71% Portfolio Growth in 10 Months. Lessons learned and future outlook...

So as we approach the end of the first year of launching the Bolt Angels fund, I thought it might be helpful to share with you our investment thesis and the lessons learned.

We greatly out-performed the venture and angel market in general. The Bolt Angels fund grew in value by 71% in the first ten months since launching in September 2022. We believe that we are set for further explosive growth over the coming months and years, largely down to our investment thesis and our ability to execute on it.

In this review, I cover a macro market overview and our core principles, with the aim of providing some virtual mentoring and to encourage questions and discussion.

This is how we did it...

BOLT'S INVESTMENT THESIS

We decided that the first half of 2022 was the best time to launch our fund and syndicates.?

The primary reason for this was that we predicted that there would not only be an economic contraction from late 2022 through to at least 2025, but that we would also experience generationally high levels of inflation.?

Inflation at levels where even many of the best returning asset classes would not be able to keep pace and therefore capital would be eroded.

We also believed and still believe that this correction will not only be deeper and last longer than any that we have seen before in our lifetimes, but that it will also materially impact the value and returns achievable from equities, real estate, derivatives, bonds and many alternatives.?

Businesses and jobs will obviously also suffer when this happens.

And it WILL happen, as surely as night follows day.

What no-one can predict is exactly WHEN it will happen.

However, it is the view of myself and my fellow General Partner and MD of our first fund, David Bell that it has already started and the worst (or best, depending on your perspective) is still to come.

As a consequence of the economic downturn, investors are and will increasingly be looking for alternative places to generate a great return on investment.? Even the bigger funds have moved their minimum investment levels down to near-retail levels of circa ￡25,000.

Investors now want and need investments that will not only outperform other asset classes, but do so in a way that minimises risk, maximises tax effectiveness and importantly, not only keeps pace with near double-digit levels of inflation, but surpasses them.?

And the icing on the cake? Backing ethical and mission-driven businesses that can scale globally and have the potential to change the world.? That's no easy feat but it is possible.

Unlike many other syndicates and VCs, we were also able to start with a clean slate.? We exited all of our former business interests prior to launch and we did not have any past investments that have experienced write-downs, or are facing existential threats.??

Some of the most prolific investors and funds in the world are already reeling from the shock of the corrections that we have seen across various asset classes to date, and in our view, far worse is yet to come.? The trend is also widespread, with nearly all VC's reporting a decrease in the value of their holdings and large numbers of write-downs over the past year (source TechCrunch.)?

UK real estate values have already started to show signs of a coming correction, with May 2023 being the first year-on-year decline in capital values for more than a decade (source Halifax.)?

June saw a positive bounce but it is only continued financial sleight of hand and legalised market manipulation between governments and banks that keeps the wheels on the bus for now, with the latest tools to come out of their magic box of tricks to include:

• A “no questions asked” mortgage term extension.
• Allowing temporary switches towards interest-only repayments.
• 12-month minimum terms before repossessing homes.?

We believe that it won’t be long before the music stops and the magic show that also included help to buy, shared ownership and much more that has keep the market rising for more than an decade will soon come to an end.

There simply can't be many sane investors that are not looking towards the future with some serious trepidation.

And finally, all of the above ignores the coming impact of A.I. which we also believe will be monumentally transformative in both positive and negative ways.

A.I. will without doubt bring about a societal shift the likes of which we have never seen before. This tech is so transformative, that it is actually very hard to predict the exact outcomes.

Elon Musk said this recently...

“I think we might exceed a one-to-one ratio of humanoid robots to humans. It's not even clear what an economy is at that point.”

He goes on to say...

"Economy equals GDP per capita multiplied by capita. If you no longer have a constraint on capita because of robots, it is not clear that there is any limit to the size of the economy."

Let that sink in...

But just in case it doesn't sink in because it's not that straight-forward to understand, let's look at it this way...

1. UK GDP was around ￡2.6 trillion in 2021.
2. The UK has 67 million people.
3. UK GDP per capita is therefore around ￡38,000 per person.

So now imagine that there are twice as many humans, including humanoid robots, that can do the work of many humans. If GDP stayed the same, which it wouldn't, but if it did...

