Investment Portfolio Struggles

In response to recent news relating to investments made by Preseed Investments Limited (formerly Raj Dhonota Limited) and associated companies, I thought it would be useful to provide a full statement on the background to the requested information:

Preseed Investments Limited (formerly Raj Dhonota Limited) has been investing in tech start-ups since 2015. After initially investing only capital, it settled on investing at the pre-seed stage i.e. in people that were at concept/idea stage. The aim was to provide these entrepreneurs with the knowledge, skills, resources and investment they needed to bring their idea to market.

99% of professional investors will not invest at this stage.
Most early stage investors will not invest at this stage because the risk is at the greatest level. Start-ups at Y Combinator, the best incubator in the world in terms of investment and expertise, have a success rate of 7%. This shows the level of risk investors at this stage take.

Why did Pre-Seed Investments decide to invest at this stage?
Through my knowledge, experience and group of companies, we were able to offer entrepreneurs the expertise, investment, skills and resources needed to build and launch their business.

What was your investment approach?
We tried to identify those individuals who we believed had the characteristic to make their idea a success. The majority of our investments did not have previous start-up experience, but we were confident our process of working with them through the start-up process would give them the foundation to achieve success.

How much did you invest in each venture?
Preseed Investments has invested between 70% – 90% of the total investment needed. Given we were investing at a stage where the risk was the greatest, we required founders to have a material stake in their business and looked to them to fund the between 10% – 30% based on their circumstances. This assured us that they were serious and committed to their business.

What was your involvement with the investments?
As an active investor my role was to help, advise and guide the start-ups throughout the start-up and launch process. However, we left the final decisions and day to day management to the entrepreneurs.

How well have investments performed?
Across the portfolio of investments;

  • 3% of start-ups have gone on to raise over £3mn in total in next round investment.
  • 27% are currently in the marketplace trying to secure market validation/investment.
  • 39% of founders launched but failed to get the validation they needed in order to get the next round of investment.
  • 31% of founders built their product but never launched.

What led to the delays with the projects?
A number of factors combined to lead to the current position:

  • Our investment model was based on being able to recycle profits received from selected exits we made in order to further support the portfolio. This never materialised within the time planned.
  • The company we were using to deliver the services, Igniva, funded a new UK office in March 2017 to further assist the start-ups. However, due to losing both my father and father-in-law (also a key Director at Igniva) in the space of 10 days shortly after, I was not able to provide the UK office the experience and safe-hands it needed for the majority of 2017. This led to the office underperforming and suffering losses.
  • My father in law was not properly replaced until 2018. However, by this time the lack of control over the scope of work being done by Igniva for the start-ups had led to an increase of 30% in costs across the whole portfolio.

The above led to Igniva having to restructure its business throughout 2018 in order to survive, to reduce its costs and prioritise delivery of the start-up projects it was working on. It also meant that salaries of those that were no longer with the businesses in the UK and India were delayed.

Despite restructuring, Igniva faced ongoing issues with stability and securing the resources it needed which made delivery unpredictable. As a result, and in order to ensure the start-up projects could be completed, I invested further in creating new teams in 2019 that could help deliver the projects.

The Final Outcome
Despite exhaustive efforts to salvage the business and our portfolio, the advent of the COVID-19 pandemic dealt a final, insurmountable blow. Faced with the option to shelter behind corporate structures, I instead upheld a moral responsibility to exhaust all possibilities in the quest to save the business. Regrettably, these measures were not sufficient. The company ultimately failed, leading to my personal bankruptcy. I harbor no regrets regarding the measures taken to rescue the business—assets can be regained. My sole sorrow lies in the disappointment of those who depended on us. Initially driven by a vision to empower and elevate aspiring entrepreneurs, I lament that this vision was not realized for all.

Nonetheless, it is significant to recognize that we enabled over 200 founders to embark on their entrepreneurial journeys, despite varied outcomes.