Last week I caught up with Martijn de Wever, CEO of Force Over Mass Capital and CMO Theo Osborne to talk about their new joint venture investment project which officially launches today. FOM represents a step change in how investors can help fund early stage technology companies – it gives angel investors access to a curated portfolio of 30 startups every year without taking away their right to manage and add to their investments over time. Investors enjoy this flexibility because of an open-ended investment solution which is clearly differentiated from traditional Venture Capital fund models, the duo told me.
FOM is pitched at both active family offices and angel investors as well as the passive, time-poor High-Net-Worth individual, which they define as typically a busy professional. As well as risk mitigation via a diversified approach the “solution” will utilize (S)EIS tax reliefs to bring down the overall risk of the portfolio, whilst still aiming to return high multiples to investors.
For the uninitiated Enterprise Investment (EIS) and Seed Enterprise Investment (SEIS) Schemes in the UK mean that angel investors can offset income taxes against their investment into a qualifying portfolio (tech startups are eligible), pay no Capital Gains Tax on successes and yet still recover a large part of their investment even in the event a company fails. It’s a major reason why FOM believe investing in a diversified portfolio of 30 companies can be effective. SEIS and EIS has made London one of the most attractive destinations for young tech entrepreneurs seeking funding in the world, Silicon Valley included and for that we can be partly grateful to the Chancellor’s revival of a scheme that has been around in different forms since the early 80’s but had largely been forgotten by small businesses and entrepreneurs.
Tech Eco System
The tech eco-system in London is thriving (according to the Mayor’s office it attracted more than £2.1bn of VC investment in 2015 alone) yet there is still a well-publicized funding gap between seed funding rounds of circa £500k and a major VC led Series A or B round. So why is Series A currently the preferred round for larger commitments? De Wever and Osborne believe it’s the lack of access and transparency to good investments and the inability to deploy larger amounts of capital rather than the actual risk/reward of seed rounds. FOM say they want to change this and bridge the funding gap by giving investors access to the high growth potential seed stage with the ability to add more funds in later rounds. In other words, they want to provide investors with an early seat at the dinner table.
This government are largely responsible for project “Tech City”, which has a mission to help popularize the disparate but intense collection of early stage tech startups congregated around the Old Street, or “Silicon” Roundabout.
Under the supervision of Baroness Joanna Shields, the ex-head of Google EMEA who was appointed first chair of the Tech City organization, Tech City has introduced schemes like “Future Fifty”, designed to identify the UK’s fastest growing tech businesses, as well as providing funding opportunities through projects like The London Co-Investment Fund, and helping finance accelerators, incubators, and workspaces.
Both De Wever and Osborne say that time constraints and a lack of industry knowledge are what generally keeps High Net Worth’s away from tech startups rather than any lack of suitable investment opportunities.
One of the USPs that Force Over Mass can boast is a global network of post investment mentors with vast experience of running both large corporations and successful startups; the likes of Ivan Mazour, founder of Ometria, one of the fastest growing SAAS companies in the UK, Jamie Reuben, a Principal at The Reuben Brothers Group & Chairman of the Metro Bank Advisory Board, and Ashish Thakkar, Chairman of Mara Group a conglomerate that’s in 25 different African countries – as well as being a Young Global Leader appointed by the World Economic Forum.
“A lot of people are keen to make investments”, De Wever told me; “they just need somebody to remove the hurdles and manage this asset class and that’s where we come in. The secret is our network of contacts and relationships not just in the UK but in Europe, the US, Asia and Africa. We get referrals from the world’s leading incubators, accelerators, universities and VCs that we know well and provide a solution for all involved”.
A portfolio of 30 startups every year is the “magic number” for diversification, with 2 mentors assigned to work alongside each early stage company at the outset and more being added over time. De Wever has great faith in the talent pool of UK startups – he believes the network effect and enthusiasm will prove infectious.
“We want all our partners, investors and startups, to be the kind of people who like to have skin in the game” he says; “we are really looking for engagement and enthusiasm – we like people who say – here’s a fantastic opportunity to do something great and be a part of a successful emerging industry – let’s really go for it! We understand why people are hesitant–they want to be sure things are going to be handled properly, risk is managed and interests are aligned and that’s what we can deliver. We’re authorized by the Financial Conduct Authority (the UK’s equivalent to the SEC) and we have the duty to manage and act in everyone’s best interest. We see ourselves as a regulated FinTech company.”
If they can mirror the success of FinTech in the UK – where the sector is growing at a faster rate than anywhere else in the world, attracting more than a quarter of the £2.1bn mentioned above, they’ll have grounds for optimism. “Entrepreneurs and investors have the perfect symbiotic relationship”, says De Wever; “what a startup needs is the ability to make itself investment ready so let’s give the right ones the power to attract the attention of London’s blue chip VC’s.”
Both De Wever and Osborne are slightly skeptical about crowdfunding and point out limitations in the role they can play in funding early stage companies; “crowdfunding is about anyone being able to get involved in an amazing project, with a small investment here, a small investment there and that’s a good thing but I’d say Force Over Mass will go a little deeper than that.”
“The raising and deploying of capital requires a lot of follow up analysis and post investment mentoring. FOM has a more measured and transparent approach. We want to assess, evaluate and trade a new asset class – the ’tech startup’; It’s about de-risking the asset class as we would do with any other asset class.”
“The portfolio will be completely transparent for anyone who invests and we are applying a scientific capital markets approach. Over time you will get more and more data points. All this will be possible through an online platform accessible on mobile to ensure maximum engagement from mentors, startups and investors”.
How to Select the next big thing?
To start out, De Wever and Osborne plan to be selective about which startups they meet face-to-face. Indirectly through their relationships with leading accelerators, incubators, universities and other VC’s they say they are privy to the best of a bunch of around 5000 companies a year and choose 30 for their portfolio. They then apply a stringent selection process, analyse how they can make key introductions that make a binary difference to the company, and eventually conclude investments. The entrepreneurs they work with get to avoid the dreaded, energy sapping investor roadshows – which gives them time to focus on the business.
“We want founders spending their time with their teams, developing the product, looking at metrics, and that’s because we feel the eco-system here is pretty darn good, with world class universities, research facilities and tech hubs”, says De Wever; Force Over Mass is sector agnostic within Tech, and has made investments in everything from gaming, FinTech and Artificial Intelligence to education and SaaS. One of the most important factors a founder must demonstrate is how their enterprise is capable of “disrupting” an industry, solving a problem or bringing on a new and unique technology.
Is there any danger, with such ambitious targets, that the target companies won’t match the expectations being placed upon them?
No, says Osborne; “if you wanted to fund every startup in the UK you would be looking at a figure of c.£10 billion and there is nowhere near that kind of capital available to the UK – there’s no shortage of talent – our vision is to create a market for that talent.”
“We really want to try to take ownership of this space – which is all about finding the next big thing – we’ve seen that there is a problem around post seed stage funding and we have said, ok we have a solution, lets go for it! “Everyone believes London is one of the best equipped places for creating new blue chip companies and we want to increase your chance of being part of it” adds De Wever.
If I were a startup, despite an uneventful start to the year I would be getting excited about my prospects for 2016, and looking out for my invitation to breakfast with FOM. Selecting from 5,000 disruptive tech companies in one year? That’s a lot of hipster coffees – If they don’t already, De Wever and Osborne will feel right at home on the startup scene after that.
Watch the Force Over Mass introductory video here