1. UK GDP stays around ￡2.6 trillion.
2. The UK would now have 134 million "people" (human and robots.)
3. UK GDP per capita (IE GDP per person) would now be around ￡19,000

Now let that really sink in!

So whilst AI and robots can make us much more able to grow our economies, how many job losses will this result in and what will the drop in incomes look like?

This is one of the reasons why so many countries, including the UK, are testing the concept of a Universal Basic Income, because it is highly likely there will not be enough jobs to go around!!

When you really that sink in, it's fundamentally important to reflect on what you do, what you invest into and how you make your money. Hope for the best but plan for the worst and start to make changes if you think AI could put you, your family, you income and your assets at risk.

Whilst the robot revolution is quite a few years a way (probably 5 to 10 years,) I highlight it as an example of how much we believe the world will change over the coming years. We are making investments that should prosper with the coming changes and I would encourage you to do the same.

Let's now switch to our core operating principles and how they have played out...

Core Operating Principles Reviewed...

So with the above as the macro backdrop, let’s compare the core operating principles from our investment thesis against our outcomes to date and explain how we achieved 71% growth.

I have used a TRUE, FALSE or IN PROGRESS statement with a short narrative behind each point:

1.Secure the best deals on the best terms due to reduced funding competition.?

OUTCOME = TRUE

VC funding is down a massive 53% year on year (Source: Crunchbase.)??

We have been able to make three exceptional investments, which under different market conditions would have either have been much harder to secure, or the price and terms would likely have been nowhere near as favourable.?

2. Focus on positive impact technology investments with the potential to scale globally and in sectors that will benefit greatly from an economic correction.

OUTCOME = TRUE

We have invested circa ￡4 million across three investments in the fields of mental health tech and A.I. with all three performing ahead of expectations.? We expect to deploy a further ￡10 million over the next 6 - 9 months, including some follow-ons.

3. Invest in the Seed stage, cutting cheques between ￡200,000 and ￡2 million.?

OUTCOME = TRUE

Our three investments so far have been for ￡900,000, ￡1.5m and ￡2m. Of this, ￡1.5 million was our own capital deployed directly into our investee companies and the remainder from our Limited Partners, via our nominee structures.

We deliberately focussed on smaller cheque sizes at lower round valuations because of the far greater potential for outsized returns and importantly, it’s a misnomer that higher risk exists in earlier stage companies.?

That comes with a BIG caveat however - you MUST know what you are doing with early stage start-ups and be willing to be hands on and help guide the leadership teams to avoid the big mistakes and help steer them in the right direction for scale and success.?

4. Target businesses with at least a 20X plus return potential.

OUTCOME = TRUE

This may sound too good to be true but a tech investment we made that just pre-dates Bolt Angels, generated us a 42X return, post-dilution and pre-tax in just over 2 years. That's the equivalent of turning ￡100k into ￡4.2m pre-tax!

We did a partial exit in a secondary round, so this is not just a paper gain but a genuine cash on cash return. Early partial exits have also been embedded within our investment approach, so that there can be liquidity in what is usually a very illiquid asset class.

We have invested into a mental health tech and A.I business to date.? Mental health issues just continue to escalate post-pandemic, they have been exacerbated by the cost of living crisis and show no signs of abating.

A.I. needs no further introduction but the fact we led a ￡12m. round into an incredible marketplace that is akin to the AirBnB of high performance CPU and GPU compute with 90% gross margins, looks to be near-perfectly timed, but only time will tell.

5. Focus on a small number of high-quality investments and be hands-on to minimise risk and maximise returns.

OUTCOME = TRUE

Our investee companies regularly tell us that we have been by far the best investors they have ever worked with.? We have not only provided capital, consultancy and connections but also central support services.? In all cases we have been the lead investors, so that we can help guide and shape the culture, which often gets decimated between the start-up to scale-up phase when lots of VC's join the team and the big guns with big cheques arrive. We help our investee companies avoid this trap by having their backs and helping them choose the right strategics for the next stage of the growth journey. ?

We also take time to mentor, support and genuinely befriend the leadership teams in all the businesses.? Any investor can deploy capital and turn up once a month at a board meeting and dish out criticism, and many do. But that’s not what an investee company really wants or needs.?

