INSUBCONTINENT EXCLUSIVE:
In what looks like a European first, the London-based early-stage venture capital firm Balderton Capital is announcing it has closed a new
$145 million &secondary& fund dedicated to buying equity stakes from early shareholders in European-founded &high growth, scale-up&
technology companies.Dubbed &Balderton Liquidity I,& the new fund will invest in European growth-stage companies through the mechanism of
purchasing shares from existing, early shareholders who want to liquidate some or all of their shares &pre-exit.&&Balderton will take
minority stakes, between regular fund-raising rounds, making it possible for early shareholders — including angels, seed funds, current
and former founders and employees — to realise early returns, reinvest capital in the ecosystem, or reward founders and early employees,&
explains the firm.The move essentially formalises 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
Otherwise it can literally take five to 10 years before a liquidity event happens, either via IPO or through a private acquisition, if it
happens at all.&The bigger picture is there are lots of shareholders who either want or need or have to take liquidity at some point,&
Balderton partner Daniel Waterhouse tells me on a call
&Founders are one part of that… but I think the majority of this fund is more targeted at other shareholders — business angels, seed
funds, maybe employees who left, founders who left — who want to reinvest their money, want to solve a personal financial issue, want to
de-risk their personal balance sheets, etc
So we&re not obsessed with founders in this fund, we&re obsessed with many different types of early shareholders, which for many different
reasons would like to get liquidity before the grand exit event.&Waterhouse says that one of the big drivers for doing this now is that
Balderton analysis suggests there is &a critical mass of interesting companies& that are in the growth stage: &businesses that have got a
scalable commercial engine& and a proven commercial model
This critical mass has happened only over the last two years, which is why — unlike in Silicon Valley — we haven&t yet seen a fund of
this kind launch in Europe.&We think there now about 500 companies in Europe that have raised over $20 million
That doesn&t mean they are all great companies but it an interesting, crude data point in terms of the scale they&ve got to
As a consequence, within that 500 we expect there to be quite a lot of interesting companies for this fund to help and we obviously have a
pretty good lens on the market
Through our early-stage investing, and working with companies from the early-stage through to exit, and then obviously staying in touch with
companies we don&t necessarily invest in, we have a pretty good sense of that from a bottom up perspective on how many opportunities are out
there.&He explained that there are three aspects behind the secondary funding strategy
First is that by investing via secondary funding, more companies will gain access to the &Balderton platform,& which includes an extensive
executive and CEO network and support with recruitment and marketing
Secondly, it is good for the ecosystem as it will not only help relieve financial pressure from founders so they can &shoot for the next
growth point& but will also let business angels cash out and recycle their money by investing in new startups
Thirdly, and perhaps most importantly, Balderton thinks it represents a good investment opportunity for the firm and its LPs as secondary
liquidity is &underserved as a market.&(Separately, one London VC I spoke to said a dedicated secondary fund in Europe made sense except in
one scenario: that European valuations see a price correction sometime in the future promoted by the current trajectory of available funding
slowing down, which he believes will eventually happen
&Funds are 10 years so they just have to get out in time,& is how said VC framed it.)To that end, Waterhouse says Balderton is looking to do
around 15-20 investments out of the fund, but in some instances may start slowly and then buy more shares in the same company at an even
It will be managed by Waterhouse with support from investment principal Laura Connell, who recently joined the VC firm.Struggling to see
many downsides to the new fund — which by virtue of being later-stage is less risky and will likely command a discount on secondary shares
it does purchase — I ask if perhaps Balderton is being a little opportunistic in bringing a reasonably large amount of institutional
capital to the secondary market.&No, I don&t think so,& he replies
&What we&ve seen in our portfolio is [that] the point in time when someone is looking for liquidity isn&t set on the calendar alongside when
companies do fund raising
In particular as a company gets more mature, the gap between fund raises can stretch out because the businesses are more close to
And so it not deterministic
We want to just be there to help people who are actually looking to sell out of cycle in those points of time and at the moment have very
If someone wants to wait, they&ll wait.&Finally, I was curious to know how it might feel the first time Balderton buys a substantial amount
of secondary shares in a company that it previously turned its nose down at during the Series A stage
After pointing out that companies usually look very different at Series A compared to later on in their existence — and that Balderton
can&t and doesn&t invest in every promising company — Waterhouse replies diplomatically: &Maybe we kick ourselves a bit, but we&re quite
happy with the performance of our early funds and obviously we&ll be happy to add other new companies that are doing really well into the
