The successful venture capitalist knows that innovation is a journey

Tim Heath
Tim Heath, Founder Yolo Investments Tim Heath

There’s a fundamental reason why Rome was not built in a day. To build Rome, you have to start with the aqueducts. Once you’ve added the sewers and the water supply, you’ve got a solid foundation upon which you can start to look at the whole ecosystem of that city and understand how you can gradually improve it piece by piece. In other words, you have to innovate.

Innovation, thus, is fundamental to the fabric of every intelligent organism. Just like a city, every atomic section is on a journey of improvement, such that when you piece them together the entire city has evolved – gradually – as a single entity. From the outside, it looks new, fast and disruptive, but to those with inside knowledge – it is something which has been created meticulously with careful planning, with innovation taking place every step of the way.

It is its network which makes Yolo Investments particularly well placed to catalyse innovation. By having a strong presence in targeted sectors such as fintech and gaming, Yolo Investments is able to rapidly accelerate the process for companies going from innovative concept to profitable business. Each time Yolo invests in a young company, the company joins around 30 others in the same fund - opening up possibilities for incremental growth for everyone.

Venture capital is a form of financing which works especially for early-stage companies that need to take more risks than most in order to innovate. This is because companies which in this stage are not simply capital-deficient, but often don’t have the clout or incumbency headroom enjoyed by longer established competitors. In fact, venture capital works best when it’s deployed in its purest form – specifically backing companies who have a very clear long-term picture, but lacking specific pieces as to how they will get there.

Because early-stage innovative companies are, by definition, a continuous work-in-progress, they simply cannot borrow capital or fundraise in the traditional way that other mid-stage ventures. Because startups (and their founders) are often seen as high-risk and costly, venture capital enables would-be innovators to get off the ground without the constraints that come with more traditional forms of funding.

Understanding the process of innovation is hence crucial to being a successful venture capitalist. To the inexperienced investor, risks that occur in the life cycle of a project may signal a cause for concern or even a red flag to pull out completely. But to the hardened portfolio manager in a VC who fully understands the process of innovation, it is more likely that such bumps validate the theory that true innovation is really taking place, paradoxically giving them more confidence in their investment.

Here at Yolo Investments, we take a no-nonsense approach to venture capital. This differs from the approach taken by the larger players which epitomise the tech VC scene. What this means, fundamentally, is backing people who have good, solid ideas and run lean and mean organisations. We never seek to invest large amounts into slow-moving, bloated businesses or adopt a faith-based approach on companies hoping that sector valuations they find themselves in will magically boom. Nowhere has this been more evident than these last few months. Whereas other players in the gaming, fintech and crypto sectors have languished, we have enjoyed strong month on month growth. The reason is simple – our approach is one which believes in great, resourceful founders, specifically those that recognise the path to greatness is not necessarily known in advance, but innovating nonetheless every step that is taken.

Take the case of Nubank, a Brazilian fintech neo-bank, which Yolo backed in 2021. This was about believing that Brazil’s financial ecosystem was ripe for disruption, and the founders and management were well-placed to capitalise on. And we thus invested in the management’s vision and supported their process of innovation. It paid off. By the time of its IPO, it had become the most valuable financial institution in Latin America.

More recently in the gaming and fintech markets, we recently launched the Yolo Investments sub-fund, which already encompasses more than 50 companies and focuses on A-stage investment opportunities. Innovation is very much a Darwinian process. Innovations such as web3, DAO Play-to-Earn, and virtual sportsbooks have almost completely displaced ‘old tech’ such as VR, cloud computing, AI and continue to evolve every day, making our incoming pitch-deck distribution these days even more colourful. We firmly believe that every company we invest in has the potential to become the next unicorn, if it is underpinned by a process of innovation which we believe in. Even if it means we look harder until we find it.

Innovation is one of those words that tends to be over-used in this industry, and its meaning differs depending on who you ask. Here at Yolo, innovation is not about novelty, but rather the start of a journey that gradually culminates in a lucrative, and especially disruptive, exit. An adventure is most exciting when it presents unexpected pitfalls and setbacks, and we understand that investing in innovation is very similar. And just as we know that Rome wasn’t built in a day, we also know that not all roads lead there. With the right approach, they will lead somewhere even greater.