Seed investing as the world opens up

1st March 2022

By Matthew Cushen

The Start-Up Series Fund will be investing in a tranche of Seed Enterprise Investment Scheme (SEIS) qualifying investments at the end of March. As well as a tranche of EIS investment in growing businesses that we know well from having been working with them for a while.

As always, as we make selections and conduct due diligence, we have been challenging ourselves to ensure the market for these propositions are fertile ground, the teams are smart, energetic & resilient, and that valuations are fair for the founders and the investors that follow us into these businesses.

To assess performance to date and the potential in the future we have a view on consumption behaviours in a pre-lockdown, amongst lockdowns and post-lockdown world. By the way, I write ‘lockdown’ specifically – it was less the pandemic that has driven different consumer and business behaviour but the impact of being forced to live in a different way that has resulted in new habits.

The best way to make this consideration real is to give you some examples from our portfolio…


We see consumer and B2B markets falling into five categories, each with an example from our portfolio.

1. Largely neutral

Any performance before and during the last 24 months is an unbiased data point for future growth potential.

FC Labs is an investment of ours developing wearable safety devices for monitoring and alerting to mental acuity for the ‘hard hat’ market – construction, engineering and utilities. A year after our first investment, they are still busy developing and testing the product. Activity in their markets is largely as it was in the old world. There is a macro impact to consider – the impact of inflation (and conflict) on global growth and demand – but they have no market share in a nascent market, so this is not a consideration on valuation.

2. Short term tailwinds

During the last 18 months we’ve seen many investors fall into a trap of getting excited by businesses that have performed brilliantly through lockdown. Whilst failing to consider tailwinds caused by different, temporary consumption behaviours.

Bedfolk, a direct to consumer retailer of their own ethically produced, high quality bedding. They had already been growing very quickly – delivering 25% more sales in the first year of our investment. Then after March 2020, whilst further improving their brand, marketing and introducing new product, they benefitted from a huge increase in eCommerce. Shops closed and a huge demand for homewares was a strong tailwind to their very strong growth.

When assessing any eCommerce business, whilst we are bullish about the continued shift from physical retail online, we apply a discounting factor to performance over the last 24 months.

3. Short term headwinds

Conversely there are businesses that have struggled against headwinds but in markets that will quickly bounce back to normal.

Vitrue Health is smart motion detection and depth sensing hardware and software for physiotherapists & orthopaedic surgeons assessing & treating musculoskeletal (MSK) conditions . They were flying pre-pandemic with event based selling activities. But the team had to change their approach quickly. Moving to virtual demos, but also shifting product development. They developed a smart and timely method of assessing posture through a webcam, so posture assessments can be conducted at scale for home offices. They are an example of a business challenged by temporary changes in their market. But with solutions well placed for the future. One product that has patients in an out more quickly than current MSK assessment should prove a little more attractive as physiotherapists return to their practices with a reduced capacity. And another solution that gives employers a way of demonstrating care for remote workers. So, whilst they lost and then regained momentum through lockdown, the proposition is a net a little positive for the long term.

4. Prolonged negative

There are some sectors and businesses that even if they have fought through the last 2 years will struggle over the next few.

Nightly was a new way to book hotels – giving travellers the option to switch hotels once during their trip to get the best value, a different experience and save as much as 70%. Unfortunately, lockdown was devastating – zero revenue. And we couldn’t justify further funding. We expected the increased sensitivity around travel (for both traveller & hotel) to make their core proposition much less attractive long-term. This is the one business in our portfolio that we will lost as a direct result of the coronavirus.

5. Structurally positive

We believe humans are a resilient bunch and that long term behavioural change will be limited. But there are a few instances where habits developed over the last 24 months are likely to have an enduring impact.

Weekly10 is subscription software for companies to measure and improve employee engagement and business culture, and performance on business objectives and goals. The immediate impact of the lockdown was to suspend all the conversations they were having. But they were fortunate to have launched their Microsoft Teams add-in a fortnight prior to European/North American lockdowns (to add to desktop, iOS, Android & Slack versions). Then fundamentally, they are perfectly positioned to take advantage of a long-term systemic shift to remote working of professional workers. They have been adding customer very quickly and we expect that growth trajectory to continue.

This point of view is summarised on this 2 x 2 matrix, a useful shorthand to make sure short-term headwinds and tailwinds are not distracting from understanding longer term systemic conditions.

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