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Good news for European cloud startups, as U.K.-based Notion Capital announced a $100 million fund for investing in software as a service companies across the continent.
Started by Brits Stephen Chandler and Jos White, who sold their messaging security company Messagelabs to Symantec for around $700 million in 2008, Notion says it has already deployed a fund of $50 million — and is now expanding with the backing of Britain’s Enterprise Capital Fund and the European Investment Fund.
And flying high on the IPO of social games company Zattikka, which Notion invested in two years ago, the venture firm says it’s ready to start putting that money to work.
I caught up with partners Chandler and White to find out more. Here’s what they told me:
The fund has a deliberate, narrow focus
“We focus on the B2B space — that’s where our pedigree is,” said Chandler. “We’re really excited about the opportunities. The consumer space can be exciting, but business are prepared to pay for technology, whereas consumers expect to get most things for free these days. In B2B it may take longer, but you can build a real business with revenues and customers.
White says that ideally they are looking for companies that can disrupt or digitize an existing area of business.
“We’re very interested in business process — that sounds boring, but take financial services like invoicing or currency exchange: these are services that have been traditionally delivered by banks and there is room to disrupt them. Marketing automation is also something we’re really interested in — something delivered via the internet rather than through an agency.”
And there are specific requirements
Many of the investments are likely to be in the series A range, around $2 million, but Notion is prepared to back companies with up to $15 million in series B and C rounds.
“We break it up between SaaS and infrastructure, and we’re more focused on SaaS because it’s our background and it’s less capital intensive,” said White. “We like to see recurring revenues, products that are available on a subscription basis, ideally with some customers who are quite sticky.”
But there will still be seed money available
… even though it won’t be the focus of the team’s investments.
“Our model is not to do hundreds of investments, it’s to work very closely with founders,” says Chandler. “And that strategy will continue. We do some seed investing, but it’s not film script stuff — we like to see working prototypes or very early products. Our focus is really on series A investing, but we still have an allocation for seed. ”
It’s not just public sector money
The announcement made play of the fact that there was money from the British and European governments going into the fund — but in fact there is actually much more private cash going in. That includes around $10 million from the Messagelabs founders themselves (their previous $50 million fund was entirely self-financed) and from a number of private individuals. However, said Chandler, the public money was very important.
“At the moment institutional investing is an important part of the ecosystem that’s pretty quiet,” he said. “It’s a challenging fundraising environment, and the public sector has done a good job of stepping into the gap.”
Big data, big exits
“It’s a really interesting business, and big data is really interesting to us: being able to understand and interpret large amounts of data is really valuable,” says White. “We were disappointed that they felt they had to go to the U.S. for money — but we hope to do some deals like that ourselves.”
Part of the problem, they suggest, is that Europe isn’t necessarily hunting down big exits for companies — the sort of deal that they secured for Messagelabs, or valuable public flotations.
“The tendency in Europe is to be pre-occupied with protecting the downside — people are almost embarrassed about chasing big exits,” says White.
“And not cashing out too early,” adds Chandler. “European investors often take their money off the table too early on.”