Opening up the private market
Odin's plan to give retail investors access to top-quartile venture returns, and why we believe it will work
Hey folks 👋
Today I outline Odin’s next steps as an investment platform, and our plan to open up the private market.
But first, a bit of philosophy…
If I had read this post from Alex a month earlier, I probably would have thought it sounded a bit wishy-washy.
However, at the time I had decided to force myself to read Sun Tzu's The Art of War (it’s actually very short). I even tweeted some passages hoping it would make me look clever.
I was reminded of the following:
The clever combatant looks to the effect of combined energy, and does not require too much from individuals.
When he utilises combined energy, his fighting men become as it were like unto rolling logs or stones….
Thus the energy developed by good fighting men is as the momentum of a round stone rolled down a mountain thousands of feet in height. So much on the subject of energy.
Sun Tzu had said the same thing as Alex almost 2,500 years earlier.
This brings me to our plans…
Lately, we have done an incredible amount of work as a team. However, our momentum has slowed.
We’ve felt less energised personally as well. We realised this was a sign something was wrong.
When we took a step back, we understood we have been trying to do too many different things at once. As a result, we have been pointing our people and our energy in too many different directions.
What is needed in these situations is focus.
Last week my cofounder Mary and I sat down and stepped back in order to figure things out. We now have a much clearer mission:
We exist to open up the private market:
We want to give retail investors access to professionally managed VC funds and syndicates. Currently, this isn’t really possible:
The top-quartile opportunities in European venture - the investments delivering the bulk of the power-law returns - typically don't make it onto retail investment platforms. They get snapped up before they get there by VC firms with strong brands and the ability to move fast. This means, as a small-time investor with a smaller network, you are starting from a losing position.
With only £5k to invest, it is very difficult for you to build a strong portfolio from the limited number of deals you can access. This is a problem, because it is crucial to your chances of making a decent return. Thanks to increasing returns to scale, your one or two big winners will probably be responsible for 75% of your returns, and may deliver as much as 10,000x if you invest early enough. If you can’t access any of these sorts of deals, you’re screwed.
With little free time or experience, picking the decent deals on the currently available platforms is incredibly tricky. Your odds of success just got even slimmer…
With Odin, we aim to solve these problems.
And we believe the timing is perfect…
Income inequality is at record highs, but so is the supply of well-educated people.
These smart people have brains, networks and ambitions that can be leveraged by a VC firm, since VC is a knowledge and network-intensive business for ambitious people.
Private markets are expanding.
Indexed gains in venture and PE appear to outperform the public markets in the UK by a significant margin. In the US, they at least match the S&P 500 or outperform, depending on whose data you look at.
But with EIS, British retail investors get up to a 2x multiplier on performance courtesy of government subsidies. And capital gains are tax-free.
The UK government is ASKING people to invest in VC.
Retail investor access to private markets is currently pretty poor.
It is still nascent relative to the public markets. We are still in the 1960s - pre index funds, pre quant funds, etc.
As a founder, retail investors give you an edge.
They give you New Power, and New Power is the currency of the internet:
How will it work?
We will start by offering people the ability to invest in individual opportunities via syndicates. This is already in place, and we have syndicated one opportunity, albeit for free, with a small number of high net worth individuals. Scouts from Founders Fund also invested in that round. They found it via Odin, which is great confirmation that we are seeing excellent deal flow and our community-driven deal sourcing engine is working.
The minimum investment per deal will be £1,000, and all opportunities will require a confirmed anchor investor (angel or micro-VC).
This will give Odin investors the opportunity to build their own portfolio deal by deal. However, they will be doing it with the reassurance they are investing in high quality, vetted opportunities alongside credible angels and funds.
Fees are still TBD. Likely to be structured as a flat deal fee (prorated between investors in the deal), plus deal carry. Deal fees will be shared between the lead investor and Odin.
Odin will take care of the heavy lifting by sourcing, carrying out due diligence, structuring deals with decent terms (fair to founders and investors) and assuring post-investment reporting, governance etc.
The Odin Fund
We will also (later) allow our community to invest passively. Access to our fund will be possible from as little as £5,000 per year (possibly less once we figure out logistics).
As a fund, we will have the ability to make faster decisions. We will take a similar approach to investment firms like Seedcamp, 500 Startups, Y Combinator and The Family, aiming to “index” the best pre-seed and seed stage opportunities on the market and build a very large portfolio. We will usually participate as a co-investor, but may lead rounds where we feel it is appropriate.
More coming in future posts on our investment strategy. But in short, there is a mounting body of evidence that “indexing” is the optimal way to approach early stage:
The fund will hopefully be launching in late 2021. Fees will probably be pretty standard (2 and 20). I don't believe low fees are a smart idea for a micro vc. However, we will be transparent about salaries.
UK companies only
We will focus initially on UK companies. I’m not a big fan of narrowing geography, but there is a very compelling reason. It will mean our investors (mainly tax resident in the UK) can avail of the incredible tax benefits of the Enterprise Investment Scheme. They will get 30% - 50% cash back on their investment from the government, and additional loss relief on any company they invest in that fails. Their gains will not be subject to capital gains tax. This is a huge opportunity for retail investors (if they work together). It will massively de-risk their investments.
Foreign investors will be free to invest too (depending on regulations in their country). However, their return profile won’t be as good.
Maybe they should move to the UK 😉
For non UK founders, we have a partner who can help with reincorporation if you want investment from Odin. It’s pretty straightforward. As we build a stronger brand and network, it will become easier for us to request this.
We will also give LPs the (optional) ability to network with other investors, help out by sourcing and vetting opportunities, and support portfolio companies with hiring, distribution and other challenges.
By investing a small amount of energy alongside their money, each Odin member will help drive our momentum as a collective, and as an ecosystem.
Community is the big gap in venture capital. This is what will drive our success.
So much on the subject of energy.
P.S. Alex Dunsdon is full of great nuggets of wisdom and is the sort of investor any founder is glad to have on their cap table. If you don't follow him, I highly recommend doing so.
P.P.S. If you are a VC or angel investor and would like to explore syndicating with Odin, drop me an email at email@example.com