founders anxious that VC money has taken flight.
What is SFC looking for?
Although SFC invests in a wide range of businesses, it has seen interest in any start-ups addressing pandemic issues, whether it is medtech and healthcare and anything connected to working remotely, although fintech continues to perform strongly.
And anything that capitalises on the trend for veganism also gets investor interest. SFC is currently raising £1m for meat replacement firm Jack & Bry.
‘We are keen to hear from female founders’
It is especially interested in hearing from female founders as “they really bring a different perspective to entrepreneurship,” Page said, as well start-ups in the regions, which he thinks have been underserved for years.
Each year around 2,000 companies apply to SFC of which between 300 and 400 are contacted by the investment team, which again gets whittled down to around 100 for more intense discussion.
SFC attends all board meetings and offers other support such as help with team recruitment for the first year of its SEIS investment.
“Our job and the job of SEIS for that matter is to give pre-revenue companies some validation,” said Page.
Page is a former tech entrepreneur whose emergency management software firm found itself working out of the New York coroner’s office in the immediate aftermath of 9/11 “Those early days were very traumatic,” he said.
In 2012 Page launched Start-up Funding Club, a syndicate to fund early stage start-ups. He hosted pitching events at central London’s members only club Home House.
In January 2014, Page launched the UK’s second-ever SEIS fund, raising £1.5m in its year one to invest in early stage companies, which enabled angel investors to write off 50 per cent of their investment as well as avoid capital gains tax.
To date, SFC has invested in over 200 companies.
SFC handpicks a portfolio of early stage companies for its fund investors to put money into.
Each of the two SEIS funds has a core of around 50 investors each – so 100 backers in total – with the wider SFC angel network consisting of about 200 people standing behind them.
Although it is still early days for SFC in terms of exits – Page advises his investors that their money needs to be tied up for anything between six years and a decade – his rule of thumb is that eight companies will fail out of every 10 it puts money into, “the old 80/20 rule,” Page said.
However, those two investments will more than pay off the rest of the portfolio. Hollywood works in much the same way, banking on a couple of blockbusters to pay off its annual slate.
As to the kind of breakout successes that will drive returns, Page points to one early angel investment, Onfido, which it was the sole first backer of and is now valued at £300m. Page recently sold some of his own shares in Onfido for a 100x return.
As for other investments his angel investors are excited about, Page points to Cognism, AI-based sales lead generation platform with a market cap of £100m; Humanising Autonomy, which predicts pedestrian behaviour and was originally developed for driverless cars when you have pesky humans stepping out into the middle of a road; and South Wales-based Transcend Packaging, a sustainable packaging firm which has won a contract with McDonalds to supply it with paper straws.
So, how has SFC – which until the pandemic hosted angel investor networking events – coped with the pandemic?
Page chuckled, “We’ve done everything remotely. Luckily the lease on our central London office that we’d had for seven years was coming to an end. Our dozen or so staff are constantly online, but our efficiency level is higher than it was when we were in the office.”
And, contrary to the gloom felt by most of the start-up community, Page thinks the Covid pandemic could actually be good news for the health of Britain’s entrepreneur community.
“This whole Covid experience will potentially result in more entrepreneurs who are starting their own businesses. They should be braver now. This is the opportunity for people to jump in and be more in charge of their own destiny. I’m still very upbeat.”