Meet the UK’s largest pre-seed fund, with an 80% ethnic minority LP base

The UK has secured its largest devoted pre-seed fund to this point as Idea Ventures (previously often called RLC Ventures) broadcasts a £50m fund in the present day. A formidable 80% of the fund’s LPs come from ethnic minorities and 18% are girls. Pre-seed investing has dwindled in recent times, so are traders lastly giving the early phases some love?

The place will the Idea cash be spent?

  • Idea will make investments between £100,000 and £600,000 in additional than 60 pre-seed stage startups, making it more likely to be the primary institutional capital these corporations will increase.

What sort of startups and founders does Idea wish to help?

  • Idea desires to come back again future of labor corporations, video video games and recreation corporations, and studying/enchancment corporations.
  • As a result of the businesses are at an early stage and there’s nonetheless little information on their enterprise, Reece Chowdhry, founder and common associate, says the fund takes a “personality-driven strategy” to selecting investments.
  • The Idea staff has recognized six qualities of profitable founders, together with openness to new experiences, that you simply search for. The corporate collects information factors on founders all through the funding course of by a mix of surveys, interviews, and referrals. “In the end, this strategy helps us create a holistic view of a founder’s persona, somewhat than utilizing a ‘intestine feeling’ strategy that enterprise capitalists are recognized for,” Chowdhry tells Sifted. “This isn’t the one driver of our funding outcomes, however a instrument we’re utilizing to carry extra data-driven insights to a key part of decision-making.”

Who helps Idea Ventures?

  • The British Enterprise Financial institution, the UK’s financial improvement financial institution, has dedicated £30m.
  • The fund’s LP (restricted associate) base can be made up of 80% ethnic minorities and 18% girls. 70% of LPs are founders.
  • Chowdhry says that being from an ethnic minority himself helped the staff develop from a various base of LPs. “It was a mix of my very own community and actively going after these folks, notably profitable UK founders from ethnic minorities who have not had a lot publicity to the enterprise house.” He says many of those LPs come from conventional industries like well being care and actual property and now need publicity to know-how.

What’s Idea’s observe file?

  • The fund was based in 2018 as RLC Ventures.
  • Fund I portfolio corporations embrace company gifting platform Reachdesk, dwell video streaming pioneers Condense and monetary training platform for ladies, you juno. That they had two exits within the final two years, together with Cliff.ai, which was acquired by Index-backed Gtmhub for an undisclosed value.
  • As of 2021, 35% of the fund’s cash went to minority demographics and 52% to founders primarily based exterior of London. 23 pence per pound invested went to girls.

The pre-seed market

  • Regardless of file funding from European startups in recent times, founders say the early phases might be the toughest to come back by. Pre-seed funding decreased by nearly 50% between 2016 and 2020.
  • Most pre-seed investments are made by enterprise capitalists who additionally spend money on later phases. Chowdhry says this can be a drawback as a result of it means enterprise capitalists are writing “possibility checks”: they’ll make investments extra later if the corporate does nicely. “We do not have VC as LP within the background. We wish to aspect with our founders within the subsequent spherical,” he says.
  • Other than Idea, evidently there are traders who understand that the pre-seed wants some love. Octopus Ventures Introduced a £10m devoted pre-seed fund in June. Cocoa Ventures, additionally introduced earlier this 12 months, is investing in pre-seed and write checks from $150k-500k.

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Given the dearth of pre-seed focused funds, it’s encouraging to see a focused fund popping out of the UK, Europe’s most mature market when it comes to fundraising.

Idea can be one thing to remember as a result of all the staff members shouldn’t have a VC background. That places them in a brand new class of rising VCs in Europe run by everybody from former founders and operators folks from different areas of finance and youtube stars. These funds are betting that their operational and business expertise will give them an edge over conventional enterprise capitalists for the reason that founders need extra than simply cash: They need the whole lot from advertising help to hiring recommendation.

Eleanor Warnock is Deputy Editor of Sifted and co-host of The Sifted Podcast. She tweets from @misssaxbys

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