Leo Davies
The core partnership at Moscar have backgrounds in allocating large Series A investments for a Jersey family office and previously running a systematic trading fund in the case of Tim Marchant and as a senior advisor for EIS investments at his own wealth management firm, Ambrose Clayton, for Leo Davies.
At a point in 2019 the two, who’ve known each other since their days at Worcester Grammar School, decided to strike out with a venture capital fund of their own, one that doesn’t rely on ‘unicorn’ companies that have a low probability of over performing but looking for high probability three to five times returns companies instead.
By their own admission, Moscar may not be one of the oldest or largest venture capital firms out there, but two years after launch, their novel approach is starting to bear fruit. Four of its investee companies are planning Series A funding in Q1 2022. Moscar aims to use these Series A rounds as benchmarks to sell their holdings, an exit strategy markedly different to waiting for the usual IPO or industry sale.
The hardest days may then be over for Moscar, having seen off the issues of not only launching barely six months before a global pandemic, which brought huge disruption and caution to international markets, but also the challenges of being an independent venture capital fund facing the ‘chicken and egg’ conundrum of being unable to get funds until showing a track record.
Tim Marchant
The fund currently has ten portfolio investments and uses these four initial filters for new target companies:
- They need to be producing a minimum revenue of £200,000 a year but preferably closer to £500,000.
- Their growth must be ‘bootstrapped’, namely that the company has been funded to date by either internal money, the founder or friends & family. This also means at the time of investment they haven't yet received any institutional money.
- They are preferably running cash flat or profitable, however, companies with a large burn rate are discounted.
- Lastly, Moscar looks for target companies to be able to get to their Series A within two years.
Mr Marchant is also clear that this is a sector agnostic fund; looking purely at whether targets hit Moscar criteria, dismissing the ‘Dragons’ Den’ approach of investors claiming expertise in industries they may have limited personal knowledge of.
Upon investment Mr Marchant or Mr Davies will take an NED role at the firm and look to undergo constant engagement with the start-up as the push for Series A gears up.
Mr Marchant says: “Moscar is deliberately designed to only look at that two to three year window of growth, then exit or lighten our position. We don't wait for an exit to sell our equity, we aim to use the secondary market instead.
While Moscar does not rely on portfolio outliers, this does not mean its decisions are in any way dull. Supper Deliveries, which has seen five times growth since Moscar’s investment, operates a premium food and drink delivery service, located in central London. Their fleet of custom-made bikes and specially trained riders look to ensure the very best food from the very best restaurants is delivered at the highest quality. It is was also part of a burgeoning direct to consumer market, even before the Covid-19 pandemic accelerated its rapid growth.
Mr Marchant and Mr Davies would also hold up their hands and admit they were not experts in the world of cosmetic dentistry before investing in Diamond Whites Aligners, but they knew the numbers held and there was a strong business plan behind the startup.
The company is a ‘direct-to-consumer’ model, offering at-home orthodontic invisible aligners. Diamond Whites looks to cement themselves as the ‘provider of choice’ in the domestic market before expanding into Europe and beyond. When Moscar invested, its valuation was at £6 million, and now stands at £25 million with Series A funding planned for early 2022.
All Moscar’s investments are in unlisted companies. As to how Moscar sources the data it needs to analyse firms through its metrics, Mr Davies says: “There are multiple ways of valuing unlisted companies. This involves science in the revenue multiples and cash burn but also an element of art in understanding the entrepreneur.”
Moscar’s Internal Rate of Return (IRR) is currently 38 percent, and it only requires an IRR of 30 percent to achieve its goals of five times growth over the life of the fund.
However, why would a founder or an investor choose Moscar over the more established venture capital firms?
Mr Davies says: “Firstly, there’s a weight of evidence to show that new funds outperform older ones. Also, coming in about three steps before a VCT like Octopus means Moscar is assessing a different kind of company, ones often with limited access to areas such as accounting, balance sheets and governance, but with so much capacity to grow given the right oversight.”
*The author is a relative of Timothy Marchant, a managing partner at Moscar.