Aside from the hard graft we have done to support the investee companies leadership teams, organising beach parties, wakeboarding trips, comedy nights and more may not sound like typical fare for how typical Angels and VCs roll, but then we have never been called typical and that is how we do roll. And long will it continue.

6. Double-down on the “Creator Economy” thesis, where “people beat brands.”

OUTCOME: WORK IN PROGRESS

We believe that businesses and consumers are experiencing a fundamental shift in trust; from brands, to individuals.? We also believe this trend will grow significantly and therefore it affects all aspects of marketing, sales and value creation.

We work with our investee companies to grow the profiles of the leadership teams, aiming to make the leaders of the business “niche-famous.”?

Progress in this regard has resulted in the hiring of personal brand and social media managers, recruiting and onboarding virtual “Edit Squads,” national PR experts and the pilot launch of a TV Series on Sky called Venture Visionaries.?

Our ability to regularly showcase our investee companies on TV, as well as growing their PR and social media presence will not only build long term value and relevance, but it also provides a significant competitive advantage.? This is a work in progress as there is more for us to do and it is a never-ending process.

7. Democratise Fund Ownership and Share Financial Rewards.?

OUTCOME: WORK IN PROGRESS

We believe that for companies to succeed and investors to generate market leading returns, it’s critically important that this success is shared with as many members of the team as possible.? It's also the right thing to do in our view. How much is enough? Most of the world's problems can be traced back to greed, which in turn usually traces back to personal insecurities, big egos and most commonly men wanting to get a bigger boat because of their personal insecurities. These are un-admirable traits and that's a drum and a tune that we do not dance to. There is more enough to go around and we get great satisfaction from seeing other people succeed and do well. Aligning interests is the name of the game.

Within our Bolt Angels investment business for example, we invite value-add and values-aligned investors to join us as shareholders in the fund.? This has had a remarkably positive impact and has been and will continue to be instrumental in our success moving forward.? Launching and running an FCA compliant fund is no easy feat and enabling "normal" people to share in the financial, community and other benefits has been one of our greatest highlights from the year to date. Our first group of Capital Partners saw an increase in their shares of 71% and we will soon be launching a secondary market, which will provide liquidity if needed. And growth as we move into year two looks equally compelling based on the leading indicators.

And within our investee companies, where they do not already have share options and other incentives in place, we help put these in, so that everyone is committed for the long term.? We want the team to see a clear path to their personal financial success that aligns completely with the business mission, objectives and goals. This is also a work in progress as there is more for us to do but we have made a good start here.

8. Intelligently maximise the use of Tax Advantages provided by HMRC.?

OUTCOME: TRUE

Most investors have heard of EIS (Enterprise Investment Scheme) but in our experience, very few actually know how to fully take advantage of it.? All of our investments have benefited from the massive advantages of EIS and we have created webinars, workshops, calculators and more.

Over ￡16 billion is paid in Capital Gains Tax per annum in the UK and most investors do not realise that they can roll this CGT from the past or future, into EIS qualifying investments. And that's not to mention the 30% Income Tax rebate, the zero CGT payable after three years, the exclusion from Inheritance Tax for EIS investments and the ability to reclaim up to 70% in loss relief.

From an investors standpoint, it is the holy grail from a tax and risk mitigation point of view, but so few people understand it. If you do nothing else, look into EIS and you can find more resources and a free EIS Calculator on the Bolt Angels website.

IN CONCLUSION

So I hope that review was helpful and has given you some ideas for your own investment approach.

Intelligence can be defined as the ability to make finer and finer distinctions. I meet novice and even experienced investors all the time that put "Angel Investing" into a high-risk, high-return bucket. However, it's always possible to hack the risk v reward equation.

Is it easy to do that? Hell no. Is it rewarding - hell yes!

And to close this month, I will leave you with a Warren Buffett quote...

"Observe the masses and do the opposite"

That doesn't mean driving around the M25 the wrong way, but it does mean be divergent in your thinking, look for patterns and trends that fly in the face of what others are doing and maybe consider using some of the principles that I have laid out above.

As always, I wish you the best of wealth, health and happiness.

Until next time, be lucky!

Steve Bolton

Managing Partner

Bolt

My Be An Angel Podcast and Free Investing Masterclass can be found here.