Investing in Companies With An Efficiency Edge
Flashpoint Venture Capital Group Ltd (“FVC” together with its affiliates, “Flashpoint” or the “Flashpoint Group”) has a strategy to invest in B2B software companies with an Efficiency Edge. We are looking for companies that sell to global or US customers but have their R&D in lower cost regions of Central-Eastern Europe and Israel.
Since R&D is a central cost item for software companies, spending less on it creates an efficiency effect: these companies have higher margins, making them more profitable, more resilient and overall better investment targets. They also raise less money and hence have lower overall valuations at the stage we invest in. However, the exit usually happens to a US buyer, at higher valuations. This valuation multiple expansion contributes significantly to the profits we make. For more details on this strategy, refer to Chapter 4.2., “Superior Capital Efficiency”.
Having worked in investment banking and private equity we do this with a rigorous data driven approach, leading rounds and being active in the boards, doubling down on the winners and driving exits to create DPI.
1.1Team in Multiple Geographies
Flashpoint is an international investment firm, headquartered in the UK. To stay close to the founders we want to invest in, Flashpoint also has offices in the US and Israel with partners of the fund sitting there.
The three partners leading Flashpoint’s venture growth capital team (the “VG Team” or “We”) have a wealth of experience in private markets. We have backgrounds in investment banking, experimental physics and entrepreneurship, which creates a winning combination. Thus, we have a distinctive way in with companies with an Efficiency Edge because we grew up in the same geographies, speak the same languages and understand their way of thinking very deeply.
Aside from offices in London, New York and Tel Aviv, Flashpoint has outposts in a number of Hungary, Poland and Latvia to stay close to R&D talent and invest in companies using them.
Our team of 9 investment professionals is aided by hundreds of Venture Scouts, who help us with warm introductions to companies and subject matter experts that help guide our investment decisions in critical areas. Further details about our team can be found in Chapter 8, “Investment Team”.
1.2 Skin in the Game
We believe in investing as principals. With over 12 years of history in the market, one of the key factors is that we manage our funds with the same careful approach as we manage our own money. In each of Flashpoint’s funds the GPs commit at least 3% of the total capital managed and this is the commitment we stand by in Flashpoint VG IV as well. This translates into a clear focus on reasonable entry valuations that translate into timely exits, actually returning money to our LPs and pushing our funds DPIs at top quartile levels.
1.3 Methodical Data Driven Decisions
Financial and data analysis is the core part of Flashpoint’s investment approach and an inherent part of the VG Team’s DNA. We use data to source and evaluate investment opportunities at every stage.
We built an in-house IT system to manage our dealflow, with a CRM being the central hub of information. From sourcing opportunities with AI to storing the different stages of start-ups, monthly recurring revenues (MRR), number of employees, the percentage change in the number of employees, and sectoral information we do everything in a data-driven way. The methodical use of the CRM allows us to keep track of potential investment opportunities, maintain data on thousands of early-stage companies in a single location, and follow up with relevant investment targets, at the right time.
Before a company is presented to the Investment Committee, it is evaluated through a red-flag scoring system as well as through the prism of Flashpoint’s proprietary scoring system called the Target Investment Criteria Analysis (TICA).
The proprietary scoring model was developed internally by the VG Team to keep the decision-making focused on facts and not get clouded by emotions. This data-driven rigorous selection process helps to invest in the best companies with a strict conversion ratio of less than 0.5% from leads (companies we talk to) to deals closed.
For a general overview of our data-driven IT infrastructure, please refer to Chapter 4.6, “Aided by IT Across the Board”. Further details on how we utilize data in our analysis can be found in Chapter 6, “Investment Criteria”.
The VG Team gathers data for the benefit of the Investment Committee with respect to opportunities presented to the Fund. The Investment Advisor will only recommend potential investments to the General Partner if a majority of the Investment Committee supports the recommendation. Although the Investment Committee will support the Investment Advisor on general matters, the members of the Investment Committee will not be responsible for taking investment decisions on behalf of the Fund. The support of the Investment Committee will result in recommendations made by the Investment Advisor to the General Partner which are of a non-binding nature. The General Partner is solely responsible for managing the Fund and the taking of all investment decisions and, for the avoidance of doubt, none of the VG Team, the Investment Committee nor the Investment Advisor will make investment decisions that are binding on the General Partner. For further details, please refer to chapter 7, “Investment Committee” .
