By Charlie Conchie
The state-backed investor British Patient Capital and founder of troubled car firm Cazoo have backed a £76m injection into a London-based venture capital firm as it gears up for a spate of AI investment in the coming months.
Episode 1, a London-based early-stage tech investor, announced this morning it had closed the £76m fund with £20m backing from British Patient capital, the long term investment arm of the state-owned British Business Bank. Listed VC firm Molten and founder of Cazoo Alex Chesterman have also backed the new vehicle.
Launched in 2013, Episode 1 has backed over 69 firms to date, including car marketplace Carwow, legal AI firm Robin AI and talent start-up Omnipresent.
The firm said it was now looking to make investments between £250,000 and £3m in pre-seed and seed stage startups in the coming months with a focus on areas like AI, software infrastructure and healthtech.
AI investment has exploded in recent months on the back of a surge in interest around generative AI tools developed by companies like OpenAI. However, general partner of Episode 1 Hector Mason, told City A.M. the firm was looking to take a “picks and shovels” approach to backing the technology rather than investing in consumer products with “thin use cases”.
“AI has been around for a long time, we’ve been investing in AI for a long time, but really the hype is surrounding generative AI in a post GPT era,” he told City A.M..
“A lot of startups that have sprouted up off the back of more recent development have quite thin use cases, and pretty difficult businesses to build a ‘moat’ around. So we’re very cautious and generally stay away from those widget-like businesses.”
The majority of cash will be channelled into UK firms but some will be made available for US and European-based companies that have a UK footprint, the firm said. The team has already begun deploying capital from the fund.
Venture capital funding has been hammered over the past year as rising interest rates and inflation choked off the flow of cheap money into the sector.
UK venture investment fell to £16.1bn in 2023 down from £28.9bn the year prior, according to data from Pitchbook, compiled for City A.M.
Mason added that investors were now placing a premium on profitability across the AI and tech space, rather than the high-growth business models that dominated investors’ attention up to 2021.
“Reality has dawned. People are more realistic now. And LPs [those who invest in VC funds] want to know that their money is in safe hands,” he added. “They want to ensure that companies are building sustainable businesses and reaching profitability.”
Christine Hockley, managing director of funds at British Patient Capital, said it was looking to support the “next generation of home grown tech start-ups to scale into the leading businesses of tomorrow.”
