As pound swoons, venture capitalist sees opportunity in Britain
It would take an awful lot of upheaval for Boris Wertz to turn his back on Britain and its thriving high-tech sector. But even in the wake of the Brexit vote, he just doesn’t foresee it.
A venture capitalist focused on technology startups, Wertz says London remains one of Europe’s leading technology hubs despite the recent referendum supporting the country’s withdrawal from the European Union (EU).
The former tech entrepreneur and his company Venture One see opportunity in the current circumstances overseas, not least in the state of the British pound.
“Europe has a very solid start-up scene,” he says. “The fundamentals have always been there and that’s not going to change any time soon.”
What has changed is the value of the pound. Since the June 23 vote, the currency is down, meaning investors like Wertz can buy at lower prices in the United Kingdom. It’s so attractive, in fact, he has just doubled down on his i nvestment there.
Also, Wertz says the consequences of the non- binding referendum, which came down 51.89 per cent to 48.11 per cent in favour of leaving the 28-member political and economic union, have been minimal so far.
“If you look at some of the early numbers coming out of the U. K. in terms of retail spending and real estate prices, it seems that the economy is chugging along right now and it’s not as bad as people feared coming off of Brexit.”
He says some investors may be reluctant to go into the U.K., at least until the air clears, potentially hurting start- ups that rely on them to get their companies off the ground.
Overall, however, Wertz suggests Brexit is something of an enigma. It’s not even clear to some observers that the British government will ultimately follow the will of the slim majority and actually abandon the Brusselsbased EU.
The process, should it proceed, will take several years and the British government has yet to invoke Article 50 of the Treaty on European Union, which sets out the steps that must be taken to leave the group.
“People are still trying to figure out what exactly ( the referendum) means down the road,” says Wertz. “And the reality is also that Brexit has not actually happened. The vote has happened but the implementation hasn’t happened.
“So right now, nothing has really changed besides expectations.”
Wertz’s firm focuses primarily on North America, with investment on this continent split evenly between the United States and Canada. Britain is just one of a number of overseas investment targets that make up his fund’s portfolio.
As a Canadian- dollarbased fund, exposure to the fluctuations of foreign currency markets is part of doing business for Venture One, as it is for many of the start-ups in which it invests.
Many of the companies’ revenues, particularly Canadian firms, are based on foreign currencies — most often U.S. dollars.
But currency fluctuations are one of the last considerations when Wertz assesses potential investments. The viability and potential of a start- up almost always trumps everything else, he says.
“You invest in 25 companies in the fund and you hope that three to four are going to really kill it and do super- well,” he explains. “And those companies, hopefully, pay back 10 to 20 — sometimes in the best-case scenario, 60 times — your investment.
“So currency represents a relatively small risk. If currency moves by 10 per cent, then out of your 50- times multiple, you would end up with a 45- times multiple or, if it moves in the right direction, a 65- times multiple. Which is nice, but it doesn’t change the fundamentals.”
It would be different if he were investing in a company with small returns. If the currency moves in the wrong direction, it could eat them all up.
“In our case, the potential returns are so high that it doesn’t really matter.”
That being said, no business likes to leave money on the table. To maximize profitability and to optimize resources, Venture One uses Agility Forex, a Canadianbased fintech company offering cut-rate currency pricing on international payments.
“They basically get you a better rate than most of the banks and make that process very smooth. It’s not like this is driving returns for us, but it’s a nice bonus and saves the fund probably tens of thousands of dollars a year.”