Horizan VC LLP aims to bring a creative alternative to traditional VC funding, angel investment, bank loans, and crowdfunding to the UK. These agreements enable founders to protect their equity and build their company with freedom without a bank or traditional VC breathing down their throat.
Why We Exist
Quite simply put, in the UK there aren’t quite a lot of suitable options for funding if you are a first-time, bootstrapped founder. VC and angel funding only generally works if you are trying to build a company that has the potential to scale to a billion-pound business, which less than 1% of companies ever do. Bank loans are difficult to get, the process isn’t always transparent, accrues interest and pressures people into paying a certain percentage per month. Crowdfunding is generally a last resort option and the majority of campaigns do not get crowdfunded. Thus, there has to be a new way of funding that doesn’t completely kill a founder’s cap table and enables them to focus on what they do best: building products.
Tinyseed has already done this research, but basically from an investor’s point of view, there are a plethora of untapped opportunities in investing in idea-stage startups that have growth potential but not unicorn potential. In the USA many alt-VC and revenue-based financing firms exist, such as Tinyseed, Earnest Capital, Lighter Capital, Pipe, Clearbanc, Uncapped, Capchase, Uplift1, and Social Capital but not so much in the UK (only Clearbanc, Uncapped and Uplift1 have UK operations, and require at least £10,000+ MRR). As a result, we have teamed up with Chisos Capital to bring the CFEA to the UK. CFEA stands for convertible future earnings agreement, which is part-equity and part income share agreement. This method will allow us to invest in the riskiest stage of entrepreneurship; idea stage and side-hustle stage.
With COVID and Brexit hitting sectors all across the board, many workers will turn to the startup world to reinvent their careers and will need assistance to do so. We believe there are huge opportunities to use this as an instrument to boost the startup ecosystem in this country and encourage more people to start businesses. If more deserving companies can get the resources they need to take their business to the next level, this creates better opportunities for all (better products for sale, more jobs created).
Our Core Values
According to Kelly Brewers, peer-selected investment (founders) works much more effectively than traditional VC-selection methods due to the element of relatability. Right now we’ve built an investment committee composed of entrepreneurial ecosystem builders and former/current startup founders, who’ve bootstrapped their companies to a decent amount of revenue. Among the team:
Jonathan Sun- Former founder of an Edtech app called Horizan (yes, same name). Also is a Techstars Startup Weekend Organiser, Zebras Unite London Co-Lead, and former Assistant Community Manager for Othership.
George Quentin- Current mobile engineer at Plum, former organiser at London New Tech, graduate from Angel Investing School and active in the angel investment space.
Toby Allen- has experience building websites, mobile apps, video games and Holograms from companies including Microsoft, 2KGames, Sumo Digital, Preloaded and Skipr where was Chief Product Officer. He now runs his No Code venture builder, StartupMill. On Deck No Code Alumni
Viraj Natnalikar- Current founder of CarQuids, which is backed by Seedcamp.
Ryan Thorpe- Current CMO/COO of Reflectly, former Head of Growth Marketing at Revolut.
Finn Pegler- Runs DeluxeMaid and HappyCleans remotely.
Together, we make a young, uniquely well-rounded team that is well positioned to bring a fresh perspective to startup evaluation, breaking old patterns of traditional VC thinking. Combined, our years of startup experience will not only allow us to bring a fresh set of eyes to deal analysis, but also be able to give more tailored support to these early stage founders as they continue throughout their journey.
What Types of Companies or Founders are We Looking At? Investment Pipeline?
Generally, we’re sector agnostic, and we’re looking for companies that are capital efficient, scalable, and impactful. In terms of themes, we’re looking at 3 areas: side hustle, diversity & inclusion, and innovation. We’re probably not as suitable for capital-intensive types of startup ideas (such as neurotech).
In terms of stage, we’re pretty much looking at friends and family round to pre-seed startups. There are a couple ways we can help founders fulfill their capital needs.
“It is reasonably hard to secure equity investment for startups/scaleups that are not yet mature enough for Series A funding round, but they are way beyond the SEIS stage.” -Agnes Czako, Airex (via Tech Nation Report 2021)
The minimum income needed for the FEA to kick off is either £30000 a year or £2500 a month. For applying candidates, we’d ideally prefer someone with the potential to make at least that amount if out of university (through degrees, skillset, and personality traits). An ideal candidate should also have a below 28% front end debt-to-income ratio (monthly housing cost divided by monthly gross income) and below 36% back end debt-to-income ratio (total monthly expense divided by monthly gross income).
We want founders who have the ingredients needed to be successful; namely high emotional intelligence and leadership ability, solid domain awareness (having experienced the problem yourself), willingness to learn and some grit and perseverance. You don’t need to be a perfect human being, but we want to see some potential out of you.
Our Investment Process/Decision Framework
The first thing to understand about our investment process/decision framework is that we usually look at the founder first. At this early stage, ideas can change fairly quickly, and thus we usually look at it as a foundational exploratory process than anything else. Here’s a summary of the Horizan VC investment framework:
We aim to make the process as straightforward as possible. There are a few elements to our application, which functions as due diligence at the same time. The first application is a simple form that asks a few background questions and checks to see if you are a UK/EU citizen (otherwise, we can’t really send you money).
Once a user submits this, he/she proceeds to part 2 of the application, which basically asks questions related to your traits as a founder, your startup idea, your demographic and your fundraising goals:
Afterwards, we conduct a quick interview/conversation with you to get to know you better, and then will have you fill out a quick credit check form by our partner, Stepex. Once you pass, congratulations! We’ll have you sign a few documents, wire the funds, and invite you to our Slack community.
The product can just be an idea, but the idea should ideally be validated with some pretotyping experiments. Pretotyping is basically a method of seeing the true consumer demand of your startup idea using creative, manual experiments (eg. landing pages). Ideally, at minimum, 3 successful pretotyping experiments is pretty indicative whether your business idea has real, tangible consumer demand (with skin in the game) or not. In other words, sitting around VIRAL Level 2:
Source: Village Capital VIRAL Framework
We aim to be quick with our decision-making, and will challenge ourselves to return application decisions within 2-3 weeks (or even faster). The reason why it takes that long is because we have to analyse your business, verify your credit score, and conduct a quick video/IRL conversation with you.
If we reject your application, we’ll give you a reason why in an email, as well as the steps (we) think you should take to either get your business to a level where we can consider or to try a different startup idea in the same industry. We’ll continue to carry a relationship with you to the best of our ability, and even encourage you to apply multiple times (though in the subsequent applications, we want to see how much progress you have made).
One of the areas that we pride ourselves on is being able to offer robust early stage startup support. In essence, we hope for our community to function as a semi-incubator, where founders can reach out to us for support at any time and we’ll stock the community with discounts, perks, community partnerships, workspace partnerships and connections to investors. Among them:
At the same time, we also respect the fact that founders need hours to focus on their business and don’t always want to dedicate time and energy to following specific curricula.
How We Work
Under a CFEA, a hybrid of an FEA (future earnings agreement) and a SAFE, if a founder receives £1,000,000 or more in outside funding, the FEA gets waived and the SAFE gets activated at the outstanding equity. If the founder quits the business or starts earning £2500 or more per month without any outside funding, the FEA activates and the SAFE lays dormant (until the founder chooses to raise £1,000,000+ in outside capital).
Initial Fund Structure
For Fund 1 we have raised £150,000. There will be a 2% fee on all profits collected from the underlying CFEA investments (FEA+equity exits) and the rest of the money will be returned to investors.
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