VC Profile: Octopus backs pre-seed ecocystem with fresh fund

The first close exceeded the fund's initial target, with a new GBP 15m hard-cap. A final close is expected in September 2022.

Last week, the GP announced the launch of the new fund, which started pre-marketing in September 2021. It will focus on three Octopus Ventures specialist sectors: B2B software, fintech and health.

"We had received some soft commitments from our immediate network prior to this whilst we were refining the fund thesis and fundraising materials," Kirsten Connell, former general manager of Seedcamp and first check investor at Octopus Ventures, told Unquote.

The team, comprised of Connell and Maria Rotilu, former country manager of Uber Nigeria and investor for Hustle Fund, reached the UK-domiciled fund's GBP 10m target at the end of January 2022.

"We want to invest early in founders building new technologies to solve the world's toughest problems, and we believe those founders could come from anywhere, so we're putting diversity at the heart of the fund," said Rotilu. "In our first wave, 40% of businesses have a female founder and 30% have at least one ethnic minority founder and we want to hear from female and under-represented founders with the next USD 1 billion idea."

Diverse LP base
The minimum commitment for LPs is GBP 50,000 in an attempt to encourage a diverse LP base while ensuring engagement from sophisticated investors, according to the investment team. The average ticket size is GBP 250,000. The majority of LPs are British, with a few European and US high-net-worth individuals, alongside founders who invested in the fund.

Although the entirety of its investors are new LPs as this is Fund I and a new strategy for Octopus, they all came through Octopus's network. For the majority of LPs, this is their first fund investment. "They either are angels who we've co-invested with in the past or founders we've invested in who have had a liquidity event," said Connell. "They're also coming from Maria's and my broader network."

More specifically, the fund has received contributions from 26 high-net-worth individuals and sophisticated investors, 15 founders of start-ups, four family offices, two funds-of-funds, and one Octopus anchor.

The fund, which charges 2% for management fees and takes 20% carry, did not work with placement agents during fundraising. It was advised by MJ Hudson on legal matters. Mainsprings is the fund administrator.

Seeding unicorns
Created to fill a growing gap for very early-stage funding, which has declined nearly 50% since 2016, the VC said in a statement, the fund is looking to participate in funding rounds between GBP 400,000-750,000. "This typically gives a start-up a 12–18-month runway," said Connell. The fund deploys single ticket sizes of GBP 100,000. "We are therefore a very collaborative fund and look to co-invest with angels, high-net-worth individuals, other micro funds and early-stage VCs," she said.

"On a GBP 10m fund size we'll be making 83 investments into start-ups, while for our GBP 100,000 investment we are typically hoping to receive between 3-6% equity," said Connell. "We won't have any dry powder for follow-on investments and 100% of the fund will be invested."

The fund has made first-round investments into ten businesses across UK, Germany and Spain and aims to be the first cheque that potential European unicorns receive. With a three-year deployment period, the fund will be investing on average in about two start-ups a month.

The fund has invested in start-ups active in at-home fertility treatment, immigrants' support, charity software to manage volunteers and female and non-binary teens' support, among others.

Currently, the fund's portfolio companies span the UK, Germany and Spain, with the investment remit being pan-European. To date, the majority of investments have been made into UK-based start-ups, however, following the official launch announcement, the investment team expects that to balance out.

The two-members team accepts cold inbounds "breaking the mould of having to rely on your network for warm introductions," said Connell. A new European hire is expected in the coming months to strengthen the fund's European access to start-ups.

• Tweet  
• Facebook  
• LinkedIn  
• Google plus  
• Send to  

• Topics
• GPs
• UK / Ireland
• Venture
• Exclusive
• In Profile
• Octopus Ventures