Meet the UK’s largest pre-seed fund, with an 80% ethnic minority LP base

The UK has secured its largest devoted pre-seed fund thus far as Idea Ventures (previously often called RLC Ventures) pronounces a £50m fund at present. A powerful 80% of the fund’s LPs come from ethnic minorities and 18% are ladies. Pre-seed investing has dwindled lately, so are buyers lastly giving the early phases some love?

The place will the Idea cash be spent?

  • Idea will make investments between £100,000 and £600,000 in additional than 60 pre-seed stage startups, making it prone to be the primary institutional capital these firms will elevate.

What sort of startups and founders does Idea wish to assist?

  • Idea needs to come back again future of labor firms, video video games and sport firms, and studying/enchancment firms.
  • As a result of the businesses are at an early stage and there may be nonetheless little information on their enterprise, Reece Chowdhry, founder and normal associate, says the fund takes a “personality-driven strategy” to picking investments.
  • The Idea staff has recognized six qualities of profitable founders, together with openness to new experiences, that you just search for. The corporate collects information factors on founders all through the funding course of by a mixture of surveys, interviews, and referrals. “In the end, this strategy helps us create a holistic view of a founder’s character, slightly than utilizing a ‘intestine feeling’ strategy that enterprise capitalists are identified for,” Chowdhry tells Sifted. “This isn’t the one driver of our funding outcomes, however a device we’re utilizing to carry extra data-driven insights to a key element of decision-making.”

Who helps Idea Ventures?

  • The British Enterprise Financial institution, the UK’s financial growth financial institution, has dedicated £30m.
  • The fund’s LP (restricted associate) base can also be made up of 80% ethnic minorities and 18% ladies. 70% of LPs are founders.
  • Chowdhry says that being from an ethnic minority himself helped the staff develop from a various base of LPs. “It was a mixture of my very own community and actively going after these folks, significantly profitable UK founders from ethnic minorities who have not had a lot publicity to the enterprise house.” He says many of those LPs come from conventional industries like well being care and actual property and now need publicity to expertise.

What’s Idea’s observe file?

  • The fund was based in 2018 as RLC Ventures.
  • Fund I portfolio firms embrace company gifting platform Reachdesk, reside video streaming pioneers Condense and monetary training platform for girls, you juno. That they had two exits within the final two years, together with Cliff.ai, which was acquired by Index-backed Gtmhub for an undisclosed worth.
  • As of 2021, 35% of the fund’s cash went to minority demographics and 52% to founders based mostly outdoors of London. 23 pence per pound invested went to ladies.

The pre-seed market

  • Regardless of file funding from European startups lately, founders say the early phases might be the toughest to come back by. Pre-seed funding decreased by nearly 50% between 2016 and 2020.
  • Most pre-seed investments are made by enterprise capitalists who additionally put money into later phases. Chowdhry says it is a drawback as a result of it means enterprise capitalists are writing “possibility checks”: they’ll make investments extra later if the corporate does effectively. “We do not have VC as LP within the background. We wish to facet with our founders within the subsequent spherical,” he says.
  • Other than Idea, plainly there are buyers who understand that the pre-seed wants some love. Octopus Ventures Introduced a £10m devoted pre-seed fund in June. Cocoa Ventures, additionally introduced earlier this 12 months, is investing in pre-seed and write checks from $150k-500k.

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Given the dearth of pre-seed focused funds, it’s encouraging to see a focused fund popping out of the UK, Europe’s most mature market when it comes to fundraising.

Idea can also be one thing to remember as a result of all the staff members shouldn’t have a VC background. That places them in a brand new class of rising VCs in Europe run by everybody from former founders and operators folks from different areas of finance and youtube stars. These funds are betting that their operational and business expertise will give them an edge over conventional enterprise capitalists because the founders need extra than simply cash: They need all the pieces from advertising assist to hiring recommendation.

Eleanor Warnock is Deputy Editor of Sifted and co-host of The Sifted Podcast. She tweets from @misssaxbys

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