Seeking tomorrow’s unicorns: manager interview

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The number of startups valued at $1 billion or more, also known as ‘unicorns’, has globally surpassed 1,000, with the UK hosting the largest number of unicorns in the Europe. Overall, 2021 proved an impressive year for startup growth in the UK, with a quarter of the UK’s total unicorns created in this year. Tech companies in particular flourished, as the milestone of 100 UK Tech unicorns was reached in June 2021. 

Octopus Ventures, best known as the manager of Octopus Titan VCT, has backed four of these – Zoopla, Cazoo, Depop and Bought By Many. As well as backing four unicorns, it has also supported businesses which have been bought by the likes of Google, Amazon, Microsoft and Twitter. Two funds managed by Octopus Ventures are currently open for investment: Octopus Future Generations VCT and the Octopus Ventures EIS Service.

To find out what it takes to find a unicorn in the making, we interviewed Simon King, Partner at Octopus Ventures. 

Important: This information is based on our conversation with Simon King on 1st February 2022 It is not advice nor a research or personal recommendation to invest. The information on this website is for experienced investors. If you’re unsure, please seek advice. Investments are for the long term. When you invest in early-stage businesses you should expect some to fail. VCT and EIS investments are high risk and only for experienced investors. You could lose all your capital: you should not invest money you cannot afford to lose.

Manager’s view: 60 seconds with Simon King from Octopus Ventures

Simon King oversees all deal origination for Octopus Ventures, and sits on the boards of several portfolio companies. Some of these are: optic transceiver developer Phoelex, spaceflight company Orbex, AI-powered robotics Dogtooth Technologies and FemTech creator Elvie. Simon also previously sat on the board at augmented reality lens innovator WaveOptics – acquired in a $500 million deal in 2021 by Snapchat creator, $65 billion market cap Snap Inc. 

Additionally, he sits within the investment team focusing on Deep Tech – these are the tools and technologies that will power the next industrial revolution, such as AI and machine learning, advanced materials, semiconductors and quantum computing. Simon holds a PhD in organic electronics from Imperial College London.

Q: The UK saw record levels of venture capital investment in 2021 – what do you think is driving it?

A: We’re starting to see a European venture ecosystem more resembling the US. We now have more funds, and at different stages, so founders can raise significant sums.

On top of that, Covid has changed how we work, act, interact and seek entertainment. Startups and founders see these as opportunities and say “Right, I’m going to build something, I’m going to solve that problem”.

In general, more people are looking to start businesses – many who’ve been through the cycle: repeat entrepreneurs. We’ve backed Alex Chesterman (of LoveFilm, Zoopla and Cazoo) – and several of our founders – multiple times: we’re starting to see that across Europe.

Q: Octopus has backed some of the fastest-growing EIS and VCT companies – are there any common characteristics?

A: It always comes back to the team. Ability to sell is critical – sell a product to potential customers, and sell a vision to employees and investors, the people who part with cash to help achieve that vision.

We also look for companies tackling really big, $billion+ markets – companies that could potentially be worth hundreds of millions, if not billions on exit. And they must be capable of delivering in a relatively short timeframe – 5-10 years, rather than 25+.

Q: What makes Octopus attractive to founders in your view?

A: I think it’s a few things. Founders will always look at past successes. I think our brand and reputation resonate not just with investors, but also with entrepreneurs.

We try to be founder-friendly: transparent on decision-making and really straightforward. We also help tackle problems. With a portfolio of more than 100 companies, we’ve got quite a good view of the challenges early-stage companies face, and we’re able to put in place services to help – from hiring the right employees, to expanding to the US.

Q: How many companies do you see on average, before investing? Any red flags you watch out for?

A: We see about 3,000 businesses a year, meet with 300-500 and invest in 25-35.

Going back to founders, it’s their willingness to listen and work with us as partners that’s really key. Some entrepreneurs are unwilling to seek or take input on their blind spots. That’s a red flag for us.

Q: In a hypothetical portfolio of 10 investments, how many would you expect to be successes and how many to fail?

A: At the stage we invest in, out of 10 companies we would expect five to fail, three to do okay, one to do reasonably okay and one to shoot the lights out. That’s the model: one company out of 10 will need to be so successful it returns the whole investment across those 10. Depop, Cazoo, Bought By Many – they’ve all done that. But there are no guarantees.

Q: What sectors or areas do you find exciting at the moment?

A: We’ve got five “pods”: consumer, B2B software, health, fintech and deep tech. There’s cutting-edge stuff going on in fintech: institutional crypto, NFTs, decentralised finance.

In deeptech, we’re really interested in AI and machine learning, especially applied to robots. Dogtooth for instance is building robots to pick strawberries. I think they’re amazing: they can spot a strawberry on the vine, tell if it’s ripe and put it into a punnet. Whereas humans tend to overfill punnets, these robots save growers that loss, just one of the benefits robots provide.

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

A: Regardless of the potential we see, we have to make sure we’re aligned with what entrepreneurs and founders want to do with the business.

We’re investing in the teams. We’re a passenger on their journey, and we’re going to be as helpful a passenger as possible: sitting next to them with the map, trying to help them navigate what’s coming up ahead – but we’re never the driver. So we need to make sure when we we get in that we want to go to the same place.

What next?

You can invest into a range of opportunities managed by Octpous Ventures through Wealth Club. Currently, the new Octopus Future Generations VCT and the Octopus Ventures EIS Service are open for applications.

If you are interested in the Octopus Titan VCT or the Octopus Apollo VCT you can register your interest on the relevant review page. 

Wealth Club aims to make it easier for experienced investors to find information on – and apply for – investments. You should base your investment decision on the offer documents and ensure you have read and fully understand them before investing. The information on this webpage is a marketing communication. It is not advice or a personal or research recommendation to buy any of the investments mentioned, nor does it include any opinion as to the present or future value or price of these investments. It does not satisfy legal requirements promoting investment research independence and is thus not subject to prohibitions on dealing ahead of its dissemination.