Source of capital
The money we invest comes from Nesta’s endowment which has a value of around £400 million. This makes us a little different from many investors because of two main things:
- Our ultimate goal in making an investment is to change the world for good as set out in our charitable objects and interpreted in our impact strategy.
- There are no fixed time limits on our investments. This means that we can hold an investment for as long as it meets the needs of the companies we support and our performance expectations. We actively promote the power of patient capital and long-term investment strategies to help build a stronger society and economy.
In some of our programs we work with partners who invest alongside us. This enables us to provide deeper support to the enterprises we back than we could alone. In particular our work in the Arts and Creative Industries through Arts and Culture Finance is made possible by co-funding by partner organisations.
Because our funding comes from a permanent endowment there are no fixed time limits on our investments. We recognise that it takes a long time to build a great business, particularly one that is developing innovative products or exploiting new technologies. We have continued to support some of the most successful enterprises we have backed for well over 10 years and will continue to hold our investments as long as our position as an investor is helpful to the enterprise and our performance expectations are being met.
We can invest between £100k and £1 million in a single round up to a cumulative total of £3 million in any single enterprise.
We typically invest in Seed to Series B rounds. In terms of round size, we expect a Seed round to raise £250k-£500k and Series B to raise £5m-£8m.
For a first investment we expect early evidence of product-market fit, usually by revenue generation, although sometimes we use other indicators, particularly when looking at novel products.
We want to be a meaningful investor in any round and our investment capacity limits mean that whilst we will often make follow on investments beyond Series B to avoid dilution, we typically hand over the lead investor role when enterprises are raising rounds around £10 million.
Nesta Impact Investments is a hands-on investor. We believe that to be successful, early-stage enterprises need much more than money from their investors, so we try to bring additional skills and resources to support the enterprises we back. We invest in founders who share this view and who will engage with us to work out how we can support them most effectively. We prefer to act as a lead or co-lead on an investment round, generally involved in setting terms. We usually take a board position to ensure that we can provide active, timely and relevant support to enterprises we invest in.
Use of capital
Nesta is an organisation that promotes innovation to change the world for good. This means that we invest in early stage enterprises that are developing or scaling new approaches to meeting a user need. Our capital can be used for product design and development, hiring for growth, marketing and sales development or funding working capital as long as this relates to an innovative product or service.