Early stage investments inherently have a higher risk of failure.
Those risks also come with potentially higher rewards getting in on the ground floor of a startup’s journey gives virtual investors more bargaining power.
This is especially true in the very early stage before production begins, when companies hardly have a working product to shout about.
And that’s something London-based VC generalist Playfair Capital knows all about, given its focus on backing super young startups that have yet to make it big in their industries.
PlayFair
In its 10-year history, Playfair has invested in around 100 companies, including well-established unicorns like Stripe and Mapillary, a startup that moved to Facebook in 2020.
These particular investments came from Playfair’s inaugural fund, which was not focused on any particular “stage” companies.
However, with its second fund announced in 2019, Playfair has morphed into a more forward-thinking firm, which it is targeting for its new £57m ($70m) third fund, which it is announcing today.”
I went to see out of about 120 exhibiting companies, about 116 of them were doing auto autonomy,” Smith said.
“And as an investor, I look at it and think if you’re writing a ton of checks a year.
You’re probably just going to invest in a bunch of them and try to find a winner but we’re not, we’re only doing six. to eight.
So my opinion was, ‘I don’t want to play in that space’. The only real difference between the two was whether they chose LIDAR or computer vision.
There just wasn’t enough differentiation.”
However, at the same conference there were four companies doing something completely different.
One of them was Orca AI, which was developing a collision avoidance system for ships.
It was this company out of a sea of the same startups that Playfair ended up investing in both in its 2019 pre-funding round and its follow-on round. Series A round two years later.
“That’s where we like to look,” Smith said. “We like these emerging markets – I call them the ‘overlooked and unsexy sectors’.
That’s where we really like to get stuck in and where I see the opportunity.” A lot of early-stage deals fall apart at the due diligence stage.
But if a company doesn’t yet have any market power or even a fully functional product, how exactly do VCs decide who’s worth a bet?
While one of the oldest investment clichés says something about the importance of ‘investing in people rather than companies’, this is perhaps even more true in the super early stage.
And while previous exits and success in the business world can be a useful indicator.
There are many things that can ultimately determine whether a founder or founding team is truly investable.
“We look for several things, including examples of exceptional performance,” Smith said.
“And I think the key thing is that it’s not necessarily in the business world or even in the domain where they’re building a company.”
While many early-stage venture capital funds may aim to make a few dozen investments a year, Playfair has kept things fairly modest throughout its history.
Committing to no more than eight investments a year, setting aside some of its capital for a handful of follow-ons. investment.
Its latest fund comes amid a spate of fresh early-stage European venture capital funds, including Emblem, which announced a new $80 million seed fund last week.
France’s Ovni Capital burst onto the scene with a $54 million early-stage fund last month.
For its part, Playfair is looking for founders “outside the dominant tech hubs” as well as founders working on projects that can happen closer to where the main hype and “buzzy-ness” exists.
This is perhaps even more integral if its stated goal is to invest in only a handful of startups each year they don’t have the luxury of throwing around a lot of money to increase their chances of finding a winner.
“High conviction, low volume” is Playfair’s stated ethos here, and identifying real differences is a major part of this.
“I would say probably half of the funds in our portfolio are pre-product, pre-traction,” Playfair managing partner Chris Smith explained to TechCrunch.
“And the other half has some really early traction, maybe an MVP (minimum viable product) or a few POCs (proof-of-concepts). But we tend to invest where there is very little traction.”
It wasn’t that long ago that autonomous car technology was all the rage and dominated just about every trade show and technology conference.
And there was one particular event a few years ago, the EcoMotion mobility event in Israel, that Smith says really helps highlight her investment ethos.
Source: Techcrunch