Does SGH capital have the Midas touch?

A U.S. fintech startup which recently secured $300mm in funding, a newly publicly listed genomic testing company whose revenues are up nearly two-thirds on Q1 2019, and a firm whose robot pizza chefs have scored a monumental investment from SoftBank.

What connects these three success stories? They’ve all been invested in by SGH Capital, a Luxembourg-based VC company which is proving quite the talent-spotter. WiJet co-founder Alexandre Azoulay launched the SuperAngel fund using €50,000 of his own money, but now, a little more than four years on from its inception, SGH has invested in over 70 companies and boasts four unicorns. Little wonder that renowned VC’s such as Andreesen Horowitz, NEA, Softbank, Index and Kleiner Perkins have invested in the later stage of many SGH seeded company.

The fund’s success is all the more striking when placed in context. SGH typically invests in early-stage ventures, where failure rates are highest and competition is getting ever-more ferocious, as more and more VCs move away from mature startups in search of the next game-changer. What’s more, Azoulay’s vertical-agnostic platform defies conventional early-stage investing wisdom. It’s more often the case that investors focus their attention on one specific area which they already know plenty about, yet SGH’s portfolio covers a wide range of verticals, from a fragrance subscription service to a comparison site for bus tickets, from fixed-wing blood delivery drones to human genomics.

Critics might think this a high-risk strategy, yet Azoulay and his team somehow keep managing to make it work. Food tech has been a primary area of focus, with a 2016 investment in Zume Pizza helping the company recently achieve unicorn status. Zume, whose robots can make up to 120 pizzas an hour, went on to secure a $375 million injection from SoftBank last November, a deal which represented over half the total VC funding for food tech in the previous five years. The deal valued Zume at $1.875 billion – roughly a fifth of the value of industry giant Domino’s. Not bad for a company which is only four years old.

Beyond Zume and its food tech stablemates, such as Wynd (which has seen its total investment value grow 37 times since SGH seeded it), Azoulay and his team have shown shrewd judgement across the board. For instance, 6 months after their late stage investment into Carta, a Palo Alto-based investment management platform, the company closed a funding round worth $300 million at double the valuation. Backlot Cars, an online market for second-hand vehicles and another recipient of SGH seed funds, has also just garnered $25 million from its own series B funding round after expanding its footprint by 500% in 2018. Although SGH has now exited Guardant Health, the blood test manufacturer continues to perform strongly, judging by the revenue hike of 64% it reported in Q4 2018.

That’s not to say everything SGH touches turns to gold instantly – as anyone who remembers Steve Hilton’s messy departure from political crowdfunding service Crowdpac can testify. However, given that well over 50% of early-stage startups fail to reach the next funding round (and 80% fail to exit), the fund’s hit rate is impressive, by anyone’s standards.

But what’s underpinning all these successful bets? On the surface at least, there’s little new or unusual about SGH’s strategy. Azoulay, who studied at Harvard under Clayton Christensen, the management guru who describes himself as a “disruptive innovation expert”, says that he himself sets out to find disruptive companies with major growth potential. But, in that regard, he’s no different from thousands of other investors foraging for the next Google or Airbnb. SGH’s area of activity – primarily the U.S., with a lesser focus on Europe and India – isn’t particularly revolutionary, either.

Then again, maybe this is the secret. SGH’s success is based not on disruption, but on sticking cautiously to the tried-and-tested investor’s playbook. The company went weeks without deals in 2017, still reaching 98 companies in its portfolio. The strategy of SGH is to get in mainly at the seed stages and be sector agnostic. The team selects large markets where the business can scale very rapidly, and where the company is growing either revenue or other metrics quickly.

Youth and vigour are another key priority for SGH’s talent-spotters. Still only 46 himself, Azoulay says young entrepreneurs have the best chance of breaking through; in fact, his founders have an average age of just 26. Yet he has built up a strong shareholder core to advise them, including top executives at the Singaporean sovereign wealth fund, Apollo and Credit Suisse, and his partner Charles Seely, who has invested in over 55+ early-stage companies and overseen a $5 billion increase in aggregate value. Their sage advice is augmented by dozens of partners and advisors in Europe and the U.S., drawn from companies such as Google, Cisco and Oracle.

Then there’s Alexandre Azoulay himself. An experienced entrepreneur and creative force, the Frenchman has registered several patents in energy, finance and new materials, and has run WiJet, an air-taxi service for business travellers, since 2017. There’ve been plenty of bumps along the way – WiJet’s former management decision to enter the British market in 2016backfired so spectacularly that the company was forced to pull out last summer – but this real-world experience enables Azoulay and his team to provide active, hands-on leadership to the companies in SGH’s portfolio, giving them one-to-one mentoring to ensure their youthful flair is tempered by hard-nosed pragmatism.

Will this potent combination continue to deliver results for Azoulay and his team? They’re certainly likely to be tested by a range of variables, from ongoing uncertainty in the financial sector to the rising cost of raw materials for robotics manufacturers. But, given the fund’s remarkable recent run, few would bet the SGH stable riding out these headwinds and finding another unicorn before 2019 is out.

This article does not necessarily reflect the opinions of the editors or management of EconoTimes.