VGC Partners Technology Seed Fund V (SEIS)
VGC Partners LLP (“VGC”) is a growth capital investor with approximately £58 million under management across several funds and investment vehicles. The firm has been supported by the British Business Bank through a £30 million commitment from its Enterprise Capital Funds (ECF) programme as well as by family offices and high net worth individuals.
VGC’s investment focus is on brands operating at the intersection between the consumer, media and technology sectors.
The VGC Partners Technology Seed Fund V is the company’s SEIS offering, now in its fifth iteration. The fund will seek to invest in technology-enabled startups that are solving corporate innovation challenges, with a particular focus on voice technologies. In 2020, VGC partnered with Amazon’s UK Alexa Incubator Programme to provide seed funding to British voice technology startups.
In addition to Amazon, VGC has established a network of corporate partners, professional connections and talent that will introduce investment opportunities to the fund and support portfolio companies post-investment through technical mentorship, business acceleration and marketing.
Since launching its first SEIS fund in 2017, VGC has invested £3.2 million across four SEIS funds into 25 investee companies.
The fund will target an investment portfolio of 8–10 investee companies of which the manager expects 70% to come from the Alexa Incubator Programme, not guaranteed. The manager intends to deploy all investor capital within the 2021/22 tax year – not guaranteed.
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- Partnership with Amazon’s UK Alexa Incubator Programme
- Focus on consumer, media and technology sectors
- Targets 8–10 companies, not guaranteed
- Aims to deploy in tax year 2021/22
- Target return of £3–£5 per £1 invested after 3–4 years, not guaranteed
- Minimum investment of £10,000, you can apply online
VGC is a growth capital investor with approximately £58 million under management across direct investments (outside of a fund structure), SEIS funds, and a growth-stage fund.
The business was founded in 2011 by Parminder Basran after completing an MBA from London Business School in 2010.
Its first investment, in November 2011, was Metropolis Group, the music studio, production, publishing and agency business. The business was sold in March 2013, generating a 4.3x realised return – past performance is not a guide to the future.
A number of direct investments alongside high net worth investors and family offices followed, including:
- Iconic Images, the owner of a catalogue of photographic images from the 20th and 21st centuries by leading photographers such as Terry O’Neill. Iconic Images is present in 34 galleries across 25 cities globally. VGC returned the initial capital within 12 months and retains a stake in the business.
- SuperAwesome, the kid-safe online marketing platform, VGC invested at a £25 million valuation and exited to Epic Games in 2020 for $275m. The investment generated a gross return of 2.9x for VGC investors, of which 1.9x was returned as cash, the balance was rolled into Epic Games stock. In 2021, Epic Games saw its valuation rise from $15 billion to $29 billion.
- Round World Entertainment, the owner of 10Ten Talent, the football and talent management business with clients such as Gareth Southgate and Glenn Hoddle. VGC remains a significant shareholder in the business.
Note, past performance is not a guide to the future.
Following this string of successful direct investments, in 2014 VGC – then trading as Velos Partners (EMEA) LLP – launched its first fund, Velos Partners Fund I, alongside US-based Velos Partners Management LLC, raising $40 million. VGC is no longer associated with the fund.
VGC launched its first SEIS fund in 2017. The VGC Partners Technology Seed Fund V is a continuation of the strategy refined through VGC’s previous seed funds, with a focus on companies solving corporate innovation challenges, in particular, voice technologies with partner Amazon Alexa.
In 2019, VGC closed its second growth capital fund, raising £50 million, with a £30 million commitment from the British Business Bank, and commitments from high net worth investors and family offices.
Parminder Basran serves as Managing Partner. He is supported by two experienced partners, Andrew Lister and Henry Chamberlain; a director of new investments, Alex Read; and a deal and client team. VGC’s senior advisor panel and wider network are regularly engaged both pre and post-investment to support completion of transactions and subsequent portfolio company growth.
The VGC Partners Technology Seed Fund V will seek to invest in technology-enabled startups that are solving corporate innovation challenges. VGC will consider companies that have developed at least a minimum viable product and may already be revenue generating and showing signs of rapid user growth or customer adoption and scalability.
VGC targets companies operating at the intersection between consumer, media and technology. Through its direct investments, growth capital funds, and its previous four SEIS funds, VGC has built a network of corporate partners, professional connections and talent that are expected to introduce investment opportunities to the fund and support investee companies post-investment through technical mentorship, business acceleration and marketing.
