Episode 1 Fund 2 – £60m to invest in seed stage companies. What’s new?

by Simon Murdoch

Obviously we were very pleased to announce last week that we closed our second fund. We were a bit oversubscribed but held firm at our hard cap of £60m – it’s great to be able to close the whole fund in a single close – we can now concentrate fully on investing and mentoring the next 25 or more software-driven seed companies rather than fund raising which is a massive time consuming process for any young VC firm.

 

The announcement gives the functional information about our new fund. £60m focussed on UK based seed stage companies. Seed stage for us means raising up to £2m, usually built an MVP often with angel money, starting to get sales traction though revenues could be zero or very small, and where we can be the first institutional investor.

 

 

But what’s new in fund 2?

 

One question we were asked a lot during our fund raising is: how is fund 2 different to fund 1, i.e. what actionable insights have you learned from fund 1?

 

It’s a great question and really informed our refined strategy. We now know we only want to invest at the Seed stage as the first institutional investor. We learned from a couple of situations where we followed another VC that CEOs generally have one most trusted mentor, their go to person. We now want one of us at Episode 1 to be that mentor for you, the startup CEO. We have playbooks on what and how you should be doing at each stage of the Seed to Series A journey and we need you to believe in us as much as we believe in you. That works best if we are your go to advisor.

 

We’ve also learned that pure b2c is hard for a small fund because velocity and volume of fund raising to feed the marketing race is probably the most important factor of success and so pure b2c is better suited to larger funds. We still like and will invest in consumer oriented marketplaces (b2b2c) especially where there is a sales function. Carwow is a great example of this – it’s taken a number of years to persuade thousands of car dealers to work with them, amend part of their own working practices and drive their sales through Carwow. That’s created a barrier to entry which is not easily copied so the marketing race is less acute.

 

We are more experienced at sales than most UK VCs. Several of us have sold in our previous roles – in startup companies, and as execs in companies as large as Cisco. So our core focus is enterprise sales and SaaS businesses (b2b) especially where there is a strong component of deep technology i.e. which has been hard to build. Some of our companies take man years to build their minimum viable product, others have a market insight which means they can launch and start to get customer traction in months. Our ideal timing is to invest when the MVP has been launched and you are just starting to get some customer proof through sales or pilots. But we are flexible and invest earlier and sometimes later than that ideal point.

 

Our aim is then to mentor you through product market fit and initial scale up – the riskiest stages in turning your idea into a successful business. We help you reach £100-200k a month in sales and get you ready for a healthy Series A usually raising £3m+ next time.

 

So the real answer to “what’s new in fund 2” is that we now have a singular focus on providing specific activities to take you from Seed to Series A. We are excited about our new approach to adding value at the Seed stage and it’s the secret sauce of Episode 1 Fund 2 – which will only be revealed over time. If you are a Seed stage entrepreneur come and see us and we’ll explain how we work. For everyone else: watch this space!

 

 

Episode 1 Press Release Coverage:
Episode1

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