What’s the investment focus for True’s seed fund?
In December 2018 we closed True’s second early stage fund and pivoted our investment focus that we’d followed for Fund I. As a result, we felt it was time to outline how we review and shortlist potential investments. The main area to outline is our robust “filtering” — it allows us to outline key attributes that we look for in potential portfolio companies, and our parameters in terms of investment size etc., thereby streamlining our decision-making process. Our “filter” is of course not perfect and like many other investors, we will invariably pass on many great companies, but hopefully not too many.
We have a £10m fund, with an initial maximum ticket size of £500k (averaging out at around £250k-£350k). Although we call ourselves a seed fund, in reality, we are round agnostic (within reasonable boundaries). While we gravitate towards £1–3m round where we lead, co-lead or co-invest, we would happily be involved within any round as long as it fits our investment parameters.
So, what is our investment strategy?
At a high level, we look for what we call ‘fit-for-future’ businesses: those which have an innovative solution or a brilliant new consumer proposition — this can be technology or product-led. When making investment decisions, we seek startups which are redefining the retail landscape and/or can support our corporate partners in a variety of ways. We believe that entrepreneurs are much better at finding blind spots than large corporations, or investors for that matter, and it’s our job to have the imagination and industry expertise to understand where the pain points are. What is possible and how we can be a helpful partner on their journey as they build and grow a successful business, whether that be in the supply chain, customer acquisition, employee operations or any other strategic or operational aspect to running a retail company.
On the product side, we are particularly interested in marketplaces and on-demand inventory e-commerce models as both these business models have relatively low capital intensity.
We are also very much a problem-oriented investor. For us, startups must begin with a particular pain point or want, and then work from there, rather than starting with a piece of clever tech and trying to find an application for it. As such, we focus heavily on the return on investment that our startups’ solutions can provide for the customers they work with. Our investment in ThirdEye is a strong case in point, where the company was able to demonstrate a clear ROI to retailers. So there is no surprise that within a month of ThirdEye meeting True, they were offered an opportunity to pitch to the CEOs and other senior leaders of some of the biggest retailers in the UK and the US.
It is important for us to see that a startup has initial demonstrable traction. For B2B startups, this means either some small (but growing) recurring revenue or some initial trials/proof of concepts. For B2C, we want to see a minimum of £300k-£500k of annual (not annualised!) revenue, which is growing at a strong rate of knots.
And last but not least, it’s vital for us that we work with great founders. Many funds emphasise this and we are no different — at the core, we are looking for great teams. Our preference is to work with founders that have clear domain expertise and experience operating in the industry they are trying to disrupt.
We don’t pretend to be the right investor for every startup. But our aspiration is to be a useful partner to the founders and play a meaningful role in helping the company in their journey through ups and downs.
