Understanding investment: what are the circles of funding and portfolio theory?

For founders trying to find their way through the world of investment, the language alone can feel like a closed shop: SEIS, Series A, VCT (venture capital trust), syndicates, ARR (annual recurring revenue), traction. But understanding these terms – and the logic behind how investors make decisions – can change how you approach pitching entirely.

I attended a recent panel talk ‘How to craft a winning pitch and access capital’, at The Rise of the Female Entrepreneur event. The panel was moderated by Shaa Wasmund, MBE, and the panellists were: Kim Antoniou, Founder and CEO, Auris Tech; Piers Linney, Founder and CEO, Implement AI; Allie Lindsay, Investment Director, Maven Capital Partners. During the discussion, the panellists laid out exactly what founders need to know to understand the investment world and tailor their approach effectively.

Circles of funding: mapping the path to capital

Linney described the process of fundraising as moving through rings of risk and trust. At the centre is your own capital – the money you are personally willing to risk. Next is friends and family, then acquaintances, angel investors, networks, and eventually institutional investors, and venture capital firms.

Each ring represents:

  • A decrease in personal connection
  • An increase in due diligence
  • A decrease in tolerance for risk

The journey from the centre outwards mirrors both the scaling of the business and the increasing need to demonstrate credibility. Institutional investors, for instance, expect not only a validated product but also a clear growth trajectory and evidence of commercial traction.

Portfolio theory: you're not the client – you're the product

One of the more sobering but useful statements shared on the panel came from Linney’s explanation of portfolio theory. In simple terms, he said: “You are not the client. You're the product … their product really is the fund return based across that portfolio.”

So, investors are not backing you in isolation. They are balancing risk across a selection of companies, some of which will fail. If one business in a portfolio of ten delivers outsized returns, it can justify the entire fund. This is why venture capitalists often seek companies with the potential to deliver 10x or more returns within five years – especially in high-growth sectors like technology or biotech.

Understanding this really helps reframe how to approach a pitch. Remember: it’s not necessarily about convincing someone to believe in you personally – it’s about showing how your business fits into a broader strategy for return.

SEIS, EIS, and VCT: breaking down the alphabet

The UK offers several tax-efficient schemes designed to encourage early-stage investment. Understanding these can improve how you position your business to investors, so let’s take a look at some of them now:

  • SEIS (seed enterprise investment scheme): enables companies to raise up to £250,000, offering investors 50% tax relief. Typically used at the very earliest stages
  • EIS (enterprise investment scheme): for funding rounds beyond SEIS, allowing companies to raise up to £5 million annually. Investors receive 30% tax relief and benefits like capital gains tax deferral
  • VCT (venture capital trust): these are funds listed on the stock exchange that pool capital to invest in qualifying small companies. They offer a mix of risk mitigation and tax relief

Wasmund summarised SEIS and EIS as “simply tax-efficient vehicles to make it easier for smaller investors to invest in startup companies.” For founders, this means investors may be more willing to come on board if these schemes are in place, because their downside risk is reduced.

What investors mean by “traction” and “validation”

One common misconception among early-stage founders is that investors only fund businesses that are already generating revenue. In practice, the panel agreed, traction can take many forms.

According to Lindsay: “If you’re pre-revenue but you’ve signed up marquee names for a beta test … that might not be actual money in the bank, but it’s commercial traction.”

Other forms of validation include:

  • Existing pilot projects or letters of intent
  • Prior success of the founding team
  • Industry partnerships or technical validation (e.g., in biotech, having science already commercialised in a different vertical)
  • Co-investment or endorsement from a respected industry player

Investors look for signs that the business model is viable and scalable. Anything that reduces perceived risk increases the chances of securing funding.

Tailoring your deck to the investor

Lindsay offered practical advice for founders preparing pitch decks: keep it short, relevant, and tailored.

A strong deck should:

  • Be concise (ideally under 15 slides)
  • Show clear commercial objectives
  • Highlight geographical relevance (e.g., if applying to a regional fund)
  • Explain how funding will be used
  • Demonstrate how investor return will be generated

She added: “We’re looking at maybe 10, sometimes more, decks per week … we don’t have time to sit through 30 slides to understand what this business does.”

The panel each agreed that mass-sending decks without research is ineffective. Targeting investors whose past activity aligns with your company’s stage and sector is far more likely to yield results.

Speak the investor’s language

Raising capital is not just about passion, persistence, or even the product – it’s about understanding the logic, risk appetite, and structure behind investment decisions. Whether you are bootstrapping your idea, preparing to approach a VC, or seeking to join an angel network, understanding concepts like SEIS, EIS, traction, and portfolio theory can give you a sharper edge.

So, tailor your ask, do your research, and remember: to an investor, your company is not just a good idea – it is one part of a larger equation designed to deliver returns.