7percent Ventures – ‘Find Investors Who Aren’t Scared Of Your Vision’

Republished By Plato

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Andrew Scott, founding partner of early stage start-up investor 7percent Ventures, sits opposite me in a Soho members’ club, looking relaxed in snug yoga or cycling gear, making me feel overdressed even in a shirt and jacket. Looking around the room, other members are also sporting athleisure gear. Clearly, the world has moved on since the pandemic.

There’s something about the way Scott speaks and his delivery that reminds me of Tony Blair, not in a bad way, but in terms of his having a vision. And the vision Scott has is making out that first cheque into very early stage companies that go on to become billion-dollar enterprises which will transform our lives.

And Scott knows whereof he speaks. One of 7percent’s earliest investments was being the first cheque into Oculus, the VR gaming headset company which Facebook bought for £2bn in 2014. Last month, Facebook announced it was changing its name to Meta, underlining its vision that we will all live in a VR metaverse in the future.

7percent has backed 90 start-ups to date and plans to have invested in total $46m in over 120 companies by the time it has deployed all its cash through two separate portfolios.

Portfolio #1, which was personally funded by Scott and his partner Andrew Gault, has invested in 48 start-ups in amounts ranging from £25,000 to £250,000 apiece.

The pair went out to other VCs including Atomico and Draper Esprit along with the British Business Bank’s Enterprise Capital Scheme to raise $40m for portfolio #2. Angel investor founders including Taavet Hinrikus, co-founder of Wise, have also backed the second portfolio.

This second portfolio invests a flat £300,000 in each start-up for differing percentages of each business and Scott expects his money to be tied up for 10 year.

Scott says: “We realised that we’re far better off having a fixed cheque size as trying to project how big or small a company is going to be and to what degree is almost impossible.”

The early stage investor has had eight exits so far, including one at 128x cash-on-cash multiple, one at 30x and one at 7x.

What Scott is looking for are companies that address a potential multi-billion or trillion dollar market, either because their technology is revolutionary or they’re disrupting a stagnant market.

Scott says: “It’s either got to be hugely transformative or technology that will impact millions of people. More than anything at this early stage, it’s about the founder. And what we look for is ambition. We want to come away from a meeting having learned something.”

7percent Ventures has two areas of interest: using “deep tech”, which includes quantum computing, AI, brain control interfaces and robotics, to solve a problem for a big nascent market, and “transformative”, where you’re taking an established technical solution but applying it to a laggard market or an old sector to turn it upside down.

As for examples as the kinds of start-ups 7percent is looking for, on the deep tech side Scott points to Universal Quantum, a start-up spun out of Sussex University which is developing a usable quantum computer. Such a computer would accelerate creating new materials, or finding new cures for diseases, protein folding, fluid dynamics and weather prediction.

Scott says: “There are a handful of companies that have a realistic chance of building a usable quantum computer. Once someone builds a computer you can scale, the possibilities are boundless.”

When it comes to transforming markets, Scott highlights Flexport, a freight forwarding solution which addresses a $1.2tr market.

The fund receives around 2,000 proposals a year but often goes out and finds start-ups it wants to invest in, as was the case with Universal Quantum.

Hit those milestones

7percent Ventures does not take a seat on a start-up’s board and sees most of its value as being in that first year, helping the founder prepare for future investment.

Scott says: “Most of the value that we give comes in the first six or 12 months. Our job is to agree the strategy, enabling them to hit those milestones to raise more money.

“One of the reasons I like investing early is because we end up sitting on the same side of the table as the founder. What’s good for the founder is good for us. As ex-founders ourselves, we can be their confidante because our interests are aligned.”

‘Ignore feedback from people who aren’t aligned to your level of ambition’

Scott, who began his very first IT consulting company when he was still at school and then launched five start-ups over an 18-year period, says he co-founded 7percent Ventures because of his frustration trying to raise cash for farsighted start-ups in Europe. It would be fair to say that Scott was ahead of the curve in terms of some of his start-up ideas. Back in 2001, pre-Facebook, he launched a mobile social network, while another website offered home fitness coaching in the dial-up modem era before the world had heard of Joe Wikes.

“All of my start-ups were too early to the market,” he says ruefully. “Some of my companies did okay but some failed. At the time raising money for new ideas was really hard in Europe. It’s still hard to raise money for a quirky ideas in Europe.

“I created 7percent Ventures to invest in the kind of things I couldn’t get money for as a founder.”

His frustration was shared by his co-founder Andrew Gault, who spent six months in 2008 trying to raise investment for a gaming networking solution from European VCs, only to raise $40m within one month on the West Coast – that company was sold to Sony four years later for $340m.

Scott says: “We both share a frustration at not being able to raise enough money in Europe and we wanted to bring our experience of raising money on the West Coast to Europe.”

Big vision

In his experience, European venture capital is too conservative when it comes to backing start-ups, wanting to see existing revenues as proof of concept. Too often, he says, British founders have to prove revenues rather than concentrating on a big vision. It’s putting the cart before the horse. Someone like Elon Musk, he says, has a vision of mankind becoming an interplanetary species and companies like SpaceX and Tesla all feed into that.

Scott says: “Find investors who aren’t scared by the scale of your vision. Founders often think that to raising more money is harder because they think investors will be scared off, but actually it’s the opposite. Early on, the north star metric should not necessarily be revenue per se but whatever represents traction on your journey to dominate the whole market. Don’t try and pitch what investors want to hear.

“If they don’t like what you’re saying, they’re not the right investors for you. Ignore feedback from people who aren’t aligned to your level of ambition. The Americans understand it’s about dominating the market of the future rather than playing safe today.”