16-Sep-19

Mitigating the risks of early stage venture investment  

Navigating the course from start-up to scale-up can be an arduous time in the life of any business.  According to the Enterprise Research Centre, only 51.8% of London based companies who formed in 2014 survived the next three years.  There are many reasons why businesses fail in their early stages, including intense competition, poor location and unclear financial management and leadership. However, industry research published by CB Insights indicates that the number one reason for failure, noted in 42% of cases, is the lack of market need.

Venture capitalists traditionally research a broad cohort of companies with the aim of identifying the most attractive investment proposition. However, this method does not always focus directly on the risk, as it often does not take account of factors such as whether the product has a genuine role in the marketplace.

New thinking is emerging in the venture capital space that responds directly to this issue. The industry is exploring smarter ways to improve returns for investors while at the same time providing greater support for those early stage businesses that have a real chance of success. By following a challenge-led approach, VCTs are selecting investments from the standpoint of a market need.

Investing at the point of market validation

Today, many established corporates have recognised a business challenge but lack the in-house expertise to solve it. The basic premise of the challenge led approach is to start by identifying specific problems faced by established corporates and then working with high-potential start-ups that are best placed to solve these problems.

Rather than simply looking to firms that may have the potential, as the industry has conventionally done, VCTs deploying a challenge led approach target the early stage businesses that have already demonstrated an ability to deliver a solution for a corporation’s known business challenges. This ensures that a market fit has already been established, as has a clear need for the product or service the business offers. For investors, this helps to mitigate some of the risk involved with investing in this asset class. For early stage businesses, this offers stable funding and a real prospect of future success, through working with a significantly larger corporate partner.

Triple Point

Triple Point’s Venture Fund VCT targets significant capital growth by investing in early stage innovative companies typically at the point at which they obtain market validation. This strategy mitigates the risks of early stage investing whilst helping early stage businesses increase their chances of success.

With close ties to over 100 large corporates the Fund starts with the issue facing established businesses, and then invests in the innovative young company with the scalable solution. 

By focusing on early-stage businesses which have established a market fit for their products and services with established corporates, Triple Point addresses one of the most significant risks of early stage venture capital and can enhance investors chances of securing a robust return on their investments.

Triple Point has a 14 year track record as a successful VCT manager, with £260m of VCT and EIS exits to date. If you want to find out more about Triple Point Venture Fund VCT click here

Risk Warning: The Triple Point Venture Fund carries all the risks of investment in smaller companies. Your capital is at risk. There is no guarantee that target returns will be achieved and investors may get back less than they invested. Past performance is not an indication of future performance. Tax rules and reliefs are subject to change.

Triple Point Investment Management LLP is authorised and regulated by the Financial Conduct Authority, firm reference number 456597. Triple Point Administration LLP is authorised and regulated by the Financial Conduct Authority, firm reference number 618187.

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