Capital Pilot raising £25m for tech startups through innovative scheme

Autopilot brings tech startup investment within reach of private investors.

Capital Pilot, the London-based fintech, is raising £25 million from investors to fund around 150 tech early-stage businesses.

The company hopes to have closed its initial fundraising by the end of March.

Capital Pilot says this is the first time a diversified range of early-stage tech companies have become available to individual investors. Too often, venture capitalists hug their best bets to their chests, says Capital Pilot, which sees itself as democratising and demystifying startup tech investment.

Investors in its Autopilot scheme will typically take a five per cent stake in early stage companies, qualifying them for government tax write-offs of up to half their investment.

Investments will be selected on behalf of investors using an automated investment-allocation process; investors do not pick and choose themselves.

Typically, the fundraising round for an early stage startup represents 20 per cent of the company. Capital Pilot offers startups up to 25 per cent of the total amount they are looking for.

The minimum investment is £12,000, which can either be invested as a lump sum or spread out over 12 months via Direct Debit.

The scheme is targeting a 20 per cent ROI.

Exits will happen in the normal course – either through the next fundraise or through an IPO or when the company is sold.

Richard Blakesley, co-founder and CEO of Capital Pilot, said: “Early stage technology startups are the lifeblood of the British economy. This is an opportunity to support something that’s very important.

“Unfortunately, there aren’t that many ways that individual investors to get into this space. We’re offering highly diversified, low-cost, passive exposure to a really important asset class.”

According to Capital Pilot’s own research, 50 per cent of any investment in some very early stage funds can be swallowed in fees and expenses. Capital Pilot says its equivalent fee/expenses structure would be 10 per cent end-to-end over the life of an investment.

Born of frustration

Blakesley co-founded Capital Pilot in 2016, having been head of telecoms and technology M&A at JP Morgan until the technology bubble burst in 2001. After that, he researched the whole question of early stage startup funding for think tank Big Innovation Centre, which is where he and co-founder Matt Johnson developed Capital Pilot.

He says the need for Autopilot came out of his frustrations advising a dozen startups on scaling their businesses: either they were not transparent enough with potential investors or they were unprepared as to how to approach investors. Even when they did get in the room with would-be backers, hours would be wasted because they couldn’t answer questions investors needed to have answered.

Capital Pilot sees itself as an intermediary, using data technology to match startup businesses with the right kind of investor, who, after all, will become a passive shareholder in their venture. It has developed an automated, data-driven matching process between startups and investors.

Blakesley says he prefers spreadsheets and data to the hunches of so-called “rock star” venture capitalists, who handpick their investments. Often, he says, that’s more luck than judgement, quoting computer guru Paul Graham, who once described all investors as “incompetent … making decisions about things they do not understand”.

“There’s a lot of people who believe their own nonsense about picking the right tech companies. They get lucky with one investment out of 20,” said Blakesley.

Blakesley emphasises that investing in Autopilot is “high risk and there will be failure” but says the way to ameliorate that risk is to for Autopilot’s investment recommendations to be unbiased and to be diverse. Too often, he says, venture capitalists have unconscious biases towards companies they invest in, whether it’s because they personally warm to the management or they have a geographical bias.

Capital Pilot makes a point of eyeing opportunities both outside of the London tech bubble and also with tech startups traditionally underrepresented in VC funding, such as those run by women. It points out that the northeast city of Sunderland, for example, has become one of Britain’s top tech cities with digital technology turnover worth £118 million in 2017.

Chief growth officer Karen Winton said: “We’re sector agnostic but we’re looking for scalable technology-enabled, tech-driven growth businesses.”

Capital Pilot is in “advanced conversations” with some family office investors to seed fund Autopilot, and then it will go out to sophisticated, high-net-worth individuals.

Subscribers to Autopilot will benefit from tax breaks offered by the government’s Seed Enterprise Investment Scheme (SEIS) and Enterprise Investment Scheme (EIS). SEIS allows investors to write off up to half their £100,000 investment in qualifying companies each year. EIS, which is aimed at more established businesses, offers a 30 per cent tax break credited against your income tax bill, up to £1 million invested in any one year.

Looking further ahead, Capital Pilot plans to build liquidity into the Autopilot model, so that investors can exit from their holdings at a time of their choosing.

“We think liquidity is the Holy Grail for unlocking more investment activity in early stage tech investing,” said Blakesley.

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Corporate venture capital