It’s not difficult to assemble a list of charges against the venture capital investment model. Let’s start with the profile of those who attracts equity finance. As most VCs are happy to assert, investment is very much a “people” business – or to put it another way, teams tend to trump ideas and technologies when it comes to attracting the big bucks. All well and good, but venture capital investors are often accused of filtering investment opportunities through a collection of conscious or (more likely) unconscious biases. Thus, startups led by women and ethnic minorities tend to be underrepresented in VC portfolios while men of a certain age who went to a relatively small number of highly-thought-of universities tend to be over-weighted. And miraculously – so the allegation runs – the profile of founders who secure investment tends to map rather too neatly onto the age, gender, education and socio-economic background of those who make the decisions.
In reply a VC might say: “Look, we know that things aren’t perfect, but the investment model works. We know our market and we deliver good returns to our investors.”
Kevin Monserrat begs to differ. An alumnus of Microsoft Scale Up Europe, where he held the position of VC Relations and Dealflow Manager, he went on to take the role of Entrepreneurship Expert at the Said Business School before founding his own startup, PK2M. That business provides the platform for London-based Consilience Ventures, a startup ecosystem designed to offer a data-driven means for investors and advisors to work in concert to maximize returns.
And according to Monserrat, the second charge against VCs is – to put it bluntly – that they are often not particularly great when it comes to making profitable investments. Yes, he argues, some firms make profits but often not of a magnitude that justifies the risks and illiquidity associated with committing cash to a fund. Others simply flatline.
Now, there is some evidence that the VC industry – by some measures at least -isn’t as successful as it makes itself out to be. For instance, to back up its own contention that the “investment market is broken,” Consilience cites a recent article by Tomer Dean on the TechCrunch website, which sets out an argument suggesting that 95% of VCs aren’t profitable. Monserrat’s view is that things can be done more efficiently. And he has set out to do just that.
A Pool of Expertise
So with Consilience Ventures, he has set up a platform that brings together investors, advisers and startup companies in an extended ecosystem. Each investor puts in a minimum of £25,000. Meanwhile, the startups offer 1-3 percent of their equity. Advisers are on hand to help choose candidates – who are voted on – and provide ongoing support. It is, he says, an ecosystem where investment decisions are based on data and a pool of expertise.
Almost inevitably, in this day and age, the investments are tokenized and according to Consilience, this is the catalyst that ensures that everyone within the ecosystem works together to promote the success of the startups. The idea is that all participants in the community have an incentive to support the value of the blockchain tokens. To this end, the performance of each startup is tracked reported using a system of metrics designed by Consilience.
So what’s in it for startup companies – who after all, have other choices? “We see it as a library of services,” says Monserrat. It starts, he explains, with the due diligence process that is set in motion by the platform when new companies seek to come on board. “Companies can get value out of the due diligence process,” he asserts, adding: “Companies are then offered more resources, more support, expert help and a chance to gain knowledge from the network.”
Meanwhile, on the investment side – and this will come as no surprise – the token offers a degree of liquidity. “The tokens can be traded – this is more flexible,” says Monserrat. At least up to a point. The intention is not to create an environment where tokens are being constantly exchanged. “We would encourage people to hang on to their tokens for three to five years,” Monserrat adds.
There are of course a burgeoning number of tokenized investment platforms. I’ve covered a number of them in this column. Consilience is seeking to differentiate itself by emphasizing the importance of an “ecosystem” model designed to encourage participants to work together.
A Critical Mass
But here’s the thing, for an ecosystem such as this to function, it must get to the minimum viable product stage. Or to be more precise, it must assemble a critical mass of participants. Consilience has made progress on that front. On the investment side, Monserrat is seeking high net worth individuals, angels and family offices. At the last count, the pipeline of investors stood at 137 and 25 had committed funds. Meanwhile 64 experts had been voted onto the system and 22 startups (out of 118 applicants) are going through the selection process. Three – Sime DX, Digital Clipboard, and Cerebreon – have been named so far as portfolio companies, with the deal details to be released in February.
So, the rubber is about to hit the road. Consilience is in the process of establishing a community of investors and advisors, and the first few companies are receiving funds. The question now is whether or not its data and ecosystem approach will deliver better, worse or on par results when compared to more traditional investment models. That ambition has still to be tested.