INSUBCONTINENT EXCLUSIVE:
Balderton Capital, one of the so-called &big four& early-stage VC firms in London (the others being Accel, Atomico and Index), has raised a
new $400 million fund to continue backing European tech startups at Series A.
Dealroom recently released a report that pegged Balderton as
the most active Series A investor in Europe (between 2014-2018), and in many ways this new fund is a continuation, and business as usual for
It is also roughly the same size as the VC last Series A fund, which it closed in 2017 at $375 million.
That not to be confused with
Balderton other recently launched &secondary& fund, which is dedicated to buying equity stakes from early shareholders in European-founded
&high-growth, scale-up& technology companies
The move essentially formalised the secondary share dealing that already happens — typically as part of a Series C or other later rounds
— which often sees founders take some money off the table so they can improve their own financial situation and won&t be tempted to sell
their company too soon, but also gives early investors a way out so they can begin the cycle all over again.
Meanwhile, Balderton says the
new Series A fund is being launched against a backdrop of &unprecedented momentum& within the European tech ecosystem
The VC notes that the number of Series A rounds in Europe per year has quadrupled since 2012, with the total amount of VC funding going into
European startups hitting record highs last year — from €11.5 billion in 2014 to a chunky €24.6 billion in 2018.
That, together with
the sheer number of new funds that have launched over the last 12 months — and three I&m covering this week — leads me to wonder out
loud if tech, and Europe in particular, has entered a bubble.
&I don&t think we are,& Balderton Partner Suranga Chandratillake tells me
during a call, before acknowledging that it is often hard to know if you are in a bubble if you are actually in one
&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 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 specifically, Chandratillake points out that some European tech hubs are more heated than others and that
sentiment can vary considerably 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 rumour within London VC is there are
firms that have felt pressured to do follow-on investments in portfolio companies they otherwise might not have during cooler times, for
fear of signalling to the market not just that a company isn&t doing well but that the VC firm itself isn&t as founder-friendly as competing
How does Balderton think about 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 unlike other Series A VCs that invest at Series B or Series C,
too, and also quite often dabble in seed, companies backed by Balderton shouldn&t expect the firm to &lead or be a major part of your Series
B.&
&Of course, we&ll help, we&re going to do some of our pro-rata or maybe all of our pro-rata to try and protect some of our ownership,
all those sorts of rational things we do
But we&re not raising a fund which allows us to be a big investor in your Series B and your C and your D and so on
I think as long as you&re really open with entrepreneurs about that early, they totally get that and they understand why it works
economically for us and why it a good thing.
&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 continue to invest all over Europe across any sector where &information technology& is being
leveraged and creating value.
In the fund prior to last, for example, fintech was a major focus, backing companies like Revolut and Nutmeg,
but more recently the VC has been investing more in health tech, where computer science is helping life science solve problems faster or
cheaper.
&I think that there will be more of that,& says Chandratillake
&There 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 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 a great place to experiment with different models
It also of course, as a continent, home to some of the most important pharmaceutical companies [in the world].&
