Each investment is a monthly winner of the Start-Up Series. This is a competition run by us and promoted by startups.co.uk, not surprisingly the ‘go-to’ place for start-up businesses looking for advice. With over 400,000 monthly users, the competition attracts an average of over 95 entries per month.
The Series is promoted across the UK, so attracting entrants from well beyond the ‘old boys’ network and London-centric investment bubble, which see funders fighting over a small pool of opportunities – which can lead to inflated valuations.
This wide and diverse deal flow is then assessed through six stages to distil down to one winner.
The Start-Up Series distillation process is conducted principally by the two co-founders of Worth Capital, experienced entrepreneurs with expertise in brand, marketing, retail and innovation. The process takes six weeks and gets progressively more intense for the entrepreneurs. It includes half a day with each of the finalists, digging deep into the business proposition, strategy, plans, financial projections and the strength of the team.
A winner is recommended to Amersham Investment Management, who then conduct additional technical due diligence before their decision to invest from the Fund.
The Start-Up Series Fund is structured as an alternative investment fund (AIF) for the purposes of the Alternative Investment Fund Managers Directive (AIFMD), making investments in Enterprise Investment Scheme (EIS) and
Seed Enterprise Investment Scheme (SEIS) qualifying companies. An advisor can direct a client’s investment to either SEIS or EIS investments. The investments themselves are made at the discretion of the Fund Manager.
Before getting to the final stage of the competition, we agree a fair valuation with each finalist in the event an investment is made. It will reflect the risk for investors, the progress made so far and the need to keep the founding team motivated through (the usually inevitable) subsequent funding rounds. We benchmark using tools such as Beauhurst and from having our ears to the ground on many private fundraises.
As part of the final half day together the entrepreneurs get to understand the value of having Worth Capital involved, which helps them to maintain perspective on valuations we suggest.
Having access to a deep well of deal flow, quality businesses and offering real help to the start-ups we talk to means we are in a strong negotiating position. We don’t find ourselves backed into a corner and agreeing valuations just to get a deal done.
Investing in start-ups is inherently high risk, so no investor should invest in just one or two businesses. The Fund is invested in tranches, with each tranche designed to make three to six investments. So each investor immediately has a ‘mini-portfolio’ to diversify risk, and if invested across a whole year, they could end up with a portfolio of 12 plus investments.
The Fund is not focused on any particularly sectors, and covers both consumer and B2B businesses. It is not focused on technology and so avoids the hype (and crash) for or against particularly technologies or tech sectors. The common threads for companies supported by the Fund are under-served and/or growth markets; innovation; the ability to create habitual consumption and therefore to build loved brands (which is important to maximise exit value for investors). Therefore the investments do end up highly diversified across sectors. In addition, it is always Worth Capital and the Fund Manger’s intention to create diversification within each tranche of investment across consumer & B2B and to some extent between different maturity of SEIS or EIS businesses (within the confines of HMRC’s parameters for SEIS & EIS).
We are aware that advisers have been frustrated by SEIS and EIS funds not deploying funds quickly enough, and in some cases not even in the same tax year. Because of our ‘competition funding’ approach and how it generates a wide and high quality deal flow, the Fund is never short of attractive investment opportunities. We are keen to put your clients’ cash to work quickly and have a record of making regular investments during the year (we aim for 3 SEIS and 3 EIS tranches of investment each year).
For your client to claim their income tax relief, they will need their SEIS3 or EIS3 certificate from HMRC. It amazes us that these certificates often take many months to be received from some funds. We appreciate that this causes problems for advisers. We also think being tardy with these certificates is a sign of poor customer service. We have designed a simple process that we manage carefully and quickly, and have a record of getting certificates to investors within one to two months from the date the fund makes the investment.
Team briefings and CPD qualifying training on SEIS & EIS, be it face to face or via webinars and conference calls.
Extensive materials explaining The Start-Up Series Fund; suitability letters and wording.
Client seminars on SEIS & EIS investing from investors with over 15 years of angel investment experience & battle-scars.
Independent reviews of our Fund carried out by industry experts Hardman & Co and MICAP
We have been delighted to be involved with the Start-Up Series Fund as a product that takes a responsible yet innovative approach to seed investing. It’s not often you come across funds with such a thorough distillation model.
The Fund appears to have a healthy level of deal flow from the Start-Up Series competitions... these competitions are also important tools in the investment selection and due diligence process.
The directors of Worth Capital bring a lot of entrepreneurial and angel investing experience. Although there is a limited track record, the investment process that has been put in place compares well with those from more established managers.