VC Profile: NetScientific’s EMV gears up for debut fund targeting early-stage deep-tech startups

NetScientific is a UK-based corporate investment platform in the life sciences, sustainability and technology spaces. The company carries out investments through its balance sheet and EMV Capital, which is a wholly owned subsidiary and the corporate finance and venture capital arm of the firm.

It is looking to raise a fund dedicated to deep-tech investments as a means to scale its current presence in the early stage high-growth deep-tech B2B space.

"We call this a capital-light investment approach where we invest off the company’s balance sheet, which allows us to make decisions relatively quickly, and then EMV Capital provides capital from its network of Enterprise Investment Scheme (EIS) investors, family offices and corporates,” said Iliev, who is also the founder and managing director of EMV.

Although deep-tech is a challenging area on the venture capital spectrum, the company’s management believes it will benefit significantly from the new wave of AI tools, especially when it comes to accelerating developments in drugs, robotics and semiconductors, he said.

The new vehicle is set to follow the business standard in terms of structure, said Iliev, who did not disclose more details, noting that more information will be available in autumn.

The firm’s deployment strategy is centred around several investment themes, namely scaling up high-growth startups, investing across its core sectors and turnaround investing.

“Each of these investment themes lends itself to scalability and one way to scale is by raising a thematic fund,” he said.

Its entry point so far is pre-series A and Series A funding rounds, while it is also investing in businesses looking to restart or pivot because their go-to-market strategy failed or the market changed dramatically, he added.

Its sweet spot is a combined direct and indirect holding of between 15% and 30%. However, its portfolio ranges from single-digit stakes through to, in one case, 100% ownership.

"We don't aim to become majority shareholders but we're able to take a deep stake, fix the business and then move it to the next stage,” he said.

NetScientific is looking to invest in between two and four new companies per year alongside add-ons and is considering increasing its deployment volume in the future. Since it acquired EMV Capital in August 2020 its portfolio has grown from eight to 24 companies and its valuation increased by around 35% to GBP 41.8m in 2022, driven by valuation increases across several companies, according to its latest financial statement.

UK-centric approach
The firm plans to continue servicing its portfolio, providing value creation services, similar to the practice of private equity houses, said Iliev.

"Post investment we work with the company to review their plans and funding needs, as well as bring in the right experts to help them accelerate," he said, noting that management takes a hands-on approach to getting the companies to reach their next value inflection points.

It examines value inflection points via a set of metrics that can be applied to companies in slightly different sectors or with different operating models, he added. This is relevant in deep-tech and hardware startups in particular, which often receive funding pre-revenue, compared to revenue-driven SaaS businesses.

The company has a diverse portfolio of companies ranging from robotics and biotech to hardware and recycling. Most recently, EMV Capital has been advising and leading on another funding round for Q-bot, a building industry robot manufacturer, in which NetScientific holds a stake of around 40%, as reported.

The majority of the portfolio is based in Europe and is particularly focused in the UK. Looking ahead, the firm wants to identify more opportunities through its collaboration with the Catholic University of Leuven (KU Leuven), a research institution based in Belgium. It acquired life sciences holding company Cetromed in 2021, which is invested in several spin-outs of the university.

Moreover, the firm is exploring opportunities in the Balkans, given Iliev’s Bulgarian background, where it sees emerging companies in data software as well as strong venture capital infrastructure.

“Our UK-centric approach can provide companies from elsewhere in Europe or from Israel a roadmap to scale globally in a big market by landing a spot in the country, as opposed to going to the US, and the opportunity to even restructure their business as a UK-based entity through a subsidiary in the country,” he said.

NetScientific will also be assisting the deployment of portfolio company Martlet Capital, a Cambridge-based early-stage investor, providing capital to deep-tech and life science startups with a primary focus on companies based in Cambridge. It has invested in more than 65 start-ups since its launch in 2011 and it raised additional capital in 2021 to scale its investment activity. “They have 49 investments in Cambridge and we have the ability and interest to look at some of those businesses as they scale up,” he said.

It has also partnered with Saranac Partners, multifamily office based in London, looking to assist them in scaling their seed investments.

Capital-light investments
Although the firm can leverage its diversified portfolio to offer quick returns in some cases (such as in proven technology models) and is also able to generate partial exits through secondaries, it takes a largely cautious approach.

A number of its portfolio companies are getting close to harvesting stage in terms of returns while others are in the middle and early stages, he said.

NetScientific’s management is shying away from aiming for unicorns, as companies with this prospect often require great amounts of capital in order to grow fast.

“I have a strong conviction that the traditional VC approach of ‘invest in 20, get a unicorn’ can lead to a lot of dysfunctions in a VC portfolio because in order to get a few unicorns, you have to drive risk in the rest of the portfolio,” he said.

Instead, the firm is investing smaller amounts of capital across its portfolio focusing on early revenues and reaching break-even. “This can drive IRR much higher because you need less capital to get to the impact you want, while securing a higher survival rate in the portfolio,” he added.

While the IPO window remains largely closed, several companies in its portfolio could attempt a listing when the opportunity arises and they are in talks with advisers, while they are not actively preparing to IPO, said Iliev.

Overall, the feedback from its network of LPs, ranging from high-net-worth individuals, family offices, institutions and endowments in particular, has been positive, said Iliev.

“There is no shortage of investors but they don’t believe anymore in megatrends, such as fintech, SaaS, digitisation, mobile apps and most recently crypto, where VCs have been investing in for the last 15 years,” he said, noting that LPs want to see a firm’s successful evergreen approach regardless of trends.

While new themes, such as AI, energy, infrastructure and food security continue to emerge, investors seem to look for growth through macro perspective, he argues.

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