The shortage of development capital in Europe is such a persisting concern that some early-stage companies have taken the matter into their very own palms. London-headquartered agency Notion Capital is one in every of them.
In 2017, Notion Capital was one of many first in Europe to shut an alternatives fund to supply its portfolio firms with follow-on capital. Now, it has closed a $130 million development fund, almost twice the dimensions of its earlier one, that may even make investments exterior of its portfolio, TechCrunch discovered solely.
U.S. VCs that used to fill the expansion capital hole at the moment are likely to focus extra on their very own market, mentioned managing companion Stephen Chandler, noting that “opens up a possibility for European companies like ourselves to make up a few of that distinction and be actual European champions.”
A few of the European firms Notion intends to “champion” from its new Development Opps III fund are tied to the rising demand for extra sovereignty, together with these specializing in protection and provide chain logistics. However like many, the VC agency can also be drawn to AI, which Chandler sees as a brilliant cycle inflicting “a profound shift in the best way that software program is delivered and consumed.”
Notion Capital gained’t put money into the infrastructure layer reminiscent of giant language fashions. As a substitute, the agency sees alternatives within the utility layer that may “massively enhance” the dimensions of its market, Chandler mentioned. Whereas Notion’s flagship fund has traditionally been identified for its sturdy penchant for SaaS, cloud, and fintech, these will now be AI-infused, and joined by new verticals.
The agency expects to make a dozen investments and has already began deploying its capital from the funds. Offers, thus far, embody Upvest, a inventory buying and selling API out of its early-stage portfolio, in addition to exterior firms Octopus Power spinoff Kraken, and Nelly, a startup that builds software program and monetary merchandise for the medical sector, in response to Notion Capital.
To present itself some “sturdy objectivity,” in Chandler’s phrases, follow-on offers shall be carried out by devoted development fund companions who may even “exit and supply development stage alternatives exterior of the portfolio.”
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Certainly one of them is current Notion Capital companion Stephanie Opdam (on the left of the image). She’s going to now drive this development technique alongside Jessica “Jess” Bartos, previously a principal at Salesforce Ventures. A U.S. nationwide, Bartos can also be Notion Capital’s first exterior companion rent (earlier companions had been promoted internally.)
“As a result of this was a brand new technique, we felt we may gain advantage from exterior experience at that development stage,” Chandler mentioned.
Subsequent development funds can also be simpler to boost. Whereas Europe has suffered from an absence of pension funds investing in enterprise capital companies, incentives have began to vary in a number of nations, together with France with the Tibi initiative and the U.Okay. with the Mansion Home Accord.
Regardless of its British roots, Notion Capital isn’t solely depending on the U.Okay.’s regulatory framework; this newest Development Opps III fund is denominated in euros and Luxembourg-based.
To boost this new car, which brings its property beneath administration to over $1 billion, the agency relied on its current relationships with restricted companions from throughout continental Europe, the U.Okay., MENA and the U.S.
“One thing like 85% of our cash comes from establishments; and inside that, we’re very properly geographically dispersed,” Chandler mentioned.
However whereas current initiatives to mobilize long-term institutional capital “[weren’t] actually a function on this fund,” he added, “the indicators are extraordinarily constructive, and that’s nice [for] addressing that basic downside we began with, by way of among the gaps in development capital we have now in Europe.”
“If this lastly works out and extra LPs take part in development stage investing, this might translate into extra competitors for Notion Capital. Not less than on the development stage, the place it’s much less established than on the early stage. Nonetheless, Chandler sees each as a continuum.
“Our actual aggressive benefit on this development technique is leveraging the attain that we have now in our early stage technique,” Chandler mentioned. “Most development funds don’t have that. They’re on the market making an attempt to do all of their sourcing on the development stage as soon as they put their head above the parapet by way of scale and momentum.”
In distinction, he mentioned, Notion Capital has many contact factors with founders over time, together with by means of its very lively platform crew, and is versatile by way of its examine measurement.
Regardless of its expanded scope, Development Opps III’s predominant asset arguably stays Notion Capital’s portfolio. The agency has invested in additional than 150 startups since its inception, together with Currencycloud, GoCardless, Mews, Paddle, and Quantum Techniques. Whereas some are pre-AI or have been exited, the remaining firms doubtless embody future champions — a monitor document that ought to make exterior firms extra keen to take their development checks, even when development capital turns into much less scarce in Europe.
