Deeptech investing: manager’s view

Manager’s view: 60 seconds with Amelia Armour from Amadeus Capital Partners

Q: We have seen the war in Ukraine impact financial markets across the globe, is it having an impact on the UK venture capital industry? 

There’s still significant capital in the market and start-up companies continue to be funded but we’re starting to see a downward adjustment in investment round valuations. This is especially true in Series A and later funding rounds where investors are becoming more cautious about paying high valuations which are not supported by underlying revenue. This pricing adjustment, after a record year in 2021, had already started before Russia entered Ukraine as it had filtered down from the tech sell-off in the public markets. 

Q: Is the war affecting how or where you invest? 

We are used to investing and exiting companies throughout the economic cycle and have not changed our focus area of backing UK deeptech start-up companies. We are continuing to see extremely strong dealflow and are triaging opportunities to focus on those with the best teams and market opportunity. At the same time we continue to support our existing portfolio and spend time evaluating where we should step-up with further investment to deliver the best returns for our investors.

Q: Amadeus Capital Partners is known for backing some of the UK’s most innovative early-stage companies, how do you find these companies? What are the key characteristics you look for?

We hunt out companies from many different of sources. This includes pitching events run by Universities, accelerator demo days, introductions from existing portfolio companies and also from other investment funds. We try hard to make access to our team as easy as possible so that founders can contact us without needing to go through a chain of contacts. We see 100s of companies each year but on average only make four to six new investments. We’re looking for ambitious teams that have a disruptive product with a global opportunity. If everything goes well we want to understand the path to a $1B+ valuation.

Q: Where are you seeing the most compelling investment opportunities at present? What new technologies are you most excited about?

We’re excited about quantum technologies and have made three investments in this area already. Quantum computing has the ability to transform the way that new drugs and materials are developed through the use of simulations which are not possible on a classical computer. Machine learning continues to be an exciting area to invest and we are looking at an innovative investment in the area of general artificial intelligence which does not require data heavy training of models for each new use case.

Q: Of course, investing at an early stage is risky, in a hypothetical portfolio of 10 investments, how many would you expect to be successful, and how many would fail?

Early stage venture capital investing follows a power law and returns are driven by a few winning companies who deliver oversized returns. Industry numbers show that about 40% of capital will not return any value and our institutional funds track these kind of metrics. Our EIS fund is slightly different as the investments are made from a subset of our existing portfolio where the EIS fund invests in the second or subsequent investment round of companies that are performing well. Over the longer term we expect the EIS fund to exhibit lower loss ratios than the wider VC market.

Q: What is the most important lesson you’ve learned, after years of investing?

Be flexible on the company journey. We invest at an early stage and there may be many pivots along the road to a successful outcome. This can be in the product, business model and in the senior leadership team. Being open to change and reacting quickly when necessary can speed up progress and prevent wastage of capital.