what makes you different from similar venture capital funds?
Moscar has no limitations for sector concentration which allows a focus on the quality of the deal rather than having to source a deal to fit in with portfolio requirements. Additionally, Moscar’s target companies are often not advertising that they are raising capital. This provides our Limited Partners exposure to a totally unique set of investments.
By investing in companies with minimal cash-burn, we reduce the risk of failure when compared with earlier stage VC investors. Moreover, Moscar aims to further reduce risk by preparing our companies for a Series-A investment within a 12-18 month window where we exit some or all of our position. We use our significant experience to position the companies to be attractive to the next level of institutional capital.
what is your exit strategy?
Moscar’s investments are exited in two parts. The first is a partial exit through private sale when a Series-A mark to market price has been set by a sizable investment. At this point, investors should expect a cash distribution. The remaining position will be exited depending on the specific circumstances of the investee company. We want to strike a careful balance between attractive liquidity timelines and maximum return potential for our investors.
As Moscar only invests in revenue generating and cash neutral companies, this means our time horizon for realisation is much shorter than more traditional seed VC. This allows us greater control over liquidity timelines. In our experience we should expect to see the first distributions to Limited Partners within the second year.
how do you feel about the current environment?
All current indication expects that some sort of economic downturn is on the horizon. Historically, recessions can turn out to be vintage years for venture capital. We see 2020 being no different, especially for VC funds that are at the beginning of their investment cycle. New investments must be able to capture the zeitgeist change that has been caused by a global lockdown. This includes a shift towards working from home and an acceleration in the delivery culture. Moscar’s current portfolio highlights that, with the right investments, there are significant opportunities available.
how is the fund structured?
The Fund is domiciled in the British Virgin Islands (Moscar Capital L.P.) There is a BVI General Partner (Moscar Capital (BVI) Ltd.) All this is managed by an UK, FCA regulated, onshore investment manager.
what is your investment criteria?
Running cash flat (small burn or profit allowed)
Post revenue with an ARR of between £500k-£1m
Investee company should have a bootstrapped cap table
Clear route to an expansionary Series-A round within 12-18m.
why do you insist on revenue before you invest?
The problem with investing at seed stage is that there are three major inherent risks: unknown customer demand for the product, unknown ability of the executive to manage the company and unknown viability of the business as a whole.
Moscar mitigates the first problem, unknown customer demand, by waiting for companies to produce at least £500k of annualised revenue. At this level of revenue, it is possible to gauge continued demand by speaking to a large portion of their customer base.
The second problem, ability of the executive, is addressed by Moscar finding companies with a bootstrapped cap table. This shows that the founder is able to grow a company without institutional backing, proving they are adept in managing the business.
Finally, Moscar requires target companies to be running almost cash flat. This significantly lowers the risk that the company will fail due to lack of cash and illustrates the viability of the company.
how do you source your target investments?
The problem with Moscar’s criteria is that our target companies are quite hard to find. They are not at “seed presentation” days, as we require our target companies to have revenue. They are also not usually on the major databases as this is usually their first institutional fund raise. To keep our deal flow at the required level, Moscar have built up a substantial network formed from science park contacts, private placement agents, numerous incubators and a large selection of accountants.
what sectors does Moscar invest in?
Moscar focuses on the quality of the deal and does not specifically target sectors. That said, we are mindful of building too much exposure in one area. Additionally, our criteria (running cash flat, around £500k-£1m of revenue, ideally a bootstrapped cap table and potential Series-A round within 12-18m) naturally lead to a few sectors being excluded. For example, life sciences and medical will rarely fit these criteria.
do you only take straight equity stakes in your target companies?
Moscar’s main method of investment is through straight equity. However, when deemed appropriate, we can take on convertibles or extra warrants along side the core equity investment.
how many companies do you expect to have in your portfolio?
The Fund plans to have approximately 15 investee companies within the portfolio by the end of 2020 and aims to add in the region of 12 more in 2021.
in which countries are you active?
Moscar is currently focused on the UK and all four of its current investments are UK headquartered entities. That said, Moscar’s LPA does not mandate exclusivity in the UK, and if the correct opportunity outside the UK materialised, it will be considered.
do you ever co-invest?
Ideally, Moscar likes to be the first institutional investor in a company. If other investors have shown an interest to the round and they bring a different skill set to Moscar, then we are open to be co-investors.