We held a successful Virtual Pitch Day including a panel hosted by Anthemis Group advising on fundraising at Series B and beyond. Many more questions came out of the panel than time would allow, so we asked Matthew Jones, Principal at Anthemis, to share his insights.
You can view the entire panel here.
As you approach Series B/C – how much influence do the investors have on the vision of the business? And how important is it to align your values with those investing?
Venture capital firms play an important role in the economy, providing the support and time that new innovative companies need to get to market and scale effectively.
Investors are enablers of innovation; entrepreneurs are the real leaders – but venture capital is an extremely collaborative business. A venture fund can typically operate for 10 years, so there is no question that an alignment of values between the entrepreneur and investor is absolutely vital, and this should be ensured before completing an investment.
At Anthemis, we invest considerable time and resources, from the very first meeting, into getting to know the team, their priorities, decision frameworks and ultimate vision.
Do you see a correction in the market regarding loss making companies being able to raise significant amounts of later stage capital?
At a macro level, there are some sub-sectors within financial services that we are incredibly excited about. For example, later this year we will begin investing from Anthemis’ first venture growth fund, focused on the insurance industry.
Insurance is a great example of a resilient sub-sector within financial services and it’s just beginning a multi-decade transformation, driven by technology. Many of the trends we see there, like insuring the previously uninsurable, will take many years to play out.
At a micro level, out belief is relatively straightforward: excellent companies, led by strong management teams, solving real problems, will continue to be able to raise venture capital. We can foresee circumstances where companies may struggle to raise, for example a B2C company with an unclear value proposition or a B2B company with a still untested projected ROI for customers.
No investor seeks to invest in a company incurring losses for losses’ sake; there must be a credible line of sight to break even (and eventually profitability) in the medium to long term.
As a VC, in a ‘Covid-19 world’, would you focus more on your current portfolio and do follow-on rounds or would you focus more on new ventures to fund?
At Anthemis, our first priority is to support our existing portfolio through this incredibly difficult time. Broadly speaking, our support takes two forms.
First, our Investment team has been working hard to understand the risks facing our companies. This means stress testing business plans and runway, reviewing business development aspirations and working collaboratively with founders to think about scenarios and anticipate emerging challenges.
Second, our Portfolio Success team has been outstanding in facilitating support discussions between founders. These conversations have ranged from technical issues like dealing with rent contracts, to interpersonal topics like motivating a team when working remotely. They have also worked with our ecosystem to host expert discussions with our founders on topics like government aid packages and remote selling techniques.
In terms of new investments, we have seen a natural slow down due to the distributed nature of the climate. A process that might have lasted four weeks might now take six to eight, from first connecting with a company to making an investment decision.
What we do know is that great businesses can and will emerge from environments like this. If you look at the aftermath of 2008, great companies were built by visionary entrepreneurs amid severe economic disruption. We believe that we have a resilient thesis and, with that in mind, we’re looking forward to announcing a few new investments in the coming weeks. Watch this space!
With many funds struggling to raise capital themselves in the current market, will this change the type of investors businesses might typically approach?
Microsoft recently shared it saw “two years’ worth of digital transformation in just two months”. This reflects our view at Anthemis. There are huge opportunities to accelerate digital transformation in financial services. Incumbents have realised people and paper won’t always be available, so processes really do need to be digitalised.
Entrepreneurs should consider the source of the capital behind a venture investor; in Anthemis’ case, we’re fortunate to be backed by some great investors who understand the opportunities ahead. They are looking to us to invest in companies that will drive these acceleration opportunities in financial services.