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What millennial VCs look for in Gen Z and Y founders in the UK

Jamie-MacFarlane

Generation Z, those born between the mid-90s and 2010 are increasingly making their presence felt in the workforce and economy. The first generation that is younger than the internet, members are now in positions where their decisions have a direct impact on the companies they are in, the ideas they invest in, and the impact they have on society.

Impact investing, future opportunist

That impact is likely to grow and, it seems, for many gen Z investors having a positive impact on the world is as important as profit.

Profit, of course, remains the purpose of any business, but there is a more nuanced approach to how it is made. Perhaps, the difference is that instead of wanting to make a profit than finding a problem to solve, they instead look for problems to solve and then seek to build businesses on the solutions. And, of course, there is a belief in the power of technology.

“As a young investor, I believe in the power of tech solutions to solve issues from everyday dilemmas to more pressing issues like the climate crisis,” says Alice Azzarelli, an investor at London-based VC, Fuel Ventures. “Gen Z founders are a major part of the equation too, bringing the same innovative approach to starting new businesses. Young people are building a better world.” The belief in the importance of making the world a better place is common.

Founded in 2014, Fuel Ventures is a venture capital firm based in London, United Kingdom. The firm which has supported a lot of young founders in the UK seeks investments in the early and growth-stage companies and prefers to make investments in the SaaS, mobile, technology, and e-commerce sectors.

Sustainability and geographical diversity

Sustainability is key to many of the young investors, but it is defined much more widely than traditional environmental use. “I define it as to whether a company is having a positive impact on society that isn’t for the benefit of the few,” says Shiv Patel, also Investment Manager at Fuel Ventures. “This can be environmental or through other equally important avenues like gender or ethnic diversity.”

Diversity is a key issue highlighted by all gen Z investors. However, unlike earlier generations which focused more on gender and race inequality, gen Z has a better, almost instinctive, grasp on the intersectionality of diversity issues. With this comes an understanding of the benefits diversity can bring.

Patel highlighted the importance of geographical diversity for Fuel Ventures UK-focused portfolio. Talking about the spread of their portfolio out of London he highlighted investments in Bournemouth, Stafford, and Manchester which approached things differently to the traditionally London-centric tech sector, “I don’t think it’s a coincidence that these companies are also some of the portfolio’s fastest-growing companies,” he commented.

Jamie Macfarlane, the CEO of the Creator Fund (backed by Founder’s Factory and Schmidt Futures), which finds and backs innovators in universities, echoed the importance of geographical diversity. “71% in every pound of venture capital is spent in London.” But, by looking elsewhere, he found that they could identify people with considerable expertise that had not, until that point, considered being entrepreneurs. Spreading their team across 25 university campuses in all four nations of the UK, he found they benefited from the diversity of thought as well.

“We get founders who think differently, have diverse skillsets and approaches to entrepreneurship. They had not considered it before, but through the Creator Fund that path opens up for them.”

Jamie founded Creator Fund in 2019 and has since launched the Fund across 25 UK universities.

Makes peach with sunset

The gen Z’s idealism does not leave them blind to hard economic realities. They still retain an understanding that profit must be made.

Adrian Clarke, the founder and principal of Delarki, an investment company that creates and invests in early-stage businesses targeting Generation Y and Z audiences highlights the importance of the bottom line, “young investors should avoid allowing a social and environmental agenda to derail their focus. Ultimately, delivering on sustainability over value creation is not their mandate.”

Perhaps counter-intuitively, this also meant that founders need to have a sense of detachment from their projects, and to understand that not everything works, however personally invested they may be. “Part of being a founder,” he explained, “is making peace with the fact that you’ll probably sunset more projects that you’ll exit.”

Adrian founded Mustard Venture Studio, a venture builder that partners with each of Delarki’s portfolio companies.

The self-aware generation

But where all the young investors agree is that the new generation of founders need self-awareness. “Founders grow with their companies,” said Patel, “those who are self-aware and acknowledge where they need help are often the ones that develop quickest.” And this needs to be accompanied by confidence in themselves and their product. “

As an investor, I’m excited by founders who aren’t afraid to challenge the status quo, that want to make a major impact,’ says Azzarelli.

“Everyone will tell you that something can’t be done,” says Patel, “Founders who have the proverbial ‘chip on the shoulder’ to run a business in the face of adversity are like gold dust.”

But perhaps the most important advice is to overcome the doubts and fears and get started. “Making that first step forward is the hardest, then every step gets easier,” explained the Creator Fund’s MacFarlane. Whether it is spending £10 on Facebook ads for a small trial run or putting together a funding pitch for your startup, being able to take that first step is what sets entrepreneurs apart. “Otherwise,” he adds, “all you have is an idea on a whiteboard and dreams.”