Nauta Capital launches €55M ‘sidecar’ fund to double-down on its later-stage portfolio

Nauta Capital, the pan-European VC that invests in “capital-efficient” B2B software companies and consumer tech, has announced the closing of a new €55 million “sidecar” fund dedicated to backing its existing later-stage portfolio companies.

The VC firm, with offices in London, Barcelona and Munich, typically invests in early-stage technology startups from late seed and at Series A. The new dedicated later-stage fund will be used to inject follow-on capital, mainly from Series C onward.

The idea is to double-down on its most promising portfolio companies as they continue to scale up and raise later-stage funding, thus ensuring Nauta Capital doesn’t become too diluted. It also should be a draw for future co-investors who can be given assurances that Nauta has the capital required to join in on larger follow-on rounds.

“With this new follow-on fund, we can further support our portfolio, alongside other co-investors, throughout a company’s entire lifetime until exit,” says Carles Ferrer Roqueta, general partner at Nauta Capital.

The VC has backed more than 40 companies. Existing portfolio companies include Brandwatch, Marfeel, BeMyEye, ForceManager, MishiPay, Talentry, Nextail and zenloop.

Meanwhile, Nauta Capital’s sidecar fund is said to be backed by the firm’s current investors hailing from continental Europe, the U.K. and the Americas. They include British Patient Capital, the European Investment Fund, the ICF and the ICO.

Below follows an email Q&A with Nauta Capital General Partner Carles Ferrer Roqueta, where we discuss the need for a sidecar fund, why now and how Nauta Capital views Brexit.

TC: You’re calling this a ‘sidecar’ fund for follow-on investments, but many early-stage VCs earmark a portion of their main fund for follow-on, so how is this any different?

CFR: Our funds indeed have dedicated follow-on reserves for existing portfolio companies. We are actually very conservative when calculating the amount of reserves we have for each of our investments to make sure we can support each of our companies throughout their growth. Having said this, some companies grow very fast and raise more money than expected initially, and then it may become difficult for our existing funds to maintain or use their full pro-rata. On the other hand, some companies may take longer to fully develop and more rounds can happen in the future, and these timings may not necessarily match with our funds that had initially backed them. In these situations, a sidecar fund is ideal to keep on supporting our companies with our family of funds that also gives a positive sign to new follow-on investors joining the company.

TC: Is this new follow-on fund a sign of how high European valuations are right now, in the sense that it is designed to ensure you don’t get too diluted in future rounds?

CFR: Our model tends to stay away from over-heated valuations and we are very disciplined on the structures of our deals, which resemble each other. By consistently avoiding overpaying on deals, pressure for the next round is naturally released. When our companies progress well they then naturally see valuations grow rapidly, and some of these companies can use more funds to foster growth further. Our dilution is quite naturally protected in these situations, but still, when increasing capital is needed for growth acceleration on mature companies, our early-stage funds may not always see a possible full pro rata participation. So our sidecar fund takes care of these situations.

TC: A fund of €55 million doesn’t feel like a lot of money for post Series C across potentially 40 plus companies. How do you see the maths playing out?

CFR: This is our first sidecar fund and we will learn a lot from it. Future sidecar funds we may raise may be larger once we fully test the model. We targeted 50M but the appetite across existing investors was very good, so we expanded it a bit further. We basically went back some years in time and checked how much money our funds had not been able to deploy on late-stage follow-on rounds. With real data we then made sure we will now have this vehicle that represents an upside opportunity for our investors in companies that are already in our portfolio, so naturally decreases risk also for them. Our portfolio has grown and will continue to grow with new early-stage funds we will raise, so more opportunities for bigger sidecar funds may appear in the future.

TC: Did Brexit come into your thinking here or complicate things with regard to raising this new fund?

CFR: No, it was not an issue for us. We are a pan-European player with a very strong presence in London, Barcelona and Munich. We are fully committed to the U.K. with a strong team of 8 people and investing out of this hub in the U.K., Ireland and companies that use the U.K. as a landing platform. For instance, we have led an investment in a Helsinki-based company that has already created a 10-people team in London. In addition, we have 2 further offices in Barcelona and Munich, and that gives us a pretty good local access to deal-flow and talent around our different investment hubs. Our LP investors include fund of funds, financial institutions, one endowment, insurance, family offices and government agencies, all across the U.K., Continental Europe, Asia and the Americas.

TC: More broadly, what would be your favoured outcome for the U.K. and Brexit?

CFR: Hard to tell with the recent events at Parliament! I genuinely believe that the most important thing is, independent of the outcome, to bring back certainty to fundamental issues like access to talent, funding and feasible frictionless trade and communication. Situations of impasse are always tricky in long-cycle industries like VC. Our portfolio companies, although very agile by nature, need certainty for the long term. I am sure this will be achieved.