During the last year, as Zoosh Ventures has worked on creating a new Seed Fund (Zoosh Investment Partnership or ZIP) - we spoke to quite a number of private investors (High Net Worth individuals & family offices) throughout Europe and beyond. The knowledge gained from these investor discussions became the foundations of the ZIP – an investor focused product.
These are some of the lessons Zoosh Ventures learnt from the primary investor research and creating an investor “friendly” seed fund like ZIP.
There are very few pure concept/early seed funds in the marketplace. The reason being, investing in Startups at this early stage is very high risk & the market depends on “Friends & Family” money in tandem with public sources. The paradox from a Zoosh Ventures perspective, it that this is where we believe we have the greatest impact i.e. working with our experienced business promoters to turn their ideas into validated products for a validated market. Over the last four years this has been the “day job” and formed the basis for the ZIP. Acknowledging the risks involved in single “Friends & Family” investments, a seed fund like ZIP focuses on the spread of investments (i.e. 15+ over a period of 18 months or so). Within the spread there is a mix of “concept stage” – commercially driven promoters (customer focused) looking to build a technology company - and later stage (MVP) companies looking to start executing a business plan.
On the structural side of a seed fund like this – not surprisingly no fees for the General Partner proves attractive for the investor! As well as waiving the annual 2% management fees associated with larger funds, the GP only gets a profit share once the investor receives their full capital/investment back. Motivation for the GP to find the right prospects and work with them on ensuring product-market fit from the very start.
Although structured as a fund, the investors are essentially part of a Venture Club with multiple “horses in the race”. The investors become part of an extensive Due Diligence process with multiple Startups, at different stages, in different industries, different challenges etc. Through regular updates the investors can see the progress and indeed challenges facing each of the investee companies.
Investors who had not previously invested in technology because they “did not understand that world” saw a fund like ZIP as a good means of “dipping their toes in the water”. A General Partner that could find quality investments, the focus on SaaS/Cloud Startups and a process of moving investees from Concept through “Building Right Product” to moving towards a repeatable business model (the Zoosh Ventures factory Approach) gives a certain comfort to investors that want to dip their toes.
Efficient Decision Making – whilst there are a number of sources of seed capital for post concept stage investments, one of the benefits of having a fund structure with a General Partner, is the ability to make informed decisions quickly. This can be extremely important to ensure that Startups that are showing real potential are not distracted for 6-12 months on fund raising thus losing commercial momentum whilst almost completely distracted by the fund-raising process. Having the Zoosh Ventures approach ensures that those Startups that are moving through the different phases are not stalled and distracted. Speed is critical, especially in the SaaS world where new competitors from all over the world are working on similar problem-solutions.
Co-investment strategy to leverage the effective size of the investment pot and to further de-risk the individual investments. This is constant de-risk approach and efficient use of capital is essential for an early seed fund. For example, in 2018 Zoosh Ventures has been building relationships with co-investment partners in Ireland, N. Ireland, UK, Hungary, Finland and increasingly in other parts of Europe. Having this spread of partners and also understanding that certain deals will appeals to certain partners, helps efficiencies in making investment decisions and fast-tracking those ZIP Startups that are demonstrating real potential.
Having a strong pipeline of prospects when discussing a Seed Fund with investors - demonstrates both the approach and track record. As they say on all the best cookery shows – “ones we already prepared in the oven”.
Recognising that there are new investment rounds coming down the line as a Startup evolves through various stages of development – the ability to follow-on was also appealing to some investors. Succession Planning was even mentioned during some investor meetings.