VC spotlight with Ascension
TL;DR
- Ascension recently announced their first close of £17m out of a new £50m tech-for-good fund focused on solving social inequalities.
- We sat down with Emma Steele, Partner at Ascension, to discuss the latest fund, its impact-driven thesis, the journey to raising the investment vehicle, and more!
The quickfire round…
Please introduce yourself and your role at Ascension.
I’m Emma, a Partner at Ascension.
We’re a pre-seed/seed fund with two main pots. One is a generalist tax-efficient fund, which invests in pre-seed and seed, and the other is an institutional fund, which has an impact thesis around helping lower-income communities live better through tech-enabled innovations. I look after the institutional impact fund.
Where are you and the team based?
We’re based in the UK and have a team of 13 people.
Are the startups you’re investing in UK-based also?
The tax-efficient funds are only in the UK. But this new fund will, for the first time, be able to invest outside the UK, in Europe and North America. However, most of our deal flow and our brand is known in the UK.
You typically invest in pre-seed and seed for tax-efficient funds. Are you looking at the same stages for this tech for good fund?
It is the same, but the target stake is a little bit different. We’re trying to be half the round on average and take 10% of the business. That may mean anywhere between £300k and £1.5m, depending on the round size.
What’s the story behind Ascension’s founding?
The founder of Ascension, Jean de Fougerolles, is Canadian originally. He moved to the UK in 1998 and started his career in New York at a not-for-profit Think Tank as an Economist. He then moved to MTV to help set up their Eastern European business, and after that, he ran a media tech start-up for 10 years. He set up Ascension once he exited that start-up back in 2015 as one of the first SEIS funds in the UK, and grew the AUM organically year after year through those fund structures.
What’s the story behind you joining Ascension?
In 2018, Jean launched the first institutional impact fund for Ascension, which was called Fair by Design, and that’s when I joined. We’ve been working together for six years. I’m French by background. I grew up in France, and I came to the UK to study at a university. I did a Master’s in Development Economics, and I always wanted to be somewhere in the impact space, but at the time, that was a very conceptual term. I sort of fell into banking as a first career. I did corporate banking for six years at Santander and then did two years in a consultancy that helped not-for-profit entities like charities become more financially sustainable. We did this by thinking about new business models for them and attracting social investment into them.
I loved Ascension's portfolio, so I reached out just as Jean was launching the Fair by Design fund. We’ve been working on that first fund for six years and have used it to gain and build the conviction around the thesis we’re building now. Now, I think we’re a well-oiled machine.
A deeper dive…
The focus for this new fund, on serving a low-income but mass-market audience, is very much needed. How did you identify this need and why did you build an investment thesis around this?
Research helped us underpin the first investment thesis for our last fund. In 2016, Bristol University issued research on the poverty premium in the UK. The research identified the fact that lower-income households tend to pay more for goods and services across the board just because they’re low-income. The research also identified where those premiums lived in different industries. In energy, for example, people on prepayment meters tend to pay more than people on direct debit. Generally, when it comes to bills, low-income households have less time to choose the best tariffs online, so they often do not end up on the best tariffs. In terms of access to financial services, there are loads of unfair premiums around the lack of data and the lack of credit history, for instance.
We built an investment thesis around this because we found that, actually, technology can help solve some of those key kinds of social market failures, using commercial business models and distribution routes that could reach those low-income audiences. So, if we base our decisions on research and also consider the growth areas within the technology sector that are serving low-income households, we can develop a solid investment strategy around this.
Which technologies do you believe are going to have a big impact on reducing social inequality, and how?
If you think about it, it’s basically any technology that will reduce the cost of providing a service or make a service or product more effective, more transparent and more able to reach a specific audience. That could be in financial services for example. It could be cloud infrastructure or API infrastructure that can help really restructure the way financial services are delivered. Open banking is a great way of just generally putting consumer data and its ownership back into the hands of the consumers and then rethinking and repricing services according to much better data. That can affect many industries — Fintech/Insurtech and Energy are big ones.
For example, with energy, we look at sustainability and technologies that help decarbonisation, but our angle is: Does the business model and the distribution route allow you to reach a more affordable point in the provision of energy? We look at it from an affordability angle rather than a sustainability angle.
What are the signals and metrics that you look to when assessing tech for good investment opportunities?
We have a similar lens to general VCs. When we look at pre-seed and seed, it’s first and foremost about the team. Do they have a balanced team? Are they mission-driven, and do they understand what it takes to scale a business while also scaling its mission? Do they have an unfair advantage in their sector/vertical? Do they have experience scaling businesses before? Do they have a proven capacity to attract talent? Can they show emotional intelligence? Do they understand their North Star metrics?