In 2020, VGC partnered with Amazon’s UK Alexa Incubator Programme. The programme aims to provide funding to voice technology businesses creating unique experiences with Alexa or advancing voice technology. Managed under the Alexa Fund umbrella, Amazon’s in-house venture capital fund, Amazon provides technological and commercial mentorship whilst VGC provides seed investment. Amazon does not take a stake in the companies mentored under this programme; the goal instead is to mentor them and potentially take them to larger funding rounds where Amazon and other investors can potentially participate.
The Alexa UK Incubator team and VGC hold bi-weekly discussions where startups new to the cohort are reviewed. At present, the program operates exclusively with VGC. VGC first started to invest in companies from the Alexa programme through VGC Partners Technology Seed Fund IV – the programme contributed three of the five companies backed by the fund.
In addition to VGC’s corporate partnerships and professional network, the presence of VGC’s growth capital funds may add further value to the SEIS fund proposition by potentially providing promising investee companies with access to additional growth capital.
An example is Percival Menswear: VGC initially invested £150k within its second SEIS fund in 2018. VGC has since followed on with a further £3 million investment in April 2021 via its £50 million growth fund, resulting in a 4x valuation uplift for SEIS Fund II investors after the business doubled net sales year on year for the previous three years. Percival Menswear has partnered with Gareth Southgate to provide pitch-side outfits for the UEFA Euro 2020 championships.
The fund targets a return of £3–£5 per £1 invested over a holding period of 3–4 years. Please note neither returns nor timeframes are guaranteed; exits may take considerably longer.
The directors of each investee company will look to maximise value for investors through an exit, which may be via a trade sale, IPO or MBO, although no strategy is guaranteed. Investee companies will be working directly with the VGC’s corporate partners from the earliest possible stage, which may provide a potential exit route for the businesses as they grow larger in size.
Since launching its first SEIS fund in 2017, VGC has invested £3.2 million across four SEIS funds into 25 investee companies.
The fund will target an investment portfolio of 8-10 companies of which the manager expects 70% to come from the UK Alexa Incubator Programme. The manager intends to deploy all investor capital within the 2021/22 tax year – not guaranteed.
Below are portfolio company examples from previous iterations of the fund. They are outlined to give a flavour of the types of companies you might expect but are unlikely to be part of a new investor's portfolio.
Voz Lab (recent investment)
Voz Lab Limited is an example of a recent investment introduced to VGC via its partnership with the UK Alexa Incubator Programme.
Voz Lab is developing an interactive voice-led experience marketing platform to help transform the way brands interact with their customers. With 1 in 3 UK homes now connected to a smart speaker, Alexa has proven to be a powerful marketing channel to reach customers. On pack promotions, such as competitions and giveaways, are a key marketing tool for FMCG brands, Voz Lab provides a platform that allows consumer brands to offer voice-led giveaways and promotions through home speakers, as well as data capture and analytics.
VGC invested £150,000 in the business in November 2020. The investment is currently held at cost.
SenSat is a visual mapping business that uses artificial intelligence and drones to provide high-resolution land surveys to companies within the engineering and construction sectors.
SenSat has developed a cloud-based site management platform that enables users to track and visualise project performance remotely, from any device, week by week, using real-time data. The business works with a number of leading infrastructure operators, including Heathrow Airport. Heathrow’s Chief Operating Officer, Emma Gilthorpe, is quoted stating SenSat’s platform has saved Heathrow over 100,000 work hours and £20 million in direct project costs.
VGC invested £150,000 into the business as part of its first SEIS fund in September 2017. Since then, SenSat has raised a $4.5m seed round in 2018, followed by a $10 million Series A round in 2019 led by Tencent, and a £11 million convertible loan note round in 2020. The company is currently valued at a 1.88x multiple of cost. Past performance is not a guide to the future.
Honest Health (example of previous exit)
Honest Health is developing a vertically integrated health platform that delivers targeted healthcare at scale. All treatments offered through the platform are clinically proven, affordable, and easy to access.
Its first service, Freshman, is a men’s hair loss clinic designed for the 21st century. Users fill out a short online consultation and Freshman’s medical team provides an appropriate treatment. Treatments come in convenient packages and can fit through letterboxes. Treatment refills are delivered monthly and can be cancelled any time.
