Tikking time bomb?

‘Alarming developments’

At midnight on June 30 1997, Hong Kong officially reverted to Chinese sovereignty, ending 156 years of British rule. After a formal handover ceremony on July 1, the colony became the Hong Kong special administrative region (HKSAR) of the People’s Republic of China.

An hour before midnight June 30 2020, on the 23rd anniversary of the city's handover to China from British rule, China imposed a national security law on Hong Kong, aimed at stamping out opposition to the ruling Communist Party.

Bytten off more than they can chew?

Beijing-based, Sequoia backed; ByteDance is one of the world’s most valuable technology start-ups. Grey market trading in its shares recently valued the company at $150 billion.

TikTok owned by ByteDance was launched globally in August 2017, and quickly vaulted onto the list of the world’s top 10 apps by downloads in 2019. The app currently boasts over 100 million active users in India alone.

The new national-security law imposed by mainland China will empower police to make internet companies hand over user data.  Bytedance as the parent company of TikTok subsequently announced it would remove the app from the Hong Kong market.

Equivalently the world's major internet and social media platforms have stopped processing requests for user data made by Hong Kong law enforcement authorities while they carry out an assessment of a controversial security law.

It’s potentially a misnomer to label much of the recent action trivially as anti-china given the clear precedent that has been set by Beijing over the last decade which saw access to Google, Facebook et al blocked on the mainland.

‘This has led to understandable outcry over the developments in Hong Kong, which appears destined as the stage upon which a ‘borderless’ digital world will define its borders’

Globally, governments in India and the US have looked to also ban the app amidst growing nationalistic tendencies surrounding recent diplomatic incidents. India has been the first to proceed with a ban; partly antagonised by Beijing in recent Himalayan border clashes but more centrally in response to widespread claims over illegal data harvesting from apps; a well-aired concern in the online world.

As such companies seeking to operate globally have to operate in a dichotomous framework; walking the tightrope of deference to nationalistic home agendas whilst seeking to embrace new markets in global expansion aims. Business models predicated on growth in key emerging markets must be tempered against the opacity of the region of operation and its practices in regard to data privacy.

Tiktok for one is seeking to distance itself from perceived CCP links through exploration of new headquarters in London, Singapore or Dublin. A physical move that is surely negligible in its ability to providing evidence of extrication from the tentacles of Beijing.

It is perhaps ironic that the decisions regarding online freedoms and free expression made post the changes of law in Hong Kong, will reverberate deeply off-line.

A once borderless industry must define its borders.

The clock is tikking... ............................................................................................................................................................................................  

About Fuel Ventures:

• Fuel Ventures is a leading early-stage technology investor, investing in fast-growth UK and European businesses that have the potential to return between 10x and 100x.

 

• Entrepreneurial driven fund led by multi-exit entrepreneurs with £200m+ in exits.

 

• An advisory committee with over 50+ years’ experience, and exits totalling £2b+

 

• We now have 35 portfolio companies and after only 4 years our first fund has a 7.4X valuation uplift, validated by third-party follow-on investors.

 

• We screen 3500+ companies a year using our thorough due diligence processes internally, cherry picking the best 10 companies that have the potential to achieve 100x returns

 

• We put a director on the Board of every company we invest in and take an active and hands-on role in the management and development of each company, plus bring added extra value through our network of sector experts.

 

• We invest in commercially scalable technology companies, with operating gross margins between 30% - 90%

 

• Targeting a minimum of 10x return on investments over a 5-7 year horizon.

 

• Generous HMRC EIS tax benefits including 30% income tax relief, 0% capital gains tax on exit, loss relief, and inheritance tax relief for UK taxpayers.

 

• We invest in every fund ourselves, with a large 10% personal investment alongside our investors, this is £2,000,000 - £3,000,000 into every fund!

 

Are you an investor who would like to find out more about Fuel Ventures? Please click here or email guv@fuel.ventures.

 

Are you an entrepreneur who would like to apply for investment? Please click here.

The youngest person to assume the presidency was Theodore Roosevelt.

In a seminal act Roosevelt delivered a 20,000-word address to Congress asking it to curb the power of large corporations (trusts). Arguably he coined and popularised the pejorative pre-fix ‘big’.

Bigglier

Oil, the playground of a cartel of multinationals since the 40’s came to public prominence in the 1970’s oil crisis - shining a light on the ramifications of having tightly controlled opaque organisations (seven sisters) make decisions central to society. Big Oil.

Similarly in the 1990’s, the tobacco industry faced congress in defence of charges that their products were addictive and caused a range of ailments - most centrally cancer. Big Tobacco.

More recently and certainly topically, the pharmaceutical industry has been blighted by accusations that they operate for sinister purposes and against the public good. Controversially engaging in suppression of negative research and peddling an ever increasing range of product to gleeful consumers resulting in a range of dependencies and epidemics (opiods). Big Pharma.

