The benefits of a VC market downturn?

Valuation normalisation

Valuations have come down from the extreme highs, upending the prevailing trend over the last couple of years and bringing both founders and investors expectations down to a sense of normality. This is beneficial for investors, who by definition are price takers, allowing them to enter at competitive prices, in turn increasing the probability of achieving a larger multiple on exit over the long term. In public markets, median ARR multiples for software companies have dropped from 16x (March 2021) to 4.4x (Nov 2022) due to a higher implied discount rate on future revenues and a reversion to the historical mean.

Generational opportunities

Some of the world's greatest generational companies were created during market downturns including PayPal, Facebook, Uber, Airbnb. Starting a business is no easy task, creating a successful one is even harder. As the legendary investor Bill Gross refers to, 'Timing is everything'. Starting a business during a market downturn can be fortuitous due to a number of factors.

(i) less competition and access to greater talent
(ii) founders equipped with an efficient growth mindset
(iii) less competitors getting funded, helping to cancel out a lot of the noise.

Reduced competition

Competition to get into deals has moderated, providing more pricing power to those investors that have dry powder and the ability to become the preferred party to founders. It’s widely recognised that most Venture Capital investors tend to invest at Series A/B, having become by far the most saturated area in the market - for that reason we believe our seed stage investment strategy gives us a competitive advantage. We at Fuel Ventures have always specialised at the seed stage (pre series A), leading rounds with a £1m-£3m ticket and taking a seat on the board. We feel that by operating as an entrepreneur led fund we understand and can rationalise with founders at the early stage helping us win the majority of term sheets we go in for. Only 8% of European VC’s are entrepreneur led having become somewhat of a rarity, whereas in the US it’s more of a commonality.

Excess funding

Dry Powder in VC is at all time highs ($290b, Pitchbook 2022) due to the increasing desire from investors to get exposure to the asset class with the objective of creating a well rounded, risk adjusted, diversified portfolio. The majority of this dry powder sits at Series A+ stages. A leading indicator for us as investors constitutes to the amount of funding available at subsequent funding rounds, in a game of probabilities this increases the likelihood of a company raising a competitive follow on round, in turn achieving early investors a significant multiple uplift.

A better future

Technology and innovation are undoubtedly long term trends. One of the major forces behind global GDP growth will be continual innovation, leading to a more positive and vibrant macro environment. In the US alone the IT sector accounts for 28 percent of companies & establishments, 22.4 percent of jobs, and 30.7 percent of payroll expenditures (US Census Bureau, County Business Patterns Survey 2020). With a global economy that’s experiencing the largest debt/ GDP ratios in history it’s important we double down on the one thing that’s proven time and time again can increase productivity, create jobs, generate wealth and create a more globalised world.

And to keep updated on all things Fuel please follow our...

LinkedIn page 👉 HERE

TikTok 👉 HERE

Instagram 👉 HERE

Twitter 👉 HERE

Fuel Ventures is one of the most active and best Pre-Seed & Seed VC's in the UK

Fuel Ventures has fast become the leading and one of the most active Pre-Seed & Seed VC investment funds in the UK. Investing in 30 new pre-seed companies per year. We have a unique approach to investing in the very best early-stage globally scalable companies.

What do we invest in? 😍

• Marketplaces
• Ecommerce
• Direct to consumer (D2C)
• Platforms
• Software (SaaS)
• Transactional technologies

Fintech, Proptech, Insurtech, Edtech, Wealthtech, Regtech, Legaltech, Femtech, Foodtech, Healthtech, Retailtech -You name it we like it!

Entrepreneurial founded fund?

Fuel Ventures is one of the most active pre-Seed & seed venture capital funds in the UK, established by Mark Pearson as a result of his own entrepreneurial and investment successes. Mark built and exited his successful digital marketplace business between 2006 and sold in 2014 for £44m and has since established a portfolio of over 60 companies, some of the most exciting early and growth-stage tech companies in the UK.

The Fuel Ventures team, investor and advisor network provides a unique 'all under one roof' approach based on real-world experience which minimises the level of risk for the fuel companies, delivering a combination of mentorship, experience and access to the investment required to accelerate their revenue growth through strategic advice and practical business-planning and operational execution support.

We like super ambitious hard-working founders or founding teams, companies that have large global scale growth potential with multibillion market opportunities.

We really want to see companies that have the potential to deliver x100 potential growth, mostly meaning £1billion+ future market cap potential.

Our Funds:

• Concept/Early Stage SEIS Fund🌱 30 investments of £150k

 

• Scale-up/Growth EIS Fund 📈 15-20 investments of £1-£3m

SUBMIT YOUR BUSINESS FOR INVESTMENT

The best way for us to review your business if you are looking for investment is to submit the business to our web form for me and our investment team to review properly within our process, we review weekly in our investment meetings and will come back to you if we spot something of interest that gets us excited.

If you are an entrepreneur looking for pre-seed and seed investment please submit your business for investment here.

👇

https://fuel.ventures/contact/entrepreneur-application/