Balderton Capital, one of many so-called “massive 4” early-stage VC corporations in London (the others being Accel, Atomico and Index), has raised a brand new $400 million fund to proceed backing European tech startups at Sequence A.
Dealroom lately launched a report that pegged Balderton as probably the most lively Sequence A investor in Europe (between 2014-2018), and in some ways this new fund is a continuation, and enterprise as normal for the agency. It’s also roughly the identical dimension because the VC’s final Sequence A fund, which it closed in 2017 at $375 million.
That’s to not be confused with Balderton’s different lately launched “secondary” fund, which is devoted to purchasing fairness stakes from early shareholders in European-founded “high-growth, scale-up” know-how firms. The transfer basically formalised the secondary share dealing that already occurs — sometimes as a part of a Sequence C or different later rounds — which frequently sees founders take some cash off the desk to allow them to enhance their very own monetary state of affairs and gained’t be tempted to promote their firm too quickly, but in addition offers early buyers a manner out to allow them to start the cycle another time.
In the meantime, Balderton says the brand new Sequence A fund is being launched in opposition to a backdrop of “unprecedented momentum” inside the European tech ecosystem. The VC notes that the variety of Sequence A rounds in Europe per yr has quadrupled since 2012, with the overall 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 masking this week — leads me to marvel out loud if tech, and Europe specifically, has entered a bubble.
“I don’t assume we’re,” Balderton Associate Suranga Chandratillake tells me throughout a name, earlier than acknowledging that it’s usually onerous to know if you’re in a bubble if you’re truly in a single. “In the event you take a look at the general public markets, the valuations round tech firms, whereas they’re excessive, I’d argue that in lots of instances they’re justifiable whenever you take a look at the profitability and the expansion fee of these companies, particularly issues like enterprise software program. However I believe it’s tougher whenever you get into companies the place they’re extra one-off… [where] we don’t essentially know precisely the best way to worth these long run.”
On Europe particularly, Chandratillake factors out that some European tech hubs are extra heated than others and that sentiment can differ significantly per geography. “As you get to increasingly the native stage, in fact, you may expertise what really feel like kind of comparative bubbles. So, you realize, possibly London was costly two years in the past, and France is pricey proper now at Sequence A or no matter, however I don’t assume these issues actually matter in the long term, as a result of in the end they iron out so long as the worker valuations are smart. And as an investor, you’re being attentive to that stuff whenever you’re going to make an funding.”
One hearsay inside London VC is there are corporations which have felt pressured to do follow-on investments in portfolio firms they in any other case may not have throughout cooler instances, for concern of signalling to the market not simply that an organization isn’t doing properly however that the VC agency itself isn’t as founder-friendly as competing VCs. How does Balderton take into consideration signaling?
“Signaling is a large deal [in venture capital],” says Chandratillake. “And truly, that is an space the place, you realize, we expect we have now a reasonably robust place, as a result of for over 10 years now we have now targeted virtually totally on Sequence A… and we’re very open about that.”
He says that not like different Sequence A VCs that make investments at Sequence B or Sequence C, too, and in addition very often dabble in seed, firms backed by Balderton shouldn’t count on the agency to “lead or be a significant a part of your Sequence B.”
“In fact, we’ll assist, we’re going to do a few of our pro-rata or possibly all of our pro-rata to try 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 Sequence B and your C and your D and so forth. I believe so long as you’re actually open with entrepreneurs about that early, they completely get that and so they perceive why it really works economically for us and why it’s a superb factor.
“Then if you happen to try this for an extended sufficient time frame, as we have now, and follow that — so that you don’t do bizarre issues like, you realize, say that, however then however with probably the most attention-grabbing firm, you attempt to bully your manner into extra of a Sequence B or no matter, then the ecosystem general begins to understand… then the sign drawback goes away.”
As regards to future investments, Chandratillake says Balderton will proceed to speculate throughout Europe throughout any sector the place “data know-how” is being leveraged and creating worth.
Within the fund previous to final, for instance, fintech was a significant focus, backing firms like Revolut and Nutmeg, however extra lately the VC has been investing extra in well being tech, the place laptop science helps life science remedy issues quicker or cheaper.
“I believe that there shall be extra of that,” says Chandratillake. “There’s much more to be completed on this well being tech house, each on the affected person stage, but in addition truly a whole lot of actually attention-grabbing issues behind the scenes that may assist well being programs function extra effectively and use know-how in attention-grabbing methods. It’s a very attention-grabbing space for Europe, as a result of we have now, you realize, inside the continent, a plethora of various well being programs — from virtually absolutely personal programs by means of to clearly totally state single payer programs just like the NHS. It’s a fantastic place to experiment with totally different fashions. It’s additionally in fact, as a continent, dwelling to among the most vital pharmaceutical firms [in the world].”