Balderton Capital, one of many so-called “big four” early-stage VC companies in London (the others being Accel, Atomico and Index), has raised a new $400 million fund to proceed backing European tech startups at Series A.
Dealroom lately launched a report that pegged Balderton as probably the most lively Series A investor in Europe (between 2014-2018), and in some ways this new fund is a continuation, and enterprise as regular for the agency. It is usually roughly the identical measurement because the VC’s final Series A fund, which it closed in 2017 at $375 million.
That’s not to be confused with Balderton’s different lately launched “secondary” fund, which is devoted to shopping for fairness stakes from early shareholders in European-founded high-growth, scale-up expertise corporations. The transfer primarily formalised the secondary share dealing that already occurs sometimes as a part of a Series C or different later rounds which frequently sees founders take some cash off the desk to allow them to enhance their very own monetary scenario and wont be tempted to promote their firm too quickly, but in addition provides early traders a manner out to allow them to start the cycle once more.
In the meantime, Balderton says the new Series A fund is being launched towards a backdrop of “unprecedented momentum” inside the European tech ecosystem. The VC notes that the variety of Series A rounds in Europe per yr has quadrupled since 2012, with the entire quantity of VC funding going into European startups hitting document highs final yr — from 11.5 billion in 2014 to a chunky 24.6 billion in 2018.
That, along with the sheer variety of new funds which have launched during the last 12 months — and three I’m protecting this week — leads me to surprise out loud if tech, and Europe specifically, has entered a bubble.
“I don’t think we are,” Balderton Companion Suranga Chandratillake tells me throughout a name, earlier than acknowledging that it’s usually arduous to know in case you are in a bubble in case you are truly in a single. “If you look at the public markets, the valuations around tech companies, while they are high, I would argue that in many cases they are justifiable when you look at the profitability and the growth rate of those businesses, especially things like enterprise software. But I think it’s harder when you get into businesses where they are more one-off… [where] we don’t necessarily know exactly how to value those long term.”
On Europe particularly, Chandratillake factors out that some European tech hubs are extra heated than others and that sentiment can fluctuate significantly per geography. “As you get to more and more the local level, of course, you can experience what feel like sort of comparative bubbles. So, you know, maybe London was expensive two years ago, and France is expensive right now at Series A or whatever, but I don’t think those things really matter in the long run, because ultimately they iron out as long as the employee valuations are sensible. And as an investor, you’re paying attention to that stuff when you’re going to make an investment.”
One hearsay inside London VC is there are companies which have felt pressured to do follow-on investments in portfolio corporations they in any other case won’t have throughout cooler instances, for worry of signalling to the market not simply that an organization isn’t doing nicely however that the VC agency itself isn’t as founder-friendly as competing VCs. How does Balderton take into consideration signaling?
“Signaling is a massive deal [in venture capital],” says Chandratillake. “And actually, this is an area where, you know, we think we have a fairly strong position, because for over 10 years now we have focused almost entirely on Series A… and we are very open about that.”
He says that not like different Series A VCs that make investments at Series B or Series C, too, and in addition very often dabble in seed, corporations backed by Balderton shouldn’t anticipate the agency to “lead or be a major part of your Series B.”
“After all, we’ll assist, we’re going to do a few of our pro-rata or perhaps all of our pro-rata to attempt to shield a few of our possession, all these types of rational issues we do. However we’re not elevating a fund which permits us to be an enormous investor in your Series B and your C and your D and so forth. I feel so long as you’re actually open with entrepreneurs about that early, they completely get that they usually perceive why it really works economically for us and why it’s a very good factor.
“Then if you do that for a long enough period of time, as we have, and stick to that — so you don’t do weird things like, you know, say that, but then on the other hand with the most interesting company, you try to bully your way into more of a Series B or whatever, then the ecosystem overall starts to realise… then the signal problem goes away.”
With regards to future investments, Chandratillake says Balderton will proceed to make investments throughout Europe throughout any sector the place “information technology” is being leveraged and creating worth.
Within the fund prior to final, for instance, fintech was a significant focus, backing corporations like Revolut and Nutmeg, however extra lately the VC has been investing extra in well being tech, the place laptop science helps life science clear up issues sooner or cheaper.
“I think that there will be more of that,” says Chandratillake. “There’s a lot more to be done in this health tech space, both at the patient level, but also actually a lot of really interesting things behind the scenes that will help health systems operate more efficiently and use technology in interesting ways. It’s a really interesting area for Europe, because we have, you know, within the continent, a plethora of different health systems — from almost fully private systems through to obviously entirely state single payer systems like the NHS. It’s a great place to experiment with different models. It’s also of course, as a continent, home to some of the most important pharmaceutical companies [in the world].”