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Update and analysis from Worth Capital


Matthew Cushen & Paul Soanes of Worth Capital provide an analysis of investments in the the Start-Up Series Fund in light of the Coranavirus pandemic.

We all have up to the minute information on how our public equity investments are faring, but you may be wondering how your investments in the Start-Up Series Fund are coping with the impact of the Coronavirus.

First and foremost, the founders and their teams are all well.

We (Paul & Matthew) have been working with all the founders. Having provided them with a list of questions – covering demand & marketing, inventory & supply chain, people and finance & cashflow – we’ve been having conference calls with all the businesses this week. We continue to stay close, helping them to adapt their plans, create new possibilities for the short/medium term and ensure they are looking up to the horizon for when the economy recovers.

You will be receiving your regular 6 monthly portfolio reports at the end of April, which will have the comprehensive picture for each business you are invested in. The following note is not detailed, as that could start to reveal commercially sensitive actions for each business. And we are not kidding ourselves that we yet have the whole picture for every business – things are changing very fast. It is instead just to share an interim sense of how investments made by the Start-Up Series Fund are faring.


For us all, the biggest unknown is the macro-economic outlook. We are assuming a significant recession leading to a general decrease in consumer spending and business investment. However, that general picture will not be evenly spread and there are different demand scenarios for each business:

Positive: we have some businesses, particularly those selling direct to consumer for which demand is holding up this week and logically the impact could be positive. For example, Bedfolk – direct to consumer retailer of their own ethically produced, high quality bedding. Their proposition and brand are centred around nesting and wellness. Their online sales are a little above last month and they have been particularly strong in the last 7 days. With the right positioning of their marketing messages and spend we expect they can maintain the momentum they had been building (sales last month 10 x last year). However, there are risks for all businesses. Bedfolk were planning a big push this year into hotels, guest houses, holiday rental owners and interior designers – that channel is going to be heavily compromised.

Negative: for B2B businesses where the sales process involves face to face selling or into sectors that are themselves heavily challenged, we can expect significant delays to building sales. For example, Vitrue – motion detection and depth sensing hardware and software for occupational and physical therapists to improve the accuracy and efficiency of muscular skeletal health assessments. When viewed in person their smart tech is deeply impressive to physiotherapists, orthopaedic surgeons and private health insurers. Their main marketing channel is conferences to gather warm leads then one to one demonstration. Neither are now possible. They have built out a demonstration room and a video demonstration method, but this may not prove as compelling as face to face.

Big swings netting to neutral: as we often hear, the Chinese typography for ‘crisis’ is a combination of ‘danger’ and ‘opportunity’. We have businesses where the proposition as it stands will be highly challenged, but sales efforts can be relatively easily switched to take advantage of the new reality. For example, Weekly10 – a subscription software solution for companies to measure and improve employee engagement and business culture, and performance on business objectives and goals. The sales pipeline was filling well. But most discussions have been put on hold as the customers revert to crisis management. These leads won’t be lost forever but in the shorter term there is an opportunity to jump on the challenges of maintaining engagement and keeping tabs on sentiment whilst remote working. Already Weekly10 has seen their organic web traffic double this week. They will build on this with a series of articles taking a well-considered, strategic approach to remote working, pushed through a network of HR consultants who can engage and follow up with their clients and follow up. The trick will be to avoid the tactical working from home noise flooding the airwaves now and to sign-up long term customers that see the underlying strategic value of the product for the long term.

Neutral: a couple of our businesses are pre-revenue, busy building their product and the next few months will not impact their revenue or cashflow.


Beyond protecting and growing demand, the next most significant challenge is to have the supply to meet it. Generally, this is holding up well and all relevant businesses are securing inventory with surprisingly few delays. There seems to be a very concerted effort to maintain goods flow across borders even when people flow is being curtailed. An example here is Itsy – cleverly designed products designed by parents for parents for feeding their babies and toddlers healthy and nutritious food at home or out and about. They were our first impacted business as they source heavily from China. They had replenishment stocks and a couple of new product launches delayed for 5 weeks but those supplies are now on the water. An understanding marketing partner delayed a major marketing activity without penalty. But supply chains need huge vigilance – all our businesses are digging deep into making where all their raw materials and packaging are sourced from and getting on top of the risks for each small supplier and location.


So far, all the businesses are doing well with changes to the way they work. Most of them are already used to plenty of remote and flexible working. They are also taking the people related decisions they need to conserve cash, but in all cases without having to completely release people (through deploying reduced hours, taking up holidays etc). They have all put in place the contingency measures to deal with any significant illness.


We are attempting to navigate the government financial help that is being announced but we are not yet to be clear on detail. (We’re protecting the businesses from each wasting time working it out themselves). From what we have understood so far, we are generally pessimistic on the qualification criteria and the potential business by business impact. A good package on staffing costs, as long as the criteria does not exclude businesses with healthy working capital, could be the most helpful.

We are apprehensive about investor sentiment and the availability of seed investment funding into the medium term. So are advising all our businesses to prudently conserve cash – not curtailing marketing and growth completely but with an eye to extending the cash runway planned. We are fortunate the Start-Up Series Fund already had a healthy pot of EIS funding to deploy for the end of this month (before the end of this tax year). We were already making recommendations to the Fund Manager for planned for follow-on investments in those businesses that warrant it. After revisiting the demand, supply and cashflow as we described above, and re-examining the valuations, those follow-on recommendations are still largely in place. So most of the portfolio businesses will be well funded. But it may well be that investment is hard to access for the rest of 2020. We fear for those start-ups with crowdfunded or angel investor cap tables that might find it difficult to maintain their original funding assumptions.

On the point about seed investment, our view is that seed/high growth businesses will of course be highly challenged but in many cases are more insulated than mature businesses. Therefore the relative risks of the two asset classes have narrowed. If you are interested you can read more here – you might find it a counter-intuitive point of view.

Hopefully this note gives you some food for thought and some visibility on how our start-ups are tackling their latest challenge (this time global and extra hairy). You will receive portfolio specific reports at the end of April.

Best wishes for you and your families keeping safe and healthy.

Paul & Matthew

Worth Capital’s Start Up Series EIS Fund

features in the Kuber TYE Strategy

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+44 (0) 20 7952 6685