Venture capital investments
What makes our VC investments unique?
Because our predominant business is lending and advisory to businesses, we aren't reliant on capital raising events to make money. This means, we only bring high conviction opportunities that meet all our criteria to our unique investor family. Below are just a few things that make our VC investments unique.
- The founders we help raise capital for, we have either helped on the debt or advisory side of our business before, so we know their capabilities.
- We only raise capital for experienced founders.
- Founders have to be financially coinvested in the business as well.
- The business must be revenue making if not already revenue making within 12 months of investment.
- Our investments are continuously monitored, and you are invited to quarterly meetings.
VC Investments done differently
How we maximise your VC investment
We have a unique methodology to maximising investor returns, besides picking great investment opportunities. A few things we do are.
1.We confirm market demand, and get preorders / offtake agreements.
2.We get key industry players to invest and to guide founders.
3. Part of the capital we provide is debt, so investors can also make a return whilst having security.
4. We ensure they are revenue making within 12 months or less (this is a key selection criteria).
5. We help them apply for global government grants, to minimise capital raising.
VC Investments for your wealth
How we grow your wealth, with capital alignment
We have a unique methodology to maximising investor returns, besides picking great investment opportunities. A few things we do are.
1.We make it known to you from day 1,the capital requirements of the business and how it will raise capital, as to minimise dilution.
2. In several instances we will negotiate for non dilutionary share clauses to protect your wealth.
3.We ensures investors have first rights of refusal to participate in future raises.
4. We create liquidity events for existing shareholders, during the growth journey, e.g. the business can buy back shares at a higher valuation from you.
5. We ensure the end is mine, whether it be an IPO or private equity sale. This includes looking at offshore jurisdictions, and the best markets for the business to be in.
Protecting your capital
How to minimise risk for VC investments? Pt 1.
Reducing the risk of VC investments, requires a special mix of ingredients this includes.
Capital coalignment
- The founder must financially coinvest or have previously invested hard dollars into the business.
- The founder must be willing to take on a portion of the capital we provide as debt. This creates accountability.
- The founder must be willing to amend the company constitution and share classes, to suite the the requirements of our investors.
- We try to get key industry contacts involved with each business.
VC Investments with reduced risk
How to minimise risk for Venture capital investments? Pt 2.
The business
- They must have a unique selling proposition, to solve key market problems.
- They must have market demand, through preorders or contractual agreements.
- The business must be revenue making or have a path to revenue within 12 months.
- They must have clear go to market strategies, and capital planning in place.
- They must have clear accountability within the business as to the roles and responsibilities of each person.
- The founder must be relentless, and have traits the demonstrate high resilience in their character.
venture capital investments that minimise risk
How to minimise the risk of VC investments? Pt 3.
Continuous monitoring
- We make sure we have at least one industry investor or advisor, in each opportunity that understands the business that the founder is in. This ensures the founder, us and other investors have third party guidance.
- RSC acts as an advisor to the business on an ongoing basis. We have weekly program meetings with them, and ensure they are acting in everyone's best interest.
- They must provide a quarterly shareholder meeting and update. This can be in person and via VC.
private credit Investments with high yields
How to minimise the risk of VC investments? Pt 4.
Proper structuring
- Is the business structured properly globally, to receive various global government grants?
- Does the business have a proper international structure to be more tax effective for shareholders?
- Has the business structured capital properly?
- Does the business have the right legal agreements and business structures in to minimise operational risk.
Giving you the power with venture capital
How do RSC venture capital investments work?
Our private investments are made for investors who want to choose which investments they go into, with full transparency. What does our model entail?
- You sign up: Become registered as an investor with RSC.
- We find great opportunities: We do the hard work to find opportunities that suits our investors and our investment criteria.
- Due diligence: We conduct DD on prospective investments, and structure deal terms to meet the criteria of our investors.
- Deal origination: We get in touch with you for deals that match your individual preferences.
- We hold presentations.: We have one to one meetings or run events.
- Your review the deal: Ask questions, meet the founders, and do your own DD.
- You have investment control: All investments are done in your name, so you have full control.
- Ongoing review: We keep monitoring the business.
Private credit funds
Direct VC investments with RSC Vs investing in a VC fund
Our direct venture capital investments are not for everyone and are reserved for sophisticated investors who want to choose and back the businesses they invest in.
Advantages of direct venture capital vs a venture capital fund.
- Good for investors who want to choose the founders and businesses they back.
- Good for investors who want shares held in their own name.
- Good for investors who want direct oversight and regular founder updates.
- Good for investors who want to avoid ongoing fund management and performance fees.
Disadvantages of direct venture capital vs a venture capital fund.
- Isn't viable for smaller investors, who want to spread their capital across a large number of companies.
- Isn't viable for passive investors who don't want to be actively engaged in assessing businesses.
Venture capital for investors
Why you should invest in venture capital?
Investors use venture capital for a variety of reasons, and it isn't only for tech insiders. Some simply want to own a share of growing businesses, rather than relying on property and the share market alone.
