In dribs and drabs, the European venture capital scene has started to look gradually more like it will develop a broader range of VCs than in the past. True, the majority of European VC funds have not performed well. But I’m not here to talk about the incumbents, but rather the new breed, which are taking cues from their American cousins in looking for businesses with potential. Time and again the continuous charge has been that Europpean VCs look only for revenues first rather than product or user traction. This new breed of European VC is at least as interested in product and more interested in building companies that can scale, rather than ones which might make tidy businesses they can, for example, sell to a European telco for pennines. And that’s only to be welcomed.
The latest sign of this was the recent emergence of Connect Ventures in May this year – a fund which already has £13m in the bank but is aiming to raise £30M. This early-stage venture capital firm promptly wooed Sitar Teli away from Doughty Hanson Technology Ventures. Teli made her name as one of the first champions of SoundCloud, the Berlin-based startup that is gunning to become the YouTube for the world’s music and audio generally. Teli has always been noted for her laser-like focus on product-based consumer Internet startups, also serving on the board of MegaZebra and Handmade Mobile.
Teli joined Pietro Bezza and Bill Earner at Connect. For his part Bezza founded and built up Neo Network, a market-leading digital content venture that he sold to the European media group De Agostini, and Earner is a former investment manager at Amadeus Capital Partners.
Connect also announced its fourth investment in London-based Citymapper, which focuses on urban personal transportation planning apps – something Apple may even be interested in given its maps debacle. Connect is already invested in Secretsales, Ondango and Space Ape Games.
The fact that Teli left the venerable DHTV for what is effectively a startup VC speaks volumes. As well as Amadeus, other VCs that have seen people depart and not be replaced include Eden Ventures – which shed two junior associates last year – and Balderton Capital. Partner Dharmash Mistry recently left Balderton to pursue his own investing. These may not add up to a trend away from the old guard of VCs, but it is certainly interesting to note. [UPDATE: I should also have added the move this year by Paul Jozefak from Neuhaus Partners to a startup fund, Liquid Labs, also focused on product].
And for many, the standing European VC houses have simply made their bets for the next few years. What’s a young, hungry VC to do if they want to to something interesting?
Indeed, as Teli blogged when she joined Connect, this new wave of VCs tend to be focused on early-stage product-led Internet and mobile investments; have partners that are passionate about and engaged with technology; have partners that have built their own startups; use the tech they invest in and take active roles in the companies they invest in.
But Connect Ventures isn’t the only new kid on the block. Passion Capital launched a year ago, a formal fund put together by three active angels and has backed some of Europe’s most innovative startups, such as Mendeley, Duedil, EyeEm, Flattr, Mixlr and many others.
Over the last year, another has been quietly building. Hoxton Ventures is the code name for investments being made by private investors Hussein Kanji and Rob Kniaz but already they’ve invested in Campanja, Tizaro, Llustre (acquired by Fab) and GoCardless – and are planning a real fund as well.
Many of these new funds are aiming at €500,000 to €1 million – one of the clear funding gaps in the European startup ecosystem. Their ideas are to move fast, be entrepreneur-friendly and even often back a single founder team.
Another new fund will be appearing later this year: No.1 Seed, started by Raj Ramanandi, plans to invest in technology startups in London and across Europe.
Then there is is EC1 Capital, which plans to invest even earlier, at the £25,000 to £200,000 range. Another is Ballpark Ventures, consisting of High Net Worth individuals. There is aslo Playfair Capital, born of European trustafarian Federico Pirzio-Biroli.
Meanwhile in the Enterprise space, Notional Capital is on its way to shaking things up with its $150 million fund.
Although most of the examples given so far are UK-based, I’ve started to see other funds appear in Europe, many of which are starting to unlock cash from ‘family offices’ and wealthy individuals, as they seek to look for returns outside the moribund financial system. H-Farm and Mind the Bridge in Italy, Kima Ventures in Italy or Team Europe in Germany spring to mind for instance. Perhaps the earliest ‘new kid’ was PROFounders Capital in London, founded in 2009.
But one of the last links that needs to be addressed is the link with Silicon Valley. Seedcamp is one European accelerator that has been clever at building bridges with the Valley and thus, fast-moving U.S. investors like 500 Startups.
This last link could be an exciting new development, as U.S. investors start to cast their net wider outside the hype-filled environment of the valley.
While new funds like CrunchFund, built by Michael Arrington, the founder of TechCrunch, have not typically invested abroad, it’s no doubt only because they haven’t yet found the right European-based investors they can partner with and co-invest, participating perhaps when a European VC takes the lead on a new investment.
Startup founders I talk to respond positively to the development of these new, faster-moving, product-focused types of funds. They are definitely overdue, and it’s time now for European founders to start taking these ‘fast funds’ seriously.