'Now's the time for change in venture capital': meet the unicorn hunters
2017-07-26
'Now's the time for change in venture capital': meet the unicorn hunters



 

Every day some of the smartest brains in finance busy themselves chasing down a unicorn in the making. Not the mythical horned horse of fairy tales but rather the termgiven to next company to go from startup to a billion dollar valuation in just a few years.

Venture capitalists (VCs) are part investor, part futurologist. They will invest in an exciting startup for a share in the company in the hope their stake will make several times more when it is bought by a large rival or floats several years down the line.
The venture capitalist industry has come a long way in the last twenty years. From a niche filled with financiers, the number of firms has greatly increased. The total amount loaned to UK companies by VCs between 2011 and 2016 jumped from £453m to £1961m, according to research firm Pitchbook.


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Many VC firms are now staffed by entrepreneurs, such as Atomico, which was co-founded by Niklas Zennström, who is also the co-founder of Skype. Mattias Ljungman, co-founder and partner at Atomico, believes this is more in tune with the wave of young people looking to build a business, not just a career.

“Having entrepreneurs guiding decisions fits in well with the trend we’re noticing,” he says. “A lot of the brightest minds are leaving college now and wanting to launch their own startup, so they can sometimes need some help on the business side.”

However, one aspect that is not changing fast enough is the lack of diversity. Entrepreneur-turned-investor Debbie Wosskow became so disillusioned by the fact that around 95% of all VC investments are made to male-led businesses, typically by male VCs, she co-founded AllBright, an investment fund dedicated to female founders. The aim is to make the UK the best place to be a female entrepreneur. The recent case of a prominent Silicon Valley investor resigning over sexual harassment allegations, is putting a spotlight on the issue.

On the one hand, that can mean an investor, such as the co-founder of Mangrove Capital Partners, Mark Tluszcz, can lay claim to some major success stories. His $2.5m investment in Skype in 2001 is now worth $250m. However, he admits no VC has a better than 50:50 chance of making or losing money.

“Around half of the companies we invest in will fail,” he says. “Around 20% might make our money back and another 20% will probably treble our stake. It’s the 10% that are the big hitters that can make ten times your investment that keep a VC company going.”