Allowing for the oversimplification to state the case, it’s clear that big oil, big pharma, big tobacco, are all too easy to villanise. Polluting the globe, our bodies and unquestionably selling and marketing product with known dangers to society.

What then for big tech?

Combined mkt cap of FANGMAN (Facebook Amazon, Netflix, Google, Microsoft, Apple, Nvidia) hit fresh all time highes at $6.75tn, equal to combined GDP of Germany and the UK. 

One could state that unlike its forbears, big tech is considerably more insidious, opaque and removed from reproach. Two reasons:-

1) Not easily comprehensible business models

2) Delivered in an innocuous soft cuddly friendly guise complete with smily face emoticon.

One only has to watch the Zuckerberg congress interviews to realise how far behind the curve most governmental officials are; by and large tech is still considered to be complicated and the preserve of ‘geeks’ and tech aficionados.

Point two may easily be trivialised - however it sets big tech apart. Much criticism against tech is easily levelled through exploration of the huge array of benefits provided by technology.

It has changed every facet of the way we live, work and play - and been a huge positive driving force for much of the innovation and global growth witnessed over the last few decades. Moreover there is no direct ‘obvious’ causal harm from the provision of connectivity and the proliferation of apps, gizmos and gadgets. 🙂

Anti-trust, digital taxes, break-ups; we are recently seeing a renewed effort that squarely places Silicon Valley on the same footing as sectors traditionally reviled by the left. Interestingly the lead in this movement has morphed from governmental top down management to grass roots bottom up activism in society. Exemplified by public pressure this week which has led to consumer frustrations->consumer brands->consumer advertising->corporations changing strategy...

‘Northface led the about face’

This is a non trivial change in the ‘Big’ discussion - historically government and institutions have moved to rein in, manage, and guide these arenas for the collective good. Today an ever informed populace (ironically thanks to tech) bolstered by trends in areas such as ESG and SRI are pushing organisations to adjust and adapt in response to customer needs.

This change has the potential to irrevocably change the face of ‘big business’ - Roosevelt would surely smile heartily on developments that have ushered in a nation of ‘trustbusters’...

A new era of big business aligned better with the needs of society it serves...startups take note.

ESG - Environmental, Social and corporate Governance
SRI - Socially Responsible Investing

 

............................................................................................................................................................................................  

About Fuel Ventures:

• Fuel Ventures is a leading early-stage technology investor, investing in fast-growth UK and European businesses that have the potential to return between 10x and 100x.

 

• Entrepreneurial driven fund led by multi-exit entrepreneurs with £200m+ in exits.

 

• An advisory committee with over 50+ years’ experience, and exits totalling £2b+

 

• We now have 35 portfolio companies and after only 4 years our first fund has a 7.4X valuation uplift, validated by third-party follow-on investors.

 

• We screen 3500+ companies a year using our thorough due diligence processes internally, cherry picking the best 10 companies that have the potential to achieve 100x returns

 

• We put a director on the Board of every company we invest in and take an active and hands-on role in the management and development of each company, plus bring added extra value through our network of sector experts.

 

• We invest in commercially scalable technology companies, with operating gross margins between 30% - 90%

 

• Targeting a minimum of 10x return on investments over a 5-7 year horizon.

 

• Generous HMRC EIS tax benefits including 30% income tax relief, 0% capital gains tax on exit, loss relief, and inheritance tax relief for UK taxpayers.

 

• We invest in every fund ourselves, with a large 10% personal investment alongside our investors, this is £2,000,000 - £3,000,000 into every fund!

 

Are you an investor who would like to find out more about Fuel Ventures? Please click here or email guv@fuel.ventures.

 

Are you an entrepreneur who would like to apply for investment? Please click here.

‘Lack of visibility has its advantages’

Since alternative finance took off a few years ago, it has never been easier for new businesses to raise capital. Aside from venture capital, there are a myriad of options from traditional bank funding, angel, friends & family and crowd funding, not to mention the many other hybrid variants.

Key to issues of raising capital is a company’s stage in its life cycle; venture capital is primarily concerned with businesses that are early stage and hence potentially inherently more risky than established late-stage revenue producing companies further along in their journey.

Pandemic Era

The lists of known unknowns for the world economy are currently innumerable. Macro projections and their glacial pace prognostics for the future are being hyper accelerated. As such existing business models and routes to revenue are being thrown into turmoil, company forecasts upended as shifting consumer trends throw even the most Teflon coated plans into disarray.

Total investment in start-ups has fallen by 50% to £1.6bn in the past three months compared with the same period last year. Yet companies raising capital in the early stage/seed funding is only down circa 10%.

