By Matthew Cushen
Reading pitch decks, business cases or investment proposals is energising. It doesn’t matter what they are called, or if they are poorly articulated, poorly presented or expressing a truly rubbish idea – I’ll still see something stimulating. And it’s just as well, as I see perhaps couple of hundred every month.
However, I find it infuriating when a founder describes a product (or service) but forgets to describe the market and the need it will fulfil. Unfortunately, this is endemic with ‘tech’. We often see pitches for an elegant solution, desperately in search of a problem to solve. Or a founder will describe their business as ‘fintech’, ‘proptech’, or ‘healthtech’ and expect investors to flock and valuations to triple just on the tech premise. Sometimes accentuated by sprinkling with ‘blockchain’, ‘artificial intelligence’ or ‘deep tech’ and expecting the description of what goes into the solution to create excitement rather than the value that is created for a consumer.
At Worth Capital we are obsessed with the market that a product (or service or experience) is launched into.
Firstly, we value inspirational market insight. If an entrepreneur has identified a new insight, then they have a good chance of creating a truly innovative product and/or being able to dominate a new category. For example, the Start-Up Series Fund recently made an SEIS investment into Vitrue Health following our commercial recommendation. Most healthcare professionals have their toolkit and their measures, from a haematologist assessing blood health to an optometrist conducting eye tests. The founders of Vitrue saw that physiotherapists and orthopaedic surgeons are underserved in measuring and assessing muscular skeletal health. Currently a physiotherapist will conduct several tests over a 30-minute consultation, assessing by eye and taking notes by hand. Vitrue developed a box of depth and motion sensors that observes the same tests and immediately creates a visual and quantitative report showing joint and muscle movement. The box of sensors and the algorithms have the same level of accuracy for whoever is conducting the test and whenever they do so – creating a truly objective and comparable set of data. Yes, this is a healthtech product – but we were sold on the open space, the muscular skeletal health market and the potential to extend this beyond care to preventative early diagnosis.
Once we get our heads around the market need, we are also interested in whether a market is fragmented or underserved, i.e. is there space for new innovation to flourish? For example, Bedfolk sells ridiculously comfortable bedding (sheets, pillowcases and duvet covers) manufactured in a beautiful mill in Portugal. That alone would not be solving a need. But they’d seen that the customer experience around buying bedding is very poor and even the most successful retailers like John Lewis and The White Company have single-digit market shares. So, they are selling direct to customer – making the transaction simpler and by cutting out the retailer making the product much better value. This is a formula that has worked in the US, with brands such as Parachute and Brooklinen growing spectacularly fast.
We are interested in market scale and growth. We don’t always need to be investing in huge markets, but we do need to see enough room for a new brand to establish a significant multi-million pound business. An example here is Uniblock which manufactures a patented building material that is the basis for building highly insulated walls extremely quickly and without skilled labour. Clearly the construction market is huge, but what struck us is that similar products account for 10% of new construction in North America but less than 0.5% of construction in the UK. Therefore we can expect huge growth in the UK and indeed the business has already received its first multi-million pound purchase order within its first 12 months.
However good an idea is, we know that it will iterate over time, sometimes quite dramatically. (Pivoting being the oft used phrase for starting again after something has failed spectacularly). But whilst the product may and will change, it is very seldom that a business can get away with tackling a whole new market. That is why we interrogate the market and the market needs very closely.