At pre-seed, one of the most important things is do they have a line of sight of how they’re going to raise their follow-on round. Do they have a really good understanding of what it will take for them to get there? Do they have some unfair advantage in how they plan to acquire their customers and lower the cost of acquisition over time? Can they reach a lower-income audience through those distribution routes? Distribution route and the route to market, are really important from both an impact and commercial perspective.
Because it’s a social impact fund, we want to involve the voice of lived experience in our investment process. We’re partnering with a company called Bulbshare, which runs digital market surveys. We have effectively access to a community of 500 people who are in our target audience, and every time we want to make an investment, we will reach out to Bulbshare and their community to get feedback.
You’re still actively fundraising for your next close. What’s the journey of raising from LPs been like, particularly for a fund with a purpose beyond solely returning capital?
Yes, we’ve done a first close. We’re raising our second close now, hopefully within the next 12 months. It’s been a lot of learning. Ultimately, one of the things we learned is there’s no point in adapting or changing your vision for the benefit of an LP. At the beginning of our fundraising journey, I think we were downplaying the fact that we had an impact at the core of our proposition a little bit too much. Actually, it’s much better to be strong in your conviction and communicate to the investors why we think the impact is a driver of value and not be apologetic for it. That’s something we’ve evolved over time. Now, we’re very strong in that conviction, and how we communicate that to LPs will hopefully attract the right partners.
In terms of LP motivations, there are broadly two categories. One is that they may want to do some direct investing at a later stage and, therefore, want access to earlier-stage deal flow. The other is that they want a commercially viable, impact proposition in their allocation and quite like the fact that we’re able to report at a portfolio level what the quantitative impact of the fund is on our target community. If they’re already interested in impact, they quite like the reporting framework and the thesis we have around it.
I’ve seen the Ascension team coin the term ‘Impact Dragons’. Can you explain this term and how we can incentivise more players in the ecosystem to find more ‘Impact Dragons’?
Yes, a dragon is what we call a fund returner. For us, it’s core to our strategy. Many VCs, especially those with bigger fund sizes, aim for unicorn potential only (especially in this market) because they need to make investments that will return their fund. This means that they might overlook some very valuable, slightly smaller-scale businesses. Generally, we think slightly smaller fund sizes, especially at the earlier stage, can be more interesting for LPs in terms of returns and allow the manager to make a broader range of market investments.
For us, we still want big markets because we have a fund size of 50 million. We aim for a valuation starting at least £500m at exit. It’s not a small business, but it allows us to look at a slightly broader range of markets. And if you overlay the impact lens to that, we want to demonstrate that we can achieve deep impact with a thesis-led fund. But, if you’re looking at the right markets and opportunities, you can also produce fund returners.
Looking to the future…
It’s a tricky time in the market to raise capital, whether you’re a founder or a VC. What’s your personal market outlook for the next year or two ahead?
Emerging managers raising small funds, face the challenge of raising from institutional investors, given they generally have to have quite big minimum ticket sizes. I hope to see more institutions having more flexibility around writing smaller checks into smaller funds so they are able to increase their allocations into impact funds. I think Family Offices, HNWs, and other government-backed institutions will probably remain key sources of capital for emerging managers with smaller fund sizes going forward.
On the founder side, I think there’s still a lot of capital to be deployed, but the bar remains very high, especially in terms of the metrics that follow-on investors look for. I have heard that Series B and growth stage deals are starting to pick up again, but the bar remains high in terms of metrics. Something we focus on a lot when investing at pre-seed is really understanding the line of sight for the metrics you’ll be able to show to follow-on investors for your Series A round.
Aside from this new tech-for-good fund and the pre-seed/seed fund that you have, what are you looking forward to with Ascension VC in the future?
My general goal is to prove that you can invest in mission-driven businesses with a thesis that can produce dragons. I’m slightly obsessed with that, but I won’t stop until we produce a few of them. It’s the goal of Jean and all the Ascension team members, so we won’t stop before we do that.
Emma, thank you so much for your time. I really appreciate it. Your answers have been amazing. I can’t wait to share them with our startup and investor communities!
Thanks so much for having me.
Are you a founder raising institutional funding? Head over to our fundraising resources page and list of active VCs or get in touch with me via bheven@mountsideventures.com!
Read previous VC spotlights with Breega here, Greencode Ventures here and Node VC here.
