Balderton Capital, one of the so-called "big four" early stage VC firms in London (the others are Accel, Atomico and Index), has raised a new $ 400 million fund to continue supporting European tech- series A startups.
Dealroom recently released a report that identified Balderton as the most active Series A investor in Europe (between 2014-2018), and in many ways this new fund is a continuation and business as usual for the company. It's also about the same size as VC's latest Series A fund, which closed in 2017 for $ 375 million.
This is not to be confused with Balderton's other recently launched "secondary" funds, which are dedicated to buying shares from early shareholders of high-growth European-based technology companies. The move essentially formalized the secondary stock trade that is already happening ̵
Meanwhile, Balderton says the new Series A fund is being launched on the basis of "exceptional momentum" within the European technology ecosystem. VC notes that the number of Series A rounds in Europe per year has quadrupled since 2012, with the total amount of VC funds going to European startups having a record high last year – from € 11.5 billion in 2014 to a paltry € 24 , $ 6 billion in 2018.
This, together with the large number of new funds that have been launched in the last 12 months – and three I cover this week – leads me to wonder highly about technically, and especially Europe, has entered a bubble.
"I don't think we are," Balderton Partner Suranga Chandratillake tells me during a conversation, before acknowledging that it is often difficult to know if you are in a bubble if you are actually in one. "If you look at the public markets, the valuations around technology companies, while high, I would argue that in many cases they are justifiable when you look at the profitability and growth rate of these businesses, especially things like enterprise software. But I think it's more difficult when you get into companies where they are more one-off connections … [where] we don't necessarily know exactly how to value the long-term. "
In Europe specifically, Chandratillake points out that some European technologies hubs are more heated than others, and that mood can vary significantly by geography. "As you get to the local level, you can of course experience what feels like kind of comparative bubbles. So, you know, maybe London was expensive two years ago and France is expensive right now on Serie A or whatever, but I don't think these things really matter in the long run, because in the end they iron out as long as the employee valuations make sense. And as an investor, you are aware of those things when making an investment. ”
A rumor within London VC is that there are companies that have been pressured to make follow-up investments in portfolio companies they might not otherwise have in cooler times, for fear of signaling to the market not just that a company does not good, but that the VC company itself is not as basic as competing VCs. How does Balderton think about signaling?
"Signaling is a massive deal [in venture capital]," says Chandratillake. "And actually, this is an area where, you know, we think we have a pretty strong position, because for over 10 years now we've focused almost entirely on Series A … and we're very open about it."
states that unlike other Series A VCs that invest in Series B or Series C as well, and also often dabble in seeds, companies backed by Balderton should not expect the firm to "lead or be an important part of Series B. "
“Of course we want to help, we're going to do some of our pro-rata or maybe all of our pro-rata to try to protect some of our ownership, all the kind of rational things we do. But we do not provide a fund that allows us to be a major investor in Series B and your C and your D and so on. I think, as long as you're really open with entrepreneurs about it early, they get it completely, and they understand why it works financially for us and why it's a good thing.
"So if you do it for a long enough period that we have and stick to it – so you don't do weird things that you know, it says, but on the other hand with the most interesting company, try If you bully yourself into more Series B or whatever, then the ecosystem is starting to realize … then the signal problem will disappear. "
As for future investment, Chandratillake says Balderton will continue to invest across Europe in all sectors where "information technology" is utilized and create value.
In the fund recently, for example, fintech was a major focus and supported companies such as Revolut and Nutmeg, but lately VC has invested more in health technology, where informatics help life science problem solving is faster or cheaper.
"I think there will be more of it," says Chandratillake. "There is a lot more to be done in this healthcare room, both at the patient level, but also very much e really interesting things behind the scenes that help health systems operate more efficiently and use technology in interesting ways. It is a very interesting area for Europe, because in the continent we have a variety of health systems – from almost entirely private systems to obviously completely state single payer systems like the NHS. It's a great place to experiment with different models. It is of course also, as a continent, home to some of the most important pharmaceutical companies [in the world]. "