VGC was introduced to the business by London Business School and invested £150,000 in November 2020. In June 2021, Honest Health was acquired by Hims and Hers Health Inc, a $2 billion New York-listed online health platform. Details of the acquisition are undisclosed. The exit took place within the minimum three-year holding period for SEIS investments, therefore investors will lose their SEIS income tax relief. Nonetheless, VGC believes the transaction provides a better outcome for its investors. Past performance is not a guide to the future.
SourcedEasily (example of previous failure)
There have been three failures within VGC’s first SEIS fund, from a portfolio of nine investee companies.
SourcedEasily (previously trading as “Repairly”) was an on-demand mobile phone repair service business introduced by Liberty Global and received £47,750 of SEIS-qualifying investment in December 2017.
Despite the company reporting encouraging month-on-month revenue growth and being backed by Techstars, Virgin Media and Liberty Global, the company failed to raise further funds and entered a liquidation process in June 2018.
No distributions were available to shareholders, although investors in the SEIS Fund were able to claim SEIS loss relief on the investment.
Of the 25 investee companies backed since 2017, one has achieved an exit, four are valued at between 2.0–4.2x cost, nine are valued between 1–2x, and three investments have been written off. The rest remain valued at cost. Past performance is not a guide to the future.
The chart below shows the average performance of the total subscribed into the funds each tax year, based on valuations as at 25 May 2021, expressed on a £100 invested basis. Please note, individual investor portfolios’ performance will deviate from the average.
Please note the performance table below predates the recent exit of Honest Health to Hims and Hers Inc in June 2021.
Source: VGC Partners, as at 25 May 2021. Figures are net of all fees. Past performance is no guide to future performance. These figures do not include any realised returns which would be available through loss relief. In the above examples, initial tax relief of up to 50% could also apply, remember tax rules can change and tax benefits depend on circumstances.
Risks – important
This, like all investments available through Wealth Club, is only for experienced investors happy to make their own investment decisions without advice.
SEIS investments are high risk so should only form part of a balanced portfolio and you should not invest money you cannot afford to lose. They also tend to be illiquid and hard to sell and value. Before you invest, please carefully read the Risks and Commitments and the offer documents to ensure you fully understand the risks.
Tax rules can change and benefits depend on circumstances.
The fund relies heavily on the knowledge, experience and network of Parminder Basran. He is wholly committed to VGC Partners, but there is key-person risk.
This SEIS fund invests in early-stage businesses which are more likely to fail than larger ones. So you should expect a number of failures in the portfolio, or even be prepared for all companies to fail.
Future funding rounds may dilute existing investments.
Exit could take considerably longer than three years. Conversely, an early exit could result in the loss of tax relief.
A summary of the main charges and savings is shown below. Some of these will be payable by the investor, others by the investee companies. The investment may have additional charges and expenses: please see the provider documents, including the Key Information Document, for more details.
|Full initial charge||—|
|Wealth Club initial saving||—|
|Net initial charge through Wealth Club||—||Annual management charge||—|
|Performance fee||25% – 37.5%||Investee company charges|
More detail on the charges
Timing of the offer
The final closing date for targeted deployment in the 2021/22 tax year is 3pm on 2 August 2021 (cleared funds).
In our view, this is an attractive, although high risk, SEIS fund which may complement an existing investment portfolio.
There are three elements to the offer which may appeal to investors. Firstly, the fund has a disciplined sector focus, backing startups operating at the intersection between consumer, media and technology sectors. This is an area in which VGC appears to have built a strong network of corporate partners, professional connections and talent. Secondly, VGC’s partnership with Amazon’s UK Alexa Incubator Programme could provide sector discipline, enhanced deal flow and additional support for investee companies. Finally, the presence of VGC’s £50 million growth capital fund may potentially provide the most promising SEIS companies with additional follow-on funding.
Whilst the SEIS track record is limited, there appears to be a number of promising companies within the portfolio, although there have also been some failures. Investors should note the experience and network of founder Parminder Basran is central to the appeal of the offer, so key-person risk is significant.
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Wealth Club aims to make it easier for experienced investors to find information on – and apply for – tax-efficient investments. You should base your investment decision on the provider's documents and ensure you have read and fully understand them before investing. This review is a marketing communication. It is not advice or a personal or research recommendation to buy the investment mentioned. It does not satisfy legal requirements promoting investment research independence and is thus not subject to prohibitions on dealing ahead of its dissemination.
- Target return
- Funds raised / sought
- Minimum investment
- 2 Aug 2021 for final close