2025 Annual Letter

And what we've been up to.

Dear Supporters & Friends of UpsideDown.VC,

Time has flown by- it seems like yesterday that we were pondering how to mitigate LP downside whilst providing optionality for founders. Since then, we have invested in 7 businesses, one of which has since converted to equity with a £450K GMV and another is already achieving £1.5M ARR and paid off over £2200 in FEA payments. Along the way, we have filmed this short video.

To this day, true innovation struggles to find capital because the venture ecosystem rewards the same types of founders over and over again.

• There’s a formula for a type of fast growing, “unicorn” type of company that most individual investors and VC funds spend a lot of time pursuing, often in the pursuit of achieving returns of 10x and above (to return their fund).

• Because of this, over 90% of great founders do not get funded simply because their company falls outside of this “investable” remit.

As James Thomason says:

This conformity cascade is particularly damaging because of venture capital's powerful signaling effects. When major firms pass on deals outside their narrow focus areas, they don't just reject individual companies - they effectively mark entire sectors and approaches as "unfundable." Promising founders working on novel solutions either conform to the consensus view or abandon their fundraising entirely. Meanwhile, other investors, from smaller VC and seed funds to family offices, feel pressure to mirror the investment theses of top firms rather than develop differentiated strategies.

The result is a tragic stagnation: rather than funding diverse approaches to hard problems, the industry crowds into consensus deals and "hot" sectors. True innovation - the kind that comes from unexpected places and challenges conventional wisdom - struggles to find capital. We're left with an ecosystem that efficiently funds slight variations on proven models while systematically strangling novel approaches and contrarian thinking.

The majority of early stage founders do not get funded by angel investors or VCs but to this day resort to squeezing through their savings, maxing out their credit cards and taking business loans with bad terms. The lucky ones get funded initially by wealthy friends and family, if you have them.

We started UpsideDown.VC after spending a lot of time listening to the frustrations of LPs who want to invest in venture, but have been scarred by funds with disappointing returns. Equally, in organising founder meetups, we listened to the absurdly legitimate concerns of entrepreneurs; that to start a business you really need wealthy Friends and Family. We knew there needed to be a solution to invest in the early stage with more win-win outcomes.

• The original problem statement was threefold:

  • From the LP perspective, how can we de-risk going in at a “friends and family” round.

  • From the Founder perspective, how can we find a creative way to fund excellent founders without forcing them down the traditional “growth at all costs” model that comes with traditional VC?

  • How can we provide funding to bootstrappers with win-win type of terms- us being able to achieve returns, with bootstrappers being able to retain greater control?

As Erica Wenger says:

This alphabet model has serious consequences: market vulnerability (when the market changes, will you still be able to raise?), unrealistic growth targets (blitzscaling or else), and constant dilution of founder equity. Unfortunately, the industry (VCs, media, everyone) has driven startups to prioritize hitting the next funding milestone over building solid, sustainable businesses, with fundraising often taking precedence over long-term value creation. But it doesn't have to be this way!!!

We see the tides are shifting. Advances in technology—like AI, no-code tools, and cloud infrastructure—are making it easier for companies to scale efficiently without large funding rounds. As capital requirements decrease and software becomes commoditized (shoutout to the $1B one-person company Sam Altman often mentions), more startups are finding ways to achieve profitability quickly.

And thus we brought the CISA to the UK and the rest of Europe.

The CISA was revolutionary when we first implemented it in late 2021. Today, it still continues to draw eyes and conversations.

• The ISA was originally created to help students with their university education. Today, thanks to the likes of Chisos (similar fund in the US) and ourselves, it is being used to fund talented entrepreneurial individuals whilst mitigating LP exposure.

• The ISA, combined with a SAFE note (CISA) provides the best combination of upside and downside protection, creating a win-win scenario for founders and investors. More information on exact terms here.

• We opted for the £700K conversion because it is the sweet spot of being able to raise a little bit of money to get to “ramen profitable,” while being able to bootstrap yourself the rest of the way to a generous exit.

Where do real opportunities lie this upcoming year?

• Investing in highly talented individuals with entrepreneurial potential. What do we define that as?

  • Those currently working full time jobs while validating their businesses on the side. There is a real opportunity to give folks like this money to go full time on their businesses, being able to get in at discounted valuations if the equity conversion happens or receiving ISA payouts either through a switch to full-time job.

  • Traits

    • Sociopathic drive

    • Sound decision-making

    • High earning potential

    • A willingness to learn and the ability to pivot

  • Particularly in Europe, 99+% of all VCs and angels aren’t willing to take a chance this early, giving us an unprecedented advantage in this area.

• Capital efficient projects

  • Companies that need, at most, one or two rounds of funding (preferably capped at about £2-3M) before reaching substantial profitability and a sizable exit of £50M+.

  • No code tools, new waves of AI and various other resources and tools means the cost of bootstrapping a company is less than ever.

  • More isn’t always the answer- more money doesn’t always buy the right resources, more people doesn’t always increase speed, and more features doesn’t always create product market fit. Seeing founders who can do a lot of with £500K makes us shocked by how little other founders get done with £5M+.

  • This applies to every industry.

Our mission is to enable those with entrepreneurial potential to receive the resources they need to make it, regardless of background and connections. Join us on this journey to create a great impact in the venture ecosystem and to shape this next wave in 2025 and beyond. Contact us at info@upsidedown.vc to chat more about venture upside with risk mitigated downside.