30 October 24

Q&A with Seb Wallace, Triple Point Head of Ventures

We asked Seb Wallace, head of Triple Point Ventures, to share his thoughts on venture capital investing and current trends.

Let’s start with you telling us what you do

I co-founded Triple Point Ventures alongside Ian McLennan in 2017 and I’m responsible for deal completion and overseeing the investment and portfolio teams. I’m also the co-founder of a start-up called Further, a software-as-a-service business whose product is a digital fund administration and operation system used by modern private market funds across the UK.

What does your role at Triple Point involve on a day-to-day basis?

We spend a lot of time talking to the founders of the companies we invest in, and looking at new companies to add to our portfolio. This can involve sector or theme-based research and speaking to experts in various different areas, so we can uncover trends that may be right for the fund. We also spend significant time talking to our own investors, the investors in our funds. We are continually looking at our overall investing strategy and exploring ways of growing the business.

How do you find companies to include in the Triple Point Venture VCT?

A mixture of networking and thesis-driven research. Finding companies through your network is always a core element of venture capital, but in recent years the biggest difference has been the introduction of data analysis. A lot of data now surfaces high-quality talent automatically to us when companies are at their earliest stages. We’re researching markets, trends and products that are just conceptual or beginning to grow, that are going to scale significantly in the next five to ten years. What does this mean in practice? It means we’re not looking at what we think will be happening in markets in the next two years, we’re thinking much further out.

How many business plans do you see each year?

The answer is thousands, but the real question is how many good-quality business plans we see, and the honest answer is not that many. Great founders are ten standard deviations away from the mean. It’s impressive that so many people leave their jobs to launch a start-up, many take this leap without fully considering their idea and its implications. When we look at pitch decks, we are looking for people who are experienced and credible.

We like to invest in people that are ‘highly leveraged’. This means they have knowledge and domain expertise built up within their chosen space, are already in a critical role and can act on their ideas to start a new company and achieve an outsized return. People have perceptions of 23-year-olds building great tech-led companies from their dorm rooms, but most of the highly credible venture-backed software businesses are built by people who have accumulated five, ten, even 20 years of experience in their sector beforehand.

In the end, it often comes down to finding around five to ten businesses a year that you really like, where the timing is right, and where we collectively see the commercial value in working together.

Why do you tend to invest in companies earlier than your competitors?

The reason we invest in companies earlier than most others is because investing earlier is where we believe the value is greatest. This is largely due to the difference in failure rates between companies at very early stages and slightly later stages. The failure rate from very early stage to Series A (which is still considered early stage) decreases by about 20 to 30% between those stages. For example, the failure rate might drop from 80% to around 50 or 60%. While it does that, valuations increase between 2-10x – so the value to risk ratio is, in our view, more attractive pre-Series A. While the risk decreases as the business matures, its valuation tends to rise significantly.

It’s more challenging to invest at the very early stages, because there are fewer metrics to evaluate, fewer numbers to look at. It requires making judgment calls based on market trends, products, and potential. At that point, the product is vital, and it pushes us to think more like founders. That’s what I love about my job, I get to spend every day thinking like a founder, but multiples times over.

Doesn’t early investing involve taking more risk – how do you mitigate that?

The simple answer is that we lessen the risk by investing across more companies. To explain it more deeply, we give ourselves three levels of diversification. Portfolio diversification means we spread risk by investing in a large number of companies, relative to our assets under management (50 companies at present). This means if one or two companies fail, there are other companies in the portfolio to cushion that impact. We also use sector diversification, meaning we’re invested in companies across 20 different sectors. Again, this gives us a cushion if any single sector runs into difficulties. And third, our portfolio naturally diversifies with age. Many of the companies we invested in in 2019 have now been through multiple rounds of funding. This gives us a nice balance for investors, as we make new investments in younger companies at the earlier stages of their journey.

Can you give me an example of a company you have been on a journey with?

Semble is a platform medical clinicians and admin staff use to complete day-to-day work in one place rather than using multiple systems. Clinicians spend hours each day working with non-user-friendly clinical systems, often switching between multiple systems; potentially leading to medical errors and monetary losses. Semble’s software covers the entire patient journey, saving time, and enabling clinicians to focus on treating patients.

Back in 2019, we invested £400,000 as part of Semble’s seed round. We went on to invest in its Series A round and helped fund their expansion into France, which was a prerequisite for its Series B funding. Now, Semble is undertaking its Series B funding, and we’ll make a follow-on investment. The business has grown consistently over time, and what has always impressed us has been that the founders really understand their space, they understand how their product works and they’ve done all the right things to make sure the business has grown properly. The business has kept to a really consistent growth track, and it’s been great to have participated in their growth journey at every stage.

What’s your outlook for the venture capital (VC) market?

The VC market is quite healthy, at least in the UK. It still has a reasonably large amount of capital to deploy, but there has been an absolute focus on fundamentals in the last 12-18 months. By this I mean companies must be sure their cash burn rate is aligned with their growth, to be driving the business efficiently. That kind of discipline was less evident when there was more VC money that needed to be deployed quickly. When companies start with less financial discipline, it can be much harder to course-correct later on as the culture is ‘formed’. Businesses beginning today are much more focused on efficiency, which is definitely a good thing.

What’s one thing that gets you really excited in the Venture world?

There are trends emerging right now that are going to define the next two or three years, and the UK is absolutely at the centre of those trends. I think that leveraging people – getting the best out of them – is going to be where AI comes into its own, and that betting against that trend is going to be foolhardy.

The UK is still the most business-friendly culture in Europe, and in terms of the trade-off between entrepreneurship and inequality, we still have a very good balance here compared to other countries. This is a country where being an entrepreneur is respected, and that’s something I think we should be proud of and continue to defend – that will hopefully transcend any particular government or policy.

Important information

This article is an advertisement for the purposes of the Prospectus Regulation Rules and is not the prospectus. The Triple Point Venture 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. Investors should only subscribe for shares on the basis of information contained in the Prospectus which is available via the Documents section of the website. This article has been approved by Triple Point Administration LLP, which is authorised and regulated by the Financial Conduct Authority.

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