Written by Flavia Richardson, Funding London
London Co-Investment Fund (LCIF) is a £25m venture capital fund backed by the Mayor of London and the London Enterprise Panel.
The Fund leverages private capital through 14 selected institutional venture capital investors, to invest in some of London’s most innovative science, digital and technology start-ups.
LCIF began investing in 2015 in seed rounds between £250,000-£1.5m led by a co-investment partners, including Fund managers such as Downing Ventures, Seedcamp, Albion Capital, Concentric and Forward Partners; and angel networks such as London Business Angels (Newable), Startup Funding Club, Firestartr and Beacon.
LCIF was created to address the lack of Seed Funding in the capital. This was the missing piece of the jigsaw, that could have prevented London from reaching its full potential as a Technology cluster to rival Silicon Valley, New York, Boston, Singapore and Shanghai.
The fund has so far backed 116 companies, including Curve, VChain, Cognism, Benivo, Flock, Pivigo, Railsbank, Threads Styling and Live Better With. Over the coming months the number of investments will continue to rise.
Metrics of Success
Since its inception, LCIF’s mission has been to achieve both financial returns and job creation. The fund therefore provides us with valuable insight into a section of the market where publicly available data is limited.
LCIF, as a catalyst fund, is attempting to validate a new model for capital deployment, leveraging the expertise of multiple early stage VCs and syndicates. This ‘new style’ Fund is due to complete investing in 2019 and we expect the impact will be significantly ahead of our initial business case. It will also clearly highlight the benefits to the local economy and the tech ecosystem.
There is evidence now that the hybrid LCIF model is already having a significant impact on the VC ecosystem. For example, our LCIF companies to date have raised a total of £225m of external funding, £121m of which, is from funding rounds where LCIF participated. This equates to a 6x multiple of investment for every £1 of LCIF deployed. This is a remarkable achievement, considering our initial assumption of 3x multiple.
In 2018, LCIF companies will have produced close to £65m of revenues. This is significant as most businesses at the time of the initial LCIF investment are pre-revenue and underlines the potential for accelerated growth in technology enabled businesses in the LCIF portfolio. We estimate the capital required by early-stage companies to generate their first £1m of revenue exceeds £3m.
We have also found that as the businesses scale up and grow, their capital needs also increase. The VC ecosystem must be prepared to step up a gear to facilitate this potential for rapid expansion. Assessing the current LCIF portfolio, we find that over the next 12 months our growth companies will require over £140m of additional VC capital.
Why is there an increased dependency on capital for the portfolio? It is due to a combination of factors including the need to augment technical talent, the cost of operations in major cities and marketing costs of new products and services.
Beyond Financial Metrics: A Social Impact Dimension
It is very clear from the data, that a majority of the funds secured by the LCIF portfolio, is directly invested into human capital. LCIF companies have created over 1,200 new roles in the past four years, nearly 10x the expected level at this stage of the fund. LCIF companies have demonstrated unambiguously, that disruptive Tech has a pivotal role in the creation of future jobs.
The jobs growth rate of LCIF companies over the last reporting cycle is consistently around 20%, with over 200 new roles added in the past six months, and over 350 jobs safeguarded.
LCIF is delighted to have backed founders from widely diverse backgrounds and nationalities, with 24% of founders from BAME backgrounds, and 15% of founders being female.
The Internationalisation Process
We live in an interconnected world helped by the current digital revolution. We are now passed the point where founders wait years to internationalise or target a global market. It now happens on day one, with 61 companies in our LCIF portfolio having a presence in 24 countries across the globe.
LCIF has an important role in incentivising and enabling our early-stage ecosystem, articulating a new catalytic model benefiting SMEs, VCs and the local economy. We are not even half-way through the life of the fund and we already observe substantially better returns and impact than we have initially projected, thus validating a model worth implementing across the UK.