15 September 21

A Venture Strategy that Maximises the Chances of Success

The UK tech sector has boomed over the last 18 months. By the end of Q1 2021, the sector attracted record investment of close to $8bn as investors backed the most promising young start-ups.

The pandemic has had a significant impact on the journey of start-ups. Huge numbers of businesses have been born having anticipated and responded to the changing needs of a socially distanced world. Some start-ups have flourished, others have adapted, and many have struggled. The venture landscape is buzzing with opportunity and pitfalls and the need to select strategies designed to maximise the chances of a start-up’s success has increased.

This surge of interest is understandable. We know that times of great change create tremendous opportunities for entrepreneurs to innovate. We saw this during the 2007-2009 financial crisis, when a number of start-ups went on to become unicorns (worth $1bn plus), such as Uber and Slack. In the course of 2020, 93 new unicorns were minted and the British high-growth company sector was valued at $585bn (doubling in size since 2017).

This is without question fantastic news and demonstrates that the UK is fertile ground for innovation. Over the next 24 months many more disruptive software start-ups will emerge as a result of innovative thinking, a reassessment of priorities, and the adoption of new technologies.

Yet for investors looking to back the most promising early-stage companies to support their journey from start-up to scale up, there are risks that need to be addressed. The challenge for investors is accessing the potential of high-quality, better capitalised companies with low valuations, while also addressing a key risk in venture capital investing.

Establishing market fit

There are many reasons why start-ups fail, including issues with a remote workforce and cashflow related difficulties, but there is one factor that overtakes the rest in causing the most problems for the greatest number of young businesses: No established demand for their product.

Industry research published by CB Insights indicates that the number one reason for start-up failure, cited in 42% of cases, is the lack of market need. There are many instances where talented, hardworking teams fall short because their business model is unable to address a large enough problem.

The problem for venture capitalists is that they have traditionally tended to focus on researching a broad cohort of companies with the aim of identifying those businesses that are likely to be successful. Investment is then made based on this research with the hope, rather than the expectation, that the market will validate the investment.

A challenge led approach

What Triple Point anticipated back in 2018, was a movement towards a new, distinct approach to venture capital investing based upon the need to address certain risks associated with nascent companies – establishing market fit.

The basic premise of a challenge led approach is to work alongside large corporates to identify the problems they face and then identify the early stage business with the innovative new product or service that can provide the solution to these real challenges.

This approach ensures that a market fit has already been established, before investment, which results in the same potential early stage financial benefits, whilst reducing the risk of the business not achieving a market fit. By investing at this stage, Triple Point’s Venture Fund VCT aims to mitigate some of the risks of early stage investment, whilst continuing to maximise potential returns for investors. 

Triple Point Venture Fund VCT

Triple Point’s Venture Fund VCT is now in its fourth year, having just launched a new top-up offer. Throughout the pandemic, the investment team has been actively working to provide new businesses with the money and support they need to grow, while giving smart start-ups access to fast, reliable capital at the earliest stages of their lifecycle.

Since inception, the fund is over £25m, invested into 25 early-stage companies across 11 sectors that actively solve challenges facing large corporates. With one exit to date, the Venture Fund VCT has delivered a total return over 14% since launch (including dividends and capital).

The companies that are going to thrive during and after the pandemic will be the ones that best adapt and respond to the challenges that emerge. Given the huge opportunity to back innovation, choosing the right investment strategy has never been more important.

Find out more about Triple Point Venture Fund.

Risk Warning: The Triple Point Venture Fund VCT carries all the risks of investment in smaller companies and places investor’s capital at risk. There is no guarantee that target returns will be achieved, and investors may get back less than they invested. Past performance and forecasts are not a reliable indicator of future performance. Tax treatment depends on the individual circumstances of each client and is subject to change. Tax reliefs depend on the VCT maintaining its qualifying status.

This article was written by Triple Point's Jack Rose