Portfolio companies continued to perform well in a challenging macroeconomic environment. Many are ready to accelerate when the time is right.
Our companies remain attractive to investors. This year, Forward’s backing unlocked over seven times our investment from other investors for these companies.
We attracted a high volume of quality deal flow, investing in three new companies. We focused more on follow-on rounds, investing in 20 rounds with companies we know and trust.
In 2022, we saw the macroeconomic headwinds that impacted investor confidence and public markets trickle down into earlier-stage private companies' valuations. As a result, investment rounds started taking longer to complete, the door on IPOs largely closed, and the M&A market slowed. We recognised the potential impact that these factors held for Forward and our portfolio and took steps to adapt: reducing operational expenditure; adjusting investment criteria whilst advising founders to prioritise resilience in preparation for a period of uncertainty.
Through this period, we further supported our top portfolio companies to strengthen their balance sheets. Now, we hold a portfolio of lean, strong and capital-efficient businesses that are well equipped for the period to come.
Our portfolio remains strong and the ever-increasing pace of change continues to drive value from large companies to startups, providing a great tailwind for our investments and for venture capital.
Despite the positive news at the portfolio level, I’m sorry to be reporting that market challenges have led to a decline in Portfolio Fair Value over the year. In times like this I like to remind investors that the venture capital model is built to be resilient to downturns. We expect to hold our successful companies for seven to ten years or more before exit and hence that they will see at least one difficult period. It’s also important to remember the asymmetric profile of startup investing where we make many times our money on our winners whilst only losing one times our capital on our losers.
It is difficult to predict how long this period of uncertainty will last, particularly in the wake of the banking crisis. But we continue to see great deals. We continue to invest. The ecosystem is strong, founders are positive and investors wait in the wings with committed capital to deploy. For the moment we wait for market confidence to return, and with it, the follow-on rounds that our portfolio will use to accelerate their growth. As a business, we remain focused on what we love to do: helping the UK’s best tech founders to build incredible companies.
Nic Brisbourne
CEO
Nic Brisbourne
CEO
Key indicators for the period 1st January — 31st December 2022.
The UK ecosystem is in good shape.
UK startup investment has been steadily increasing. Despite funding levels decreasing in 2022 from the outlier figures of 2021, UK startups raised $30 billion - marking it as the second-largest year on record.
The UK is home to a pool of great tech talent.
It’s not just funding that makes the UK ecosystem such a strong catalyst for progress. It’s also the UK's thriving community of experienced founders, leaders and skilled technical talent. Encouragingly, there is more experienced talent able to navigate a downturn in the UK than ever before.
Investors wait in the wings with plenty of dry powder.
UK investors hold substantial committed but uninvested capital. London-based VCs raised a record-breaking $6.6bn in fresh capital in 2022.
ChatGPT: heralding a new wave of innovation.
Periodically we see moments that spark massive excitement in the startup ecosystem and venture capital industry. ChatGPT’s recent release was one of those, delivering a leap in the public’s awareness of AI and its potential to disrupt the status quo.
Source: London & Partners / Dealroom: The year London tech reached new heights Report (2022)
In 2022 we focused on three key priorities at Forward:
In 2022, we worked to ensure that our portfolio companies had strong economics and a cash runway suitable to navigate the coming period. We took a pragmatic approach to new investments and assessed 4,672 opportunities, meeting 543 and ultimately investing in 3 new companies.
We worked closely with key portfolio companies to strengthen their financial foundations and develop strategies for long-term stability. This included providing both support and participation in follow-on rounds to unlock additional capital. We continued to deliver more than money to our portfolio companies through our Studio in 2022.
We placed a strong focus on improving our core processes and controls. To aid this effort, we enlarged our Finance Team and made notable advancements in areas including operations, reporting, and compliance. We also built awareness of Forward within the investment community by delivering an integrated programme of communications, events and PR.
Studio team customer satisfaction (CSAT) score describes the average rating provided by Studio team customers on a scale of 1 (very unsatisfied) to 5 (very satisfied).
Employee happiness is defined as the percentage of employees who state in monthly surveys that working at Forward makes them happy.
Deal flow ethnic diversity describes the ethnicity split of all deals that reach the ‘first meeting’ stage of our Ventures investment process.
Deal flow gender diversity describes the gender split of all deals that reach the ‘first meeting’ stage of our Ventures investment process.
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We believe 2023 will be a year of rapid adoption for a range of new AI technologies.
As a fund, we have been investing in applied AI for over 5 years now, so it’s been exciting to watch the advancements in AI, particularly in:
- SaaS verticalisation: vertical solutions that are hyper-targeted towards one specific industry which replace a range of sector-agnostic tools for a customer.
- Federated learning: Technology which allows artificial intelligence and machine learning to be deployed on edge devices, such as sensors, machines or vehicles.
- Generative AI: technology which generates new content such as copy, images and audio that will also continue to attract attention, like ChatGTP.
Further out, we’re also paying attention to a series of trends on the horizon, where we expect to find exciting opportunities in the next few years. This includes areas like next-gen bio and clean tech. Find out more about the treads we’re taking notice of at Forward here.
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Last year, we launched Funding Lab, an evolution of our previous founder initiatives, the programme was built for entrepreneurs who are looking to raise their first round from a VC.Our aim was to select 12 promising founders, help them on their journey with focused investment advice and start building relationships for potential future investments.
To ensure a diverse range of founders applied we called on a variety of industry networks, universities and VC communities, which resulted in over 300 applicants for the programme.
In July, welcomed a diverse group of 12 entrepreneurs who are building businesses across a range of B2B and B2C industries including Web3, construction, healthcare, childcare and hospitality. Of the 12 participants, our investors progressed 2 founders to a first meeting stage, the first step in our investment process, almost double our average rate of conversion.
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