Life Cycle Risk; Early Stage Edified

In a recent survey (US) conducted by the Venture Capital Journal, nearly two thirds of respondents said they have seen early stage valuations drop 20-30 percent. Perhaps a harbinger of more 'sensible' valuations and a potentially required development in the evolution of venture financing.

Clearly more so now, in 2020, than ever, a flexible, malleable approach around a core focus is a pre-requisite for all would be start-ups.

As such, companies in the seed stage, many of whom are yet to produce revenue or fully identify their paths to market are ideally placed to take advantage of the current landscape. It’s a richly rewarding time for organisations afforded the luxury to able to refine and navigate the pitfalls befalling slower moving larger (and commensurately valued) competitors who lack the ability to quickly cut cost and pivot. Speed boats and tankers...

One can certainly argue that in a ‘new normal’ pandemic world, being lean, nimble and early in the life cycle of your growth can yield outsize opportunities - with less ‘risk’ than is currently priced...

In the kingdom of the blind, the one eyed man is king.

 

............................................................................................................................................................................................  

About Fuel Ventures:

• Fuel Ventures is a leading early-stage technology investor, investing in fast-growth UK and European businesses that have the potential to return between 10x and 100x.

 

• Entrepreneurial driven fund led by multi-exit entrepreneurs with £200m+ in exits.

 

• An advisory committee with over 50+ years’ experience, and exits totalling £2b+

 

• We now have 35 portfolio companies and after only 4 years our first fund has a 7.4X valuation uplift, validated by third-party follow-on investors.

 

• We screen 3500+ companies a year using our thorough due diligence processes internally, cherry picking the best 10 companies that have the potential to achieve 100x returns

 

• We put a director on the Board of every company we invest in and take an active and hands-on role in the management and development of each company, plus bring added extra value through our network of sector experts.

 

• We invest in commercially scalable technology companies, with operating gross margins between 30% - 90%

 

• Targeting a minimum of 10x return on investments over a 5-7 year horizon.

 

• Generous HMRC EIS tax benefits including 30% income tax relief, 0% capital gains tax on exit, loss relief, and inheritance tax relief for UK taxpayers.

 

• We invest in every fund ourselves, with a large 10% personal investment alongside our investors, this is £2,000,000 - £3,000,000 into every fund!

 

Are you an investor who would like to find out more about Fuel Ventures? Please click here or email guv@fuel.ventures.

 

Are you an entrepreneur who would like to apply for investment? Please click here.

What is the aim of the Federal Reserve?

'The Federal Reserve's Dual Mandate. The monetary policy goals of the Federal Reserve are to foster economic conditions that achieve both stable prices and maximum sustainable employment.'

Stable Prices/Inflation

Inflation is the increase in the prices of goods and services over time.

'Federal Reserve policymakers evaluate changes in inflation by monitoring several different price indexes. A price index measures changes in the price of a group of goods and services. The Fed considers several price indexes because different indexes track different products and services, and because indexes are calculated differently. Therefore, various indexes can send diverse signals about inflation.'

So essentially the fed monitors average long run inflation, digging into sub categories to identify temporary unique data points and marries these with ‘core inflation’ (food/energy) data to assess inflation trends.

The Ethos/Mandate of a Technology Company

One can postulate that either through unintended consequences or innately by their very construction as follows:

Global Technology Dual Mandate. The expansionary goals are to disrupt, delineate and challenge existing models of business in a manner that increases efficiency, lowers cost whilst utilising less resource.

Essentially a game of optimisation.

It follows that the intrinsic focus of global technology proliferation is potentially wholly antithetical to the aims and ambitions of central banks. The irrevocable change that has been experienced in all sectors and value chains within the world economy due to tech has allowed companies hitherto unknown access to many markets - leading to consequently a more streamlined global landscape for goods and services. This is a deflationary effect as consumers gorge on free delivery of goods (Amazon) and free provision of services (media/Netflix et al).

Issues and Ramifications

The Fed is the de facto central bank of the world. As such its monetary policy effects are global; the diminishing impact being achieved via its actions are very likely to seriously damage its credit standing as a nation and have wide ranging implications not least on the dollar and its reserve status.

Near zero interest rate policy naturally forces yield seeking investors into risk assets; public and private. Tech being the clear over-arching thematic trend in the paradigm shift towards borderless commerce.

Technological advancement and its occupation at almost supranational status is a powerful deflationary force resulting in the loss of many traditional jobs. A structural change in monetary policy framework is required; one that is not reliant on inflation targets to manage debt loads. Until then one can make the case that current monetary policy is diametrically at odds with the forces of innovation. Startups and established business alike are rampantly seizing every increasing opportunity to change the way we live; no facet left untouched.

Who will abandon their mandate first? Place your bets...

 

............................................................................................................................................................................................  

