We are a sector-specialist investment and innovation advisory firm focused on Consumer and Retail. That means everything we do across each of our Venture Capital, Private Equity and Innovation Advisory teams is focused on these verticals.
Specialist investing appears to be gaining momentum. Atomico’s State of European Tech report 2022 showed roughly 40% of VC funds (and roughly 45% of Pre-Seed and Seed funds) were planning to increase their specialism in investment focus going forwards, second only to growing their networks when it comes to strategies to increase competitiveness. Similarly, Pitchbook data indicates Specialist funds were a bigger share of overall VC fund count in 2023 (26.4%) vs. 2014 (22.2%).
It’s not a given that Specialist strategies work best, though. Pitchbook analysis published in 2023 indicates that of 1,306 VC funds with vintages between 2000 and 2020, there is no significant difference in median fund performance between Specialists and Generalists overall, though they do point out that Specialist funds “are the clear winners when it comes to vehicles under $250 million.” It’s clear that Specialist strategies are neither a pre-requisite nor a guarantee of good outcomes.
This blog outlines why we believe Specialist strategies like ours will thrive in uncertain markets, with a focus on the VC strategy I help lead alongside Mike Martin.
We run a Specialist Pre-Seed to Series A investment strategy, focused specifically on tech-enabled opportunities within the Consumer and Retail sector.
By definition, being a Specialist narrows the pool of investable opportunities, so there is a trade-off to manage if operating in a niche market from both a market size and portfolio concentration perspective. This is often part of the argument for Generalist strategies.
Fortunately, that doesn’t apply to us:
We invest in a massive Sector: We operate in a huge category where the addressable market can be – in theory – almost anyone. Consumer spending amounts to more than £1trn/year in the UK alone. Facebook has ~2.1bn daily users. Amazon will probably make somewhere near ~$225bn in Online Sales in 2023 and made nearly $10bn revenue in Black Friday 2023 alone. The opportunities are endless and the breadth of sub-sectors within Consumer and Retail allow us to build diversified exposure across sub-categories.
We invest internationally: We are based in the UK but actively invest worldwide, historically in the US with companies like Awe Inspired, Maude and Fable, and now increasingly in Europe, with our recent investment in Berlin-based Milano Vice. Our growing network of fellow VCs across international markets helps us to find and contribute to the best opportunities, bringing our sector-specialist expertise to the table to complement theirs.
We invest in multiple business models: Specialising in Consumer and Retail doesn’t mean we only invest in Consumer-facing brands. We’ve backed startups that are B2C (i.e. directly to the consumer/end-user, like Jitty and ByRotation) and/or B2B2C (i.e. to consumer end-users via B2B channels, like Unmind and Peanut) and/or B2B (i.e. to business customers, like SeeChange and Shellworks). That flexibility allows us to gain exposure to any trend we see across the Consumer and Retail landscape, be it B2C or B2B.
We invest in the ‘So what?’ layer: Transformational shifts in tech only ‘matter’ when they are applied to practical applications – or the ‘So what?’ layer. This is arguably one of the areas that has held Crypto back: it isn’t yet clear that decentralisation ultimately ‘matters’ enough to the end user. AI has blown past Crypto precisely because it has a very obvious and immediate ‘So what?’ – or, at least, a clearer path to it. Being a vertical Specialist doesn’t mean we miss out on ‘the next big trend’; we simply back it from a different perspective. Yes, we’ll miss out on tech infrastructure opportunities – you won’t see us trying to ‘pick’ the next Mistral – but we’re OK with that.
So being a Consumer and Retail specialist doesn’t restrict us. In fact, quite the opposite: we see at least five major advantages to investing from a Specialist platform, helping us across the investment lifecycle:
Sourcing: Specialising has allowed True to build a strong brand within the Consumer and Retail ecosystem, which in turn helps to drive healthy inbound dealflow from entrepreneurs, investors and others in our network who understand what we have to offer. It helps us focus our outbound efforts, too, giving clear parameters to develop thesis-led work centered on the themes we’re seeing permeating across Consumer and Retail.
Screening: The risk of adverse selection – of picking the ‘lemons’ that nobody else wants – is a constant threat in contexts of asymmetric information like VC. Seeing lots of opportunities within similar spaces allows us to develop pattern recognition of ‘what good looks like’ and helps us reduce the risk of adverse selection. Learning from past successes and mistakes helps refine our ability to identify something special and move quickly and with conviction when we do.
Diligence: Perhaps one of the lesser-known assets for us in the VC Team at True is the global network of advisors, executives and corporates that form part of a True partner ecosystem, all focused on innovation in Consumer and Retail. This is a huge resource for us to tap into during diligence as we can leverage the expertise of our network to help us validate key elements of our underwriting case including product-market-fit, differentiation and scalability.
Support: Before the ink on the paperwork is dry, we start thinking about how we can leverage True’s expertise and network to offer differentiated value to our portfolio companies. Whether that’s highly targeted introductions to major corporates, one-to-one introductions to experienced executives or simply connecting founders within our portfolio with overlapping concerns, the sector Specialist approach gives us the ability to build stronger and more relevant bonds between different parts of our ecosystem.
Exit: Finally, the exit – an often overlooked part of the journey. Working alongside our Innovation Advisory team, who cover the corporate/enterprise space, and our PE team, who operate within the lower-mid-market space, we have access to great insight into the buyer universe and advisory community within our sector. That means we are positioned to offer perspectives not only at the time of exit itself but also in the run-up, helping entrepreneurs make the strategic decisions that will best position their companies for a great exit.
There are certainly drawbacks to specialising, and we try to embed the humility of those drawbacks into our investment decisions, for example by ensuring we invest alongside those that cover areas of expertise that we don’t.
But we are convinced that in the turbulent and uncertain times ahead for the VC ecosystem, investors and founders alike will increasingly look for long-term partners who can tangibly move the needle for them beyond simply providing cash. If you are a founder, investor or anyone else who knows of an opportunity that might fit our approach, please get in touch at firstname.lastname@example.org.