Partech Ventures, a VC firm that operates from offices in Paris, Berlin and Silicon Valley, has closed a total of $215 million for its Partech VI venture fund and a new seed-focused Entrepreneur fund.
Partech’s venture fund will be backed by $175 million, with $40 million committed to the seed fund. The Partech VI fund held its first raise back in 2011, when it closed €100 million.
Some 20 French, European and American institutional investors participated in Partech VI’s new round, including prepaid company services Edenred, and retail company Casino Groupe. While the Entrepreneur fund garnered backing from “more than 40 entrepreneurs and personalities” from France and Silicon Valley, along with core backing from the French government’s capital risk investment arm BPI, under its National Seed Fund (FNA); French bank BNP Paribas; and European digital business services group Econocom.
Overall, Partech said the raise exceeded its initial target by around €40 million. Senior partner Jean-Marc Patouillaud told TechCrunch that around two-thirds of the additional money was brought in on account of the new seed fund, adding that this fund will enable it to significantly ramp up the number of small, early-stage investments it makes. Setting up a dedicated Entrepreneur fund, in parallel to a venture fund, was inspired by Silicon Valley investment structures, according to Patouillaud.
“We had the idea to complement our venture scheme with a seed fund. And that was inspired by what we saw in Silicon Valley,” he said. “We saw how the venture space was evolving in the Valley and we thought of replicating the scheme by adding in parallel… of the venture fund a seed fund that would be able to do many more seed deals than what we used to do with the venture fund.”
Partech now expects to make between eight to 12 seed deals per year with its dedicated Entrepreneur fund, vs one to two previously when it was managing all its investments under Partech VI. The average size of these seed investments will be $500,000 vs between $3 million to $6 million at the venture stage.
“When you’re managing a venture fund it’s very difficult to allocate the partners’ time to manage small investments,” Patouillaud added. “You don’t dedicate your full attention to them, so the new scheme was intended to have a completely independent, separate fund, completely dedicated to seed that was managed by a partner fully dedicated to that.”
He said the seed plus venture VC structure is unique in Continental Europe but noted that Index Ventures in London takes a similar approach, although Partech has entirely separated its two funds, with different backers for each, vs Index’s approach of allocating part of its bigger fund for seed investments.
Discussing why Partech believes this Silicon Valley-style investment model makes sense for Europe now, Patouillaud argued there has been a shift in how European startups are approaching getting financed — with a more progressive mindset; a willingness to test things, get feedback and iterate taking over from an older modus operandi of “developing a big plan with big money.”
“It’s once again replicating what we are seeing in the Valley,” he said, describing a pitch day he recently attended in the U.S. where all 34 of the startups were only seeking small rounds, of circa $800,000 to $1.5 million.
“There has been a change of paradigm in the way companies and entrepreneurs are financing themselves. Which partly corresponds to that lean startup thing where investors plus entrepreneurs like to finance their company for a proof of concept or proof of product phase that usually does not exceed a year or 18 months. And only after that you see the big bucks coming in.
“We figured out that in Europe people finally adopted that lean startup, progressive development. You see less and less run of financing — the €3 million or €5 million as a Series A — you do see much more of those €500k to €1 million run of financing, mix of business angels and seed funds or venture funds with some seed money participating.”
In terms of investment advantages of having both a seed and a venture fund, he noted that Partech will be in a position to put in follow-on funding for seed companies it invests in — allowing it to keep nurturing promising fledglings, should they merit it.
Beyond that, being able to do 6x to 10x more seed investments than it could previously gives it a greater statistical chance of finding that “hidden pearl” among all the less shiny business ideas. ”Its very mathematical,” he noted.
Aside from a new focus on more seed investing, Partech’s investment strategy won’t be shifting radically. It will still do most of its investments in Continental Europe and the West Coast U.S./Silicon Valley, with a little more weight “on the European side,” according to Patouillaud.
Its industry sectors of focus also remain the same: IT, comms and “digital economy” startups — although Patouillaud said it’s “very unlikely” it will do any e-commerce seed-stage investments, arguing that such startups boil down to “an execution play” rather than being centred on disruptive technology. Partech’s seed investments will be more “technology oriented,” he said, adding: “We will continue to look at e-commerce opportunities but probably at the more mature stage, where the entrepreneur has already proven that he can execute.”
In addition to e-commerce, investment areas of ongoing interest for Partech are the Internet of Things, cloud computing, and the increasing granularity of digital ad technology — around things like video advertising, mobile ad targeting and web marketing tools aimed at increasing conversion rates through improved relevance and big data mining plays.
Prior investments made by the Partech VI fund include La Fourchette, Sigfox, and Teads in France; YD in the Netherlands (out of the Berlin office); and Sensopia in the U.S.