The financial crash of 2008 has indisputably had a marked impact on the European investment landscape. As demonstrated by the latest figures from the European Private Equity and Venture Capital Association (EVCA), total venture capital investment as a percentage of GDP has fallen quite dramatically over the course of the last five years. From pushing close to 50% of GDP in 2008, VC investment in 2012 accounted for less than 25% of GDP in the EU and below 20% in the Euro area.
While a silver lining is provided by the slight increase in VC investment in seed and start-up companies between 2011 and 2012 (in the EU), the overall picture is pretty bleak for start-ups that have ridden the storm and experienced rapid growth during the recession. Considering that later-stage firms are often regarded as a safer bet by institutional investors, the sharp decline in investment into such companies is a telling tale indeed. The downturn may have seen fewer exits – and thus less income for VCs – but it also seems to have made them more risk-averse.
This trend has not been missed by Lex Deak. The serial entrepreneur recently founded QVentures, a new online investment platform that connects ‘super angels’ – the top brass from the worlds of private equity, venture capital and entrepreneurship – with start-ups that require investment at a level above what an angel investor can provide and below what a VC tends to cough up.
QVentures was the logical next step for Deak who’d previously established a private investment club within The Supper Club, one of the UK’s premier entrepreneur networks. “There was something to be said about highly liquid and experienced entrepreneur investors getting together in small groups,” he says.
Deak hopes that QVentures will be able to assist those companies that find themselves trapped in the much talked-about ‘equity gap’. “The traditional VC model is quite staid now and is understandably moving slightly later while there’s a lot of activity in the pure seed stage,” says Deak. “That creates this void in the middle – and it’s a tricky space because there are fewer people who are prepared to write cheques for upwards of £100,000 and invest their time.”
“But there are still a significant number,” he adds. “It’s just about approaching them in the right way.” A number of high-profile names have already bought into Deak’s vision, with Michael Acton Smith, Richard Reed, the Innocent Drinks co-founder, and Moonpig’s Nick Jenkins among the founder members of QVentures. Their support has been matched by venture capital firms such as DFJ Esprit, Balderton and Octopus, as well as Seedrs, the crowdfunding platform. Through pooling the resources of major players from both sides of the table, it’s hoped that the rewards will be higher, and the risk lower, for all involved.
Yet, were it not for a chance encounter with Aaron Simpson, the founder of Quintessentially – the global private members’ club for high net-worth individuals – Deak may have struggled to build such a strong proposition. The presence of Quintessentially’s vast network of entrepreneurs has helped give QVentures the clout and capital it requires to transform the fortunes of some of the fastest growing and most exciting start-ups in the UK and from overseas. “This sort of concept was something that was really close to Aaron’s heart,” says Deak. “We got off to a head start when it could have otherwise have taken us years to build up a network that would rival that of Quintessentially.”
Deak is quite keen to distance QVentures from the crowdfunding tag, despite his admiration of what it is doing for the fortunes of certain start-ups. “I think crowdfunding is fantastic for consumer businesses but, for me, the real opportunity was going slightly higher up the food chain and connecting a smaller group of more liquid and experienced investors with a better quality of deal flow,” explains Deak. “We will avoid the label of crowdfunding wherever we can. We are not a crowdfunding platform. We are a super angel investment club.”
His sentiments are echoed by Todd Ruppert, chairman of QVentures and former CEO at T. Rowe Price, the global investment management firm. “I think the whole crowdfunding space is going to be very disruptive and additive to society, but QVentures is not really a ‘crowd’,” he says. “I would rather call it ‘group funding’. It is not for the masses; it’s for a more segmented and curated group of individuals.”
Indeed, with membership of QVentures capped at 1,000 individuals and corporate entities, the contrast with crowdfunding could hardly be starker. “We invest time in qualifying all of our investor members,” says Deak. “We are not out to boast 20,000 or 30,000 members. This is much more about quality over quantity.”
There’s little doubt that the individuals already gracing the books of QVentures have positioned it as a force to be reckoned within the global investment space. “There’s not really a business you could think of that is not going to relate to someone’s direct experience on that board,” says Reed, who now runs JamJar Investments, a venture capital fund set up last year with his fellow Innocent co-founders. “A combination of the Quintessentially network and the networks of those senior advisors on the board means it’s going to be pretty unparalleled in terms of access and contacts.”
And what of the companies looking to take advantage of the QVentures offering? Thus far, a handful of disruptive start-ups have secured investment. These include Bounce, the minicab app devised by Nicko Williamson, the founder of Climate Cars, in conjunction with the people behind Kabbee, the taxi price comparison service. Williamson admits it was the names involved in QVentures that really piqued his interest.
“The thing that attracted me to QVentures is the people involved; the access to some incredibly high calibre investors,” he says. “When you are raising money, a core part of it, especially if you are raising from angels and individuals, is access to the right kinds of people.”
Among the other firms to have raised money through QVentures are Wordeo, the video messaging app, and Network Locum, the online marketplace that helps medical practices cover temporary absences for their GPs. Deak admits that half the deals so far have involved tech firms but stresses that this is more down to coincidence than strict criteria. Generally, though, there are certain attributes that will ultimately make the QVentures board sit up and take notice.
“We really want to focus on ventures where there is already quite a lot of meat on the bones and that de-risk it slightly for our members as well,” says Deak. “It needs to be in line with what a lot of the other VCs and networks look for: something that is highly scalable, where there are early revenues or exceptional traction and the management has a great track record.”
Reed is slightly more to the point. “It’s a boring answer but we’ll just be looking for quality,” he says. “I won’t put money into something where the team isn’t strong and the product isn’t both useful and beautiful. I have no interest in investing in things that the world doesn’t want.”
Technology is nevertheless a core part of QVentures’ own business model, with its online platform serving as a useful tool for its well-travelled network of investors. And Deak reveals that he has already started work on a new technological development that he believes “will be a world’s first and really turbocharge the whole process”.
“We want to make sure that we don’t run before we can walk, but it’s all there for the taking,” he concludes. “The aim is to be the world’s premier super angel and ultra-high net worth investment club. I’m very bullish about what we can do.”
What is a ‘super angel’?
Lex Deak, founder, QVentures
Typically, a super angel would have real hands-on experience of running a business that’s turning over north of £50m and employing a couple of hundred people. They will have had a minimum of half a dozen angel investments already and will be keen to learn and understand the psychology and the detail of angel investing.
On the other side, you have finance professionals, hedge fund managers, principals at VC firms; the side of the community that will be well-versed in the technicalities of investing. By extension, they would qualify as highly sophisticated or ‘super angels’. The amount that they are able to deploy is obviously a contributing factor, so we would expect a minimum of £25,000 per annum to be deployed. All of this combined provides us with enough confidence that we are dealing with the right kind of people.