Investors have spent most of this year looking inwards as they sought to shore up their portfolio companies in the face of the coronavirus pandemic.
But even as the UK continues to grapple with uncertainty amid another round of lockdowns, some investors are starting to look for opportunities to expand their portfolio.
London-based VC firm Octopus Ventures is among such investors, today announcing a £4.5m commitment to a new pet tech startup, as it maintains it remains optimistic about the tech and consumer landscape.
Rebecca Hunt, an early-stage investor at Octopus Ventures tells City A.M.: “We want to invest in our everyday economy – the way we live, work, travel and spend our free time.”
And like many other investors, Octopus is looking to cash in on the boom in ecommerce. “We’ve never seen this level of acceleration and online penetration over the past 15 years,” Hunt said. “Some sceptics will say that we’ll go back once physical retail opens but I don’t believe it will.”
Much has been made of the shift to online since the start of the pandemic as consumers adapt to the new way of spending. But Hunt is keen to point out that it is not just an acceleration in existing categories such as fashion and groceries, but in categories that haven’t been particularly online in the past.
She points to the success of Alex Chesterman’s online car dealership Cazoo, which after a £450m funding round at the start of the month now boasts a £2bn valuation.
But is there a risk that investors will pile into the businesses that have benefited from coronavirus in the short-term?
Hunt recognises that a number of consumer startups have seen a huge acceleration during the pandemic, but is adamant Octopus Ventures will not make this mistake.
“We’re not new to this. We understand what it takes to grow a really strong consumer business and break into this market”, she told City A.M. “There are many businesses coming online which are selling lots and lots of volume at very low margins – we will not be investing in those kinds of businesses because we don’t believe in the long term that they create a lot of value.”
Octopus Ventures focuses on consumer with new team
Certainly the Octopus Ventures team have a strong track record in the consumer space. Octopus raised its first fund in 2007 and since then has invested in some of the UK’s consumer success stories, including Zoopla, Graze and Depop.
And building on its specialism in tech and consumer firms, Octopus Ventures recently announced the launch of the consumer team, led by Hunt.
Chief executive Alliott Cole said: “Our experience investing through the 2008 financial crash has informed our approach in recent months, as many of today’s most successful tech companies have emerged from periods of macroeconomic uncertainty.”
So will this recession present another good opportunity for Octopus? While the conditions this time round are markedly different, Hunt posits: “I think technology is counter-cyclical in many ways to recessions and so I think in many ways that makes us extremely optimistic.”
“Tech has always been well positioned to counter a bear market”, she adds. “And I think there is a chance for tech to be a huge force of change, now more than ever because of the way it permeates our everyday lives.”
Octopus returns to pet food market
To many investors this bullish outlook may be over-optimistic but the VC firm has already put its money where its mouth is. Through its new specialist team, Octopus Ventures has led a £4.5m seed funding round in pet tech firm Katkin.
Katkin was set up by siblings Brett and Nikki O’Farrell to produce healthy cat food after realising the options available didn’t provide cats with the nutrition they needed.
By using technology Katkin can personalise food for an individual cat based on a range of inputs, including weight, size, age and activity level.
“The market remains dominated by incumbent players who are not innovating… there is a big opportunity for a brand like Katkin, which puts personalisation and health of the cat at the heart of its product”, Hunt said.
The Octopus team already has experience within the sector, having been one of the first institutional investors in dog food brand Tails.com in 2013 before exiting in 2018.
And in a sign of the times, Hunt revealed introductions between the two teams were done first via Zoom.
“I think you can get to know people pretty well over Zoom, and I think in some way it’s refreshing because you get to have lots more regular check-ins rather than a block of time and making a decision.”