Other deals include stealth companies in the food tech, customer experience, creator economy and financial services, which are still deep in build mode.
Seedcamp, the London-based seed fund, makes very early-stage bets into European technology start-ups in the hope that at least one company per fund will reach the elusive “unicorn” status, where a company is valued at $1bn plus.
So far, it’s a strategy which appears to be paying off.
To date, Seedcamp, Europe’s busiest early-stage venture capital investor, has raised around $300m across its five funds, building a portfolio of 390 start-ups, including Revolut, Wise, UiPath and recent double unicorn Hopin.
And those 390 start-ups have gone on to raise another $5bn in follow-on funding between them.
Hunting those elusive unicorns is still Seedcamp’s mission today.
With every business really becoming a technology business post pandemic, Seedcamp still sees huge potential in European technology start-ups.
Seedcamp began life in May 2007, founded by a group of 30 European investors. At the time, there was nothing in the market when it came to raising money for pre-seed stage start-ups. Seedcamp acted as what became known as an accelerator, connecting very early stage founders with interested angel investors.
It launched its first €2.5m fund “very much an experiment because there was a gap in early-stage funding ecosystem at that moment,” says Seedcamp investment partner Tom Wilson.
The first Seedcamp fund invested in 22 companies and the belief was that European founders could build multibillion-dollar companies and compete on a global scale.
In 2010 Seedcamp went out into the market again and closed €5.2m for Fund II, which operated more like an investment fund club with other VCs. Like Fund 1, this second fund invested up to €25,000 apiece this time in 100 companies. One of its early investments was Wise, which today is valued in excess of $5bn.
Seedcamp sold those first two combined €8m funds to later-stage investor Draper Esprit for $26m back in 2017, tripling its return for its investors.
Fund III launched in 2014, quadrupling the size of the previous fund, at €20m, marking the first time Seedcamp raised money through institutional investors. Fund III focused on providing investment for start-ups looking to scale globally, rather than focusing on the initial hurdle of getting up-and-running. This third fund invested anything between €50,000 and €200,000 into rounds between €300,000 and €2m in exchange for between 5 per cent or 7 per cent equity. And like any fund it had a follow-on investment strategy. Investments included Revolut, currently valued at $5bn.
In 2017, Seedcamp launched the £60m Fund IV, which only finished deploying its initial investments in autumn last year. Fund IV raised the stakes again, investing between €150,000 and €400,000 in exchange for between 6 per cent and 7.5 per cent equity.
And last November Seedcamp closed Fund V at £78m for pre-seed and seed-stage investing. Some of the capital will also be used to follow-on rounds up to Series B. Over 100 institutional investors backed Fund V including British Patient Capital and Legal & General, as well as fellow VCs including Index, Atomico and Draper Esprit and angel investors.
What singles out Seedcamp from other early-stage investors is its volume of investments. Seedcamp was one of the busiest venture capital funds in Britain last year. A typical Series A VC fund will make around 30 investments over the course of its lifetime but Seedcamp makes nearly quadruple that, investing in approximately 35 start-ups annually.
Each of its later funds has made 100-plus investments compared with an industry average of 30.
This latest Fund V is happy to lead pre-seed funding rounds of up to £1m writing cheques up to £250,000, as well as being a co-investor in second position in rounds of up to £3m, writing cheques for up to £500,000 in exchange for no less than 5 per cent equity.
“We’ve raised one fund during the heat of Brexit and now we’re raising another during Covid, both of which we hope are black-swan events,” Wilson smiles.
Seedcamp is sector agnostic but currently sees opportunities in healthcare and the so-called future of work – two sectors which have accelerated because of the pandemic.
“There hasn’t been that much innovation in either sector and there’s room for more,” believes Wilson. “That said, you have to keep an open mind. A fantastic opportunity could come from anywhere.”
Wilson is phlegmatic about the impact of Brexit, which, he sees, like other UK-based VCs, as mostly affecting how attractive Britain is when it comes to attracting talent.
Despite Brexit, which, he says may be more off-putting to European founders in terms of perception rather than pragmatic reality, Britain still has great founders, top universities and a strong ecosystem for supporting early stage fundraising.
“If you look at the funding environment right now, it’s never been more buoyant,” says Wilson.
However, Wilson concedes that money from late-stage investors, particularly in America, who want to invest increasingly earlier in companies is bubbling the market. More money flowing down from big players is pushing the price of deals up. US hedge funds like Tiger Global and Insight Investment now invest in start-ups.
Wilson tells dollar-dazzled founders is that these US behemoths may make a one-off investment in their fledgling businesses, but will they have enough patience to nurture those fragile start-ups and will you, as a founder, be in a position to hit those demanding performance targets?
The accepted wisdom is that Europe suffers from a dearth of later-stage money backing Series C rounds and beyond. So, will Seedcamp be heading in the other direction and invest in later funding rounds? Wilson demurs to say but concedes that it’s something he and his colleagues talk about every day.
In short, watch this space.
Further reading on Seedcamp