When we tell the community that our mandate is to support B2B tech companies scaling to the UK and US, we know that’s a mouthful and sounds like an oddly specific mandate.

The comment we hear most from founders is “we reached out to you because you help founders expand into the UK and US, which is where we need help”. And the comment we hear most from investors is “why only B2B technology?”

We have written about the first part – how we help founders – so this blog is about why we love and focus on B2B.

We know B2B

First, the entire founding team has experience and track record of investing in and building technology-driven B2B companies. In all of our different careers, one of the other things we have in common, which is true if you’ve spent any time in business, is that we’ve all had great successes and devastating failures that we’ve bounced back from.

We use all this experience to help our portfolio companies avoid making the mistakes we have, and we help boost their success by leveraging what we know works. This helps to create an information asymmetry, which helps to reduce investment risk.

The best investors invest in what they know. Their expertise and networks help to reduce friction in the portfolio companies and to look around the corner.

The dynamics between supply and demand are better for B2B

There are a few other tailwinds supporting our focus on B2B. 10 years ago, B2B was relatively unloved compared to B2C.

There’s a couple of good reasons why — it’s harder — the sales cycle tends to be longer so it takes longer to see traction but it also means it’s stickier and there’s less churn so companies spend less time replenishing their lost customers with new ones.

However, now we are seeing investment in B2B outpacing B2C by about 4 to 1, especially in the later stages.

During the recent post-pandemic market correction, we’ve seen B2B activity decline at a slower pace than other verticals, so it’s been more resilient.

B2B is not sexy, but has a great personality

Many B2B companies are not “sexy”. It’s not often you hear people talk breathlessly about their business software over dinner.

However, this also means that B2B is less susceptible to fads. B2B is the father body of VC industries – not the flashiest, but it’s reliable and still passes for attractive in a good suit. We believe that if there was ever an area for the patient capital represented by a business, it’s B2B.

B2B is often less price sensitive than B2C, companies care about return on what they spend, and therefore B2B companies that can deliver high value can maintain high margins. It is also less discretionary, so less prone to being culled in tighter economic conditions.

Finally, B2B companies can often generate revenue from the start, which is advantageous compared to B2C companies, which often need to build scale before learning how to monetize it.

There is still an opportunity for value

The increasing relative amounts of capital for B2B is a double-edged sword – it’s terrible when the availability of capital drives up competition and valuations, but I’ll get to that in a minute. More importantly, one of the ways large companies can still wilt on the vine and fail is if they don’t have enough capital in the market to support their later stages.

More capital at later stages means there’s an available pool of follow-on capital to invest in businesses we help expand. This also helps to reduce risk.

And with the recent market corrections, we didn’t see competition driving up prices. In fact, we see a correction below the median. So if you think there’s likely to be a correction back to the median, then we have a value investing or value arbitrage opportunity.

The exit landscape is better

Delivering good exits is just as much a part of excessive returns as making good investments.

We believe that the exit strategy for B2B companies is simpler with a larger universe of acquirers and less dependent on how wide open the IPO market is, which we also believe helps reduce risk for investors.

What we see is that the M&A environment remains strong for B2B, which again helps mitigate risk.

For all the reasons above, we believe a clear focus on B2B helps us provide our investors with a strategy that can impact investor returns by capitalizing on market winds, providing access to high quality deal flow, adding value because we have the movie seen played many, many times before and created avenues to exit.

For the foreseeable future, we see this arc of relevance being long for B2B. But we’ve also been around long enough to know that things are changing, and we have to be ready for it. We work with a ‘strong opinions loosely held’ mantra.

This means that as we read the tea leaves of both the macro and micro environments, we reserve the right to change our minds and pivot to ensure our investor’s returns are prioritized.

This is not because we lack conviction, it’s because our other mantra is to prioritize preserving our investors’ capital over a dogmatic approach within an ever-changing market.