About Fuel Ventures:

• Fuel Ventures is a leading early-stage technology investor, investing in fast-growth UK and European businesses that have the potential to return between 10x and 100x.

 

• Entrepreneurial driven fund led by multi-exit entrepreneurs with £200m+ in exits.

 

• An advisory committee with over 50+ years’ experience, and exits totalling £2b+

 

• We now have 35 portfolio companies and after only 4 years our first fund has a 7.4X valuation uplift, validated by third-party follow-on investors.

 

• We screen 3500+ companies a year using our thorough due diligence processes internally, cherry picking the best 10 companies that have the potential to achieve 100x returns

 

• We put a director on the Board of every company we invest in and take an active and hands-on role in the management and development of each company, plus bring added extra value through our network of sector experts.

 

• We invest in commercially scalable technology companies, with operating gross margins between 30% - 90%

 

• Targeting a minimum of 10x return on investments over a 5-7 year horizon.

 

• Generous HMRC EIS tax benefits including 30% income tax relief, 0% capital gains tax on exit, loss relief, and inheritance tax relief for UK taxpayers.

 

• We invest in every fund ourselves, with a large 10% personal investment alongside our investors, this is £2,000,000 - £3,000,000 into every fund!

 

Are you an investor who would like to find out more about Fuel Ventures? Please click here or email guv@fuel.ventures.

 

Are you an entrepreneur who would like to apply for investment? Please click here.

One could be forgiven for assuming that the current pandemic would usher in an era of rationalisation, a normalisation of excess and a return to fundamentally sound company valuations. The policy induced euphoric equity valuations with which we entered the current crisis logically had the side effect of buoying assets within the VC/PE arenas, as easy access to capital sought a home. Expectantly the ensuing market correction would historically lead to a sanguine investing environment amongst falling asset prices and risk aversion; allowing the investor class access to opportunities in public and private markets. Curiously - this is not what has wholly transpired - capital has instead gravitated toward and accelerated existing trends into lean cash rich business models bolstering the influence and market positioning of a few incumbent names. The un-endearingly termed FAANG stocks are now a record setting 20% of the US benchmark index S&P 500.

Public vs. Private

The current tech focused public markets investor is faced with the daunting task of sifting through tech boom era multiples in search of returns. Few would doubt that many of the tech stalwarts indeed face unassailable leads due to their footprint and increasing influence (politically and financially). However, with P/E ratios at all time highs and in a global picture of increasing country insularity, the probability of negative surprises and significant downside moves is clearly non zero. As such and potentially counterintuitively, the VC and PE arenas are very active and retain significant pricing power and this is allowing investment in private companies at previously little seen competitive valuations. What value then to the oft heard criticism - that VC-fuelled start-ups aren't held to the same standard as publicly traded competitors who answer to investors worried about cash flows and operating earnings every quarter? Well, over 50% of S&P companies have dropped or shelved guidance...visibility anyone? Overarchingly one area of un-equivocation is that COVID and its ramifications have accelerated trends such as remote working, digital payments and broad adoption of tech within our daily lives; a trend which bolsters the veracity of our focus here at Fuel. We diligently continue to apply our rigorous methodology across our chosen target universe of future leading global scalable marketplaces, platforms and software (SaaS). Our team has been investing in these sectors for over 10 years and our philosophy remains the same, if a deal is fundamentally too expensive at this early stage, we will leave it on the table.

 

............................................................................................................................................................................................  

About Fuel Ventures:

• Fuel Ventures is a leading early-stage technology investor, investing in fast-growth UK and European businesses that have the potential to return between 10x and 100x.

 

• Entrepreneurial driven fund led by multi-exit entrepreneurs with £200m+ in exits.

 

• An advisory committee with over 50+ years’ experience, and exits totalling £2b+

 

• We now have 35 portfolio companies and after only 4 years our first fund has a 7.4X valuation uplift, validated by third-party follow-on investors.

 

• We screen 3500+ companies a year using our thorough due diligence processes internally, cherry picking the best 10 companies that have the potential to achieve 100x returns

 

• We put a director on the Board of every company we invest in and take an active and hands-on role in the management and development of each company, plus bring added extra value through our network of sector experts.

 

• We invest in commercially scalable technology companies, with operating gross margins between 30% - 90%

 

• Targeting a minimum of 10x return on investments over a 5-7 year horizon.

 

• Generous HMRC EIS tax benefits including 30% income tax relief, 0% capital gains tax on exit, loss relief, and inheritance tax relief for UK taxpayers.

 

• We invest in every fund ourselves, with a large 10% personal investment alongside our investors, this is £2,000,000 - £3,000,000 into every fund!

 

Are you an investor who would like to find out more about Fuel Ventures? Please click here or email guv@fuel.ventures.

 

Are you an entrepreneur who would like to apply for investment? Please click here.