9 Dec 2016
Rosemont Group Capital Partners, the London-based seed and early-stage venture capital firm, last year announced its intention to invest in as many as 20 start-up and early-stage technology companies. Its target was to do so within two years, with a primary investment focus on online commerce, digital content, advertising, marketing, and retail. To some, this would seem like a tough or near-impossible task, given the precariousness of the investment sector at present, particularly for a reasonably small firm. The group invests capital through direct equity investments, convertible loans and notes, options, warrants, and preferred shares, and invests on its own or with investment partners. To date, the firm has achieved some enviable success, and insists there is more to come in the very near future. European CEO had the chance to speak to Rosemont Group CEO Freddie Achom, about his firm’s approach to venture capital financing, and how he aims to grow the company.
“The focus of the fund is to back innovative technology ventures with the potential for exponential growth, providing seed funding for start-ups”, said Achom. “Why start-ups, especially at the widely considered, riskier seed level? This is where we feel we can add the greatest strategic value and see potential for outsized financial returns. We are still relatively young within the space, and continue to accrue experience with every investment we make. This is achieved by working closely with the entrepreneurs we invest in and believe in 100 percent.”
Unusually, Rosemont Group’s business model takes inspiration from start-up accelerators, which apply less standard sizes of investment and offer greater executional assistance to digital SMEs. The tech investment sector in the UK has seen programmes such as Seedcamp achieve a good level of success, emulating US accelerators such as Y Combinator, Betaworks, Techstars and LaunchBox. However, these programmes typically serve to increase the flow of new start-ups rather than specifically addressing the funding gap Achom believes exists.
With a strategy to target what Achom calls ‘the true equity gap’ – generally businesses seeking less than £1m financial capital, and often as little as £50,000 – the group has achieved good success so far. Given the unique characteristics of early-stage online companies, Rosemont Group carefully screens and evaluates them prior to investment, then accelerates and maximises their executional prospects by working directly with them. “We specifically target early-stage businesses which fall within or below the conventional equity gap, accelerate the growth of these companies, and create sustainable businesses as well as a proven investment model”, said Achom.
In 2016 alone, Rosemont Group saw one of its portfolio companies – social media management start-up JustGo – acquired by Tunecore, one of the leading digital music distribution and publishing administration providers in the US. Achom was pleased with the transaction, but remained tight-lipped about the details of the deal, only noting “it was a liquidity event, so we are happy investors”.
Online and digital technology companies require less operating capital to develop working products and solutions
Another recent investment for Rosemont Group was in what is now the UK’s number one parking app, AppyParking. “Rosemont Group was the first and only investor at the seed stage, which we are very proud of. We demonstrated our willingness to back innovation we believe in”, said Achom. Aviva Ventures, the venture arm of insurance giant Aviva, lead the next round of investment into AppyParking, putting in an initial £1m, and more recently the company has raised a further £10m on a £30m post-investment valuation. Another investment saw Rosemont Group invest in a Pakistani tech start-up alongside Sunbridge Capital and Telefonica’s accelerator programme.
A factor Achom feels brings the balance in Rosemont’s favour is that online and digital technology companies require less operating capital to develop working products and solutions than traditional businesses. They typically do not have large capital expenditure requirements, don’t produce or manufacture hardware or tangible goods, rarely hold inventory, and do not have returns or leakage to contend with.
“Recent industry trends – such as using open-source software for building business services, cloud computing for storage or processing requirements, and distributed flexible teams – all contribute to the unique ability of digital SMEs to start a project, product or company within months or weeks, for less than the amounts typical VCs look to invest. There is a gap, and we aim to achieve as large a market share of this space as possible”, Achom concluded.