Assessing companies for venture capital investment is often more of an art than a science. Richard Blakesley is trying to change that with Venture Cubed. Its rating system aims to objectively assess how investible new companies are. We asked him to talk about how they built their rating system, what it tells us about the venture industry and how it might change it going forward.

This is the second part of our excellent discussion. In the previous episode, we spoke about his rating system and what matters when assessing companies for investment. In this one, we discuss scaling the UK venture capital industry, indexation and investing at scale. In particular, we talk about:

the proportion of companies that should be getting investment
the challenge of getting more investment into different companies instead of boosting valuations
whether support and investment should come from the same organisation
creating a index for venture capital and benchmarking
how to make that index investible
data and creating systems for intermediate valuations
buying and selling a venture capital index
different investment models that might be used
why bigger funds would expect to outperform smaller funds

As you can see, we covered a lot of ground. This is a really important discussion for the venture capital industry: there could be an opportunity for it to scale up dramatically in the near future, but how it does that really matters. This discussion may not produce all the answers, but at least it asks the questions. And don't forget part 1!

00:45 How many companies get funding that deserve it and what's the shortfall in companies not being funded that should?

05:00 inflating valuations versus broadening the range companies getting investment - need new channels for pension funds

08:00 why the industry needs to change - case for passive management

10:00 the challenges of indexing venture capital

11:00 separating investment and support - how passive managers might arrange that

14:30 the real role of a fund manager

21:00 issue of intermediate valuation (before exit) - data collection on private countries

26:20 data protection & confidentiality

27:40 how to make index investible / expand coverage - without diluting quality

33:00 buying & selling index - fund types, physical vs derivative

35:00 creating funds where industry can write a big cheque

35:45 bigger diversified funds outperform

37:00 the power law and reversion to mean

42:00 co-investment model and role of BBB - public plus private models

45:30 favourite questions

Links

Venture Cubed website - https://www.venturecubed.com/

Richard's email: richard@venturecubed.com

British Business Bank venture capital reviews: https://www.british-business-bank.co.uk/uk-venture-capital-financial-returns-2023/

Subscribe to the EIS Navigator podcast on most services here: https://the-eis-navigator.captivate.fm/listen

Suggested books and media

Superforecasting by Philip Tetlock

Walking the Bones of Britain by Christopher Sommerville

Mentioned by Brian

High Stakes, No Prisoners by Charles H Ferguson

Bio

Richard Blakesley

Founder & CEO, Venture Cubed

Professional Communication and Feedback Tips for ABA Professionals