1.4 Hands-on approach to develop Follow-On Opportunities
Just like with public equity research, the VG Team issues non-binding “buy”, “hold” and “sell” investment recommendations on our portfolio companies every quarter. These recommendations then guide our actions to develop secondary or follow-on opportunities when we issue a “buy” rating; or initiate an exit process if the verdict is “sell”.
This serves as the basis of our Venture Growth approach. This approach means that we want to invest a smaller initial ticket into the companies, and if the companies start growing well, we can invest up to 10x our initial capital into the best performers or up to 20% of the whole fund. We do this with the help of actively developed secondary opportunities, plus follow-ons using our pro-rata and super pro-rata rides.
We believe in an active follow-on strategy: information asymmetry and risks are much lower once inside the company. We work very closely with the founders, allowing us to identify attractive follow-on opportunities before anyone else and act upon them.
To support this, we allocate over 50% of our capital into follow-on investments in our best performers, and over the years, we have executed 103 follow-on transactions worth over $161 million as of June 30, 2025 (incl via co-invest).
Building larger stakes in our best performers allows us to make significant returns without having to wait for a company to become an actual unicorn, which takes a long time. It also allows us to sell partially to de-risk a position, while still maintaining rights and elevating our DPI and IRR levels.
This also changes the risk profile of our funds, allowing for VC-level upside together with PE-type discipline.
For further details on our follow-on strategy and portfolio management principles, please refer to chapter 14, “Portfolio Support”.
1.5 Proactive Exit Approach
Due to our “Skin in the Game” and thanks to the M&A background, we know that the exit is just as important as the entry. A properly managed exit can mean a difference of 30-40% in the final price, which is sometimes the difference between an average and a great investment result.
Our approach to exiting is methodical and strategic, recognizing that a successful exit is not just dependent on luck but the result of a well-orchestrated process. The first step is timing the exit, and deciding when the right time has come to start the sale process. Many investors don’t realize when to start preparing for an exit, and thus fail to turn theoretical returns into realized ones. Using information rights, active board participation, and close relationship with the founders, we model the growth trajectories of our portfolio companies, and decide in advance when to issue a sell recommendation.
The most important catalysts are:
- Decelerating revenue growth
- Founders selling
- Changing regulatory environment
- Other major business changes
- Change of alignment between shareholders/founders
- Drastic growth in valuation (partial exit recommended)
After we decide to exit a company, we work diligently to build internal consensus, aiming to sell 100% of the company to maximize the value. If achieving a full exit proves challenging, we collaborate closely with the founders to explore alternative solutions, such as selling a stake during a new funding round—often one that we actively organize. If these efforts do not lead to an exit, we then engage professional advisors to broaden the pool of potential buyers and further drive the process. Throughout this journey, our objective is to build momentum and apply the necessary pressure to ensure a favorable outcome.
While many companies opt for an ad-hoc exit when a seemingly attractive offer unexpectedly comes their way, we take a more strategic approach. We ensure a thorough process by engaging a broad range of potential acquirers and advisors, creating a competitive bidding environment that ultimately drives up the sale price.
The VG Team has done 18 exits and returned over $167m of exit proceeds as of June 30, 2025. We have sold companies to top PE funds like Chess.com to General Atlantic, major corporations like Shazam to Apple, and industry specialists like our recent exit of Mize as well as a partial exit from Guesty to KKR.
Our extensive M&A and Private Equity networks allow us to introduce competition to a bidding process and help to retain the right advisor, helping everyone to achieve better results and increase DPI.
1.6 Ownership Mentality & Transparency for Limited Partners
Since we are major LPs in our own funds, we feel the responsibility of the funds bestowed upon us. This means we are doing everything in our power to invest in companies that will return capital and create meaningful DPI.
We want to maintain an online brokerage-like level of transparency: through an online investor portal, our LPs can always check their balances, access their quarterly reports (within 45 days after quarter end!), find out more about the companies we invest in and communicate with our team.
We also hold quarterly online and an annual in-person LP meeting in London to make sure everyone is updated and aligned at all times. On our recent 2025 LP Day in London, 100 in-person attendees listened to 35 speakers.
