At Nickleby Capital, we don’t believe in tossing darts blindly to see what hits the target. Our approach is focused, disciplined, and driven by high conviction. We invest £5m-15m at Series A, lead rounds, take board seats, and roll up our sleeves to help businesses scale.
Our sweet spot is investing into tech and tech-enabled companies with scalable models. Here’s what sets us apart and why our approach works:
1. Private Equity Thinking in a Venture World
We completely reject the approach of investing in lots of companies and expecting the majority will fail. In our view, this strategy is fundamentally flawed and contributes to the underperformance often seen in venture funds. At Nickleby we want ‘all our kids to go to Oxford’. We focus on backing companies with intrinsic value of long-term contracts or recurring revenues or intellectual property – so even if a business stumbles, our investment doesn’t fall off a cliff.
We adopt a private equity approach to venture risk with thorough due diligence, downside protections and hands-on value add post investment. Because we’re not unicorn-hunting we don’t have to take outsized risks. Because we’re not a fund, we don’t have perverse incentives to deploy capital and can instead keep the bar high and wait for standout deals that have asymmetric risk/reward.
All this means is that our average return across our portfolio should be one of the best in class and crucially we don’t lose money for investors.
2. Finding Tipping-Point Businesses
The biggest relative valuation increase happens between Series A and B. Seed is too risky and Series B and beyond doesn’t offer enough upside. We invest around the Series A stage, the stage which we believe offers the best risk-adjusted returns. At this stage, businesses have product market fit, a repeatable sales model, multiple customers and likely £5m-25m in revenue. The science and market risks are mitigated with the focus being on execution at scale with velocity. Investing at this stage means things happen more quickly and growing momentum translates into faster exits and premium valuations.
3. The 5 Ms: Our Quick Filter
We use a balanced score card to evaluate the hundreds of deals we see every year, but a quick filter is our 5 Ms:
- Market: large, growing, with a niche focus and tailwinds from macrotrends.
- Model: differentiated, protected, scalable, data-driven with good margins, low concentration and higher barriers to entry. Why will they win against the competition?
- Management: high-calibre, perseverant, coachable, with emotional intelligence.
- Momentum: sales and pipeline. Are they capital efficient with a clear pathway to profitability?
- Money: meaning valuation, deal terms, and exit optionality. We want exclusivity and plenty of time to due diligence.
In summary:
By investing in intrinsically valuable companies at a tipping point and having a detailed playbook for how to pick investments and manage them post-investment, we believe we can consistently outperform the market.