- Access to growth before it reaches the public markets. Much of the increase in a company's value can happen before it ever lists. Venture capital lets you invest at an earlier stage.
- Diversification beyond traditional assets. Owning shares in private, high growth businesses adds an asset class that doesn't move in step with property, shares or fixed income.
- Ownership and influence. As a direct shareholder you hold equity in your own name, receive regular founder updates and can support the business with your experience and networks.
- Long term wealth creation. Venture capital suits investors with a long term outlook who want to build wealth through equity growth, rather than relying only on income.
What are venture capital investments?
Venture capital investments involve investors providing equity capital to early-stage or fast-growing private businesses in exchange for shares. Unlike lending, the investor is not repaid interest. Instead, they own part of the company and share in its growth, with returns typically realised through dividends when the business is profitable, and when the business is sold or listed on a stock exchange.
Venture capital can be accessed directly, by investing alongside other investors into a specific business, or indirectly, through a venture capital fund where an investment manager decides which companies receive the capital.
By their nature venture capital investments are illiquid and long term. Shares in private companies can't be easily sold like publicly listed shares, and it can take several years for a business to reach an exit. In return for this illiquidity and higher risk, investors are rewarded with a greater potential upside compared with most traditional investments.
There are many stages of venture capital, from pre-seed and seed through to growth stage investments. Each stage carries a different level of risk, valuation and capital requirement. Picking the right stage and the right founders is critical to achieving your investment goals.
At Royce Stone Capital we focus on direct venture capital investments in businesses led by experienced, financially coinvested founders that are revenue making, or have a clear path to revenue within 12 months.
What are the risks of venture capital investments?
As with all investments there are risks, and venture capital carries a higher level of risk than many other asset classes. Below are the main risks and how we seek to mitigate them at RSC.
Business failure risk
Many early-stage businesses do not succeed, and investors can lose some or all of their capital.
At RSC we only raise capital for experienced founders we have worked with on the debt or advisory side of our business, so we know their track record before bringing them to you. This helps to reduce the overall risk of your venture capital investment.
Dilution risk
Each time a business raises more capital, existing shareholders can own a smaller percentage.
We mitigate for this by setting out the capital requirements of the business from day one, negotiate anti-dilution protections where possible and give investors first rights to participate in future raises.
Founder and execution risk
A great idea can fail through poor execution or a number of other internal business factors.
We mitigate for this by requiring founders to financially coinvest and take part of the capital as debt to create accountability. In addition to having clear roles, go-to-market strategies and capital planning in place.
Liquidity risk
Private company shares are hard to sell, and exits can take years. Unlike a a listed equity, your ability to sell your shares to others in the private market, may be very limited in the event the business performs poorly.
We mitigate for this, by planning the exit pathway from the start, whether it is an IPO or private equity sale. We also try to create liquidity events such as share buybacks along the way to help investors get funds out if they so wish.
Market risk
A product may not have the demand expected, or economic factors may change demand.
We mitigate for this, by confirming market demand through preorders or offtake agreements before investing.
Venture capital should form only part of a diversified portfolio.
Who manages my money with an RSC venture capital investment?
The role of RSC is to find, assess and structure venture capital opportunities, and to help monitor the business once you have invested. We do not run a fund and we do not manage your money.
All investments are made in your name or the name of your nominated entity, so you are the registered shareholder and retain full control of your investment. You decide which opportunities you invest in, how much you invest and the level of due diligence you want done to your satisfaction.
When you proceed with an investment, documentation such as the subscription agreement and shareholders agreement is prepared, and we recommend these are reviewed by your own lawyer and accountant. Once the documents are signed, funds are transferred to the company in accordance with the agreed terms, and your shares are issued and recorded on the company's share register.
Where part of the capital is provided as debt, the loan terms and any security are documented separately, so you can clearly see how that portion of your investment is protected.
After you invest, RSC acts as an ongoing advisor to the business. We hold weekly program meetings with the founders, and you are invited to regular investor meetings and quarterly shareholder updates. This keeps you informed on performance, capital use and progress towards revenue and exit.
All decisions about your investment are ultimately made by you.
What is the difference between venture capital and private equity?
Venture capital and private equity both involve investing in private companies in exchange for shares, but they are used to describe different types of deals in the industry today.
Venture capital typically focuses on early-stage and fast-growing businesses. These companies may be newly revenue making or still building towards revenue, and they need capital to develop products, enter markets and scale. Venture capital investors usually take a minority shareholding and back the founders to grow the business. The risk is higher, but so is the potential upside.
Private equity typically focuses on mature, established businesses with proven revenue and profits. Private equity investors often acquire a majority or full controlling stake, and may use debt to fund the acquisition. Their returns come from improving operations, growing earnings and selling the business at a higher value. The risk is generally lower, and returns are more predictable.
The two also differ in investment size, holding period and involvement. Private equity deals are usually larger, while venture capital deals are smaller and spread across more businesses.
At RSC our venture capital investments sit between the two. We back high growth businesses, but apply the discipline of private credit and private equity, including debt components, downside risk analysis, revenue within 12 months and planned exit pathways, to protect investor capital.
