Blockchain, a UK-based Bitcoin wallet provider, recently raised $30 million, an eye-popping sum for an A round in Europe.
Backers include Menlo Park, California-based Lightspeed Ventures; Chicago, Illinois-based Wicklow Capital; and Mosaic Ventures, a new $140 million fund formed by tech industry veterans Toby Coppel, Simon Levene and Mike Chalfen.
The deal illustrates how the landscape for young companies in Europe is changing.
European companies are raising big rounds at an earlier stage, helping them to better compete with U.S. rivals; U.S. venture funds are increasingly investing in young European companies; and London is now home to a growing number of pan-European funds that are helping to close the early-stage funding gap.
Mosaic, which officially launched in September, follows the July announcement by Google Ventures that it is setting up an arm in London that will invest $100 million in European start-ups.
“The European ecosystem has developed tremendously and the opportunity is there to serve these entrepreneurs and founders with their first large checks once they have their initial product idea,” says Coppel.
Partners Are Old Friends
“We are very excited to be in the market and be part of this.”
The Mosaic Ventures partners are old friends and have long track records; they have invested in high-profile successful tech companies such as Alibaba, Criteo, Etsy and King.
Chalfen and Levene met at graduate school in the early 1990s, and Levene and Coppel were roommates at Harvard Business School, and later worked together at Yahoo. As a trio the three of them go back to a Yosemite hiking trip in 1996.
Levene was an early employee at @Home Network, a start-up founded in 1995 to pioneer the broadband Internet. Coppel later recruited him to work as a vice president in charge of corporate development at Yahoo.
As Yahoo’s Chief Strategy Officer Coppel was responsible for investments and M&A, and among other things, he led the team that invested $1 billion in Alibaba in 2005 for a stake which has a value over $80 billion today.
Why Form An Early Stage Fund?
In 2007, Coppel moved back to Europe from Silicon Valley when Yahoo asked him to lead a turnaround and restructuring of its European operation.
After leaving Yahoo Levene worked as a venture capitalist in the London office of Accel Partners and was later affiliated with Index Ventures, while Coppel invested in tech start-ups with Richard Branson.
Chalfen spent a decade working in the tech and media teams at PE firm Apax Partners and later joined Advent Venture Partners in London.
Early-Stage Venture Funds In London
DN Capital: In September DN Capital announced $200 million for its third fund.
Google Ventures Europe: In July Google announced $100 million to invest in early-stage European start-ups.
Index Ventures: In June it announced its seventh early-stage fund, raising another €400 million.
Balderton: In April it announced the closing of its fifth European fund, raising another $305 million.
Accel Partners: In 2013 Accel Partners announced its $475 million IV fund targeting early and growth-stage companies in Europe and Israel.
Hoxton Ventures: Created in 2013 by Hussein Kanji and Rob Kniaz, it focuses on the $500,000 to $2 million funding gap.
White Star Capital: Founded in 2013 by ex-Facebook executive Christian Hernandez and Eric Martineau-Fortin.
Episode 1: Started by Simon Murdoch, Damien Lane and Adrian Lloyd in 2013.
Connect Ventures: Launched in 2012 by Sitar Teli (ex-Doughty Hanson), Bill Earner (ex-Amadeus) and Pietro Bezza.
Passion Capital: Founded by Stefan Glaenzer, Eileen Burbidge and Robert Dighero in 2011.
Octopus Ventures: One of the most active early-stage investors in the UK.
DFJ Esprit:The fund co-invests with angels and backs both early-stage and growth start-ups.
Atomico: Closed its second fund aimed at early-stage companies in 2010 with $165 million. It raised a third, later-stage, $44 million fund in 2013.
PROfounders: Founded in 2009, the fund is credited with helping pioneer early-stage investing in London.
Notion Capital: Pan-European fund launched in 2009; invests in B2B, cloud and SaaS start-ups.
So why form their own early-stage fund? The partners say they find the market opportunity in Europe compelling.
As with Silicon Valley, much of the entrepreneurial talent is highly diverse, which is often seen as a key ingredient for successful innovation: 37% of Londoners were born outside the UK; in Stockholm, only 27% of founders are non-Swede; Berlin is 15% non-German but attracts a lot of intra-German migrants, the founders note.
The new model start-up is much more capital efficient than in past cycles and has attracted a lot of seed and angel capital to fund an explosion of start-up activity. However these capital efficient businesses are less well served by series A investors then they were five to ten years ago, making that stage more attractive for the new generation.
And thanks to the instant global distribution made possible by the Internet and app stores, it is no longer necessary for ambitious European entrepreneurs to relocate headquarters to the U.S. to win globally, the partners say.
The Mosaic partners note that only two of the 20 European tech “unicorns” worth $1 billion have moved their headquarters to the U.S.
Mosaic Plans To Focus On Four Or Five Key Areas
By their count, there are over 200 Europe-founded tech start-ups that have exited for over $100 million in the last decade. Add to that a further 150 or more that are today valued at over $100 million, but have yet to exit, forming a pool of serial entrepreneurs and alumni networks that are forming a next generation of promising companies.
“Our view of the European market is that historically the most active and successful early stage firm has been Index and of course they are going to continue to do well. There are so many great companies now being started,” says Levene. “That we hope to build a strong Series A position and co-exist with them and others.”
The two funds have, in fact, already started working side by side. Mosaic’s first investment is in NumberFour, a Berlin-based start-up formed by former senior Yahoo executive Marco Boerries that is building a full stack/platform to service small businesses. (Prior to the fund closing, Mosiac had pre-agreed to invest in NumberFour’s $38 million Series A funding round, a round led in 2013 by Mike Volpi of Index Ventures.) Other investors in the NumberFour investment round include Sun Microsystems co-founder Andy Bechtolsheim, Yahoo co-founder Jerry Yang, as well as active European investors Klaus Hommels and Lars Hinrichs.
The investment in NumberFour fits with the fund’s strategy. Mosaic plans to focus on four or five key areas and start-ups focused on the small and mid-sized business software stack is one of them, says Chalfen.
There Is Strong Technical Talent In Europe
“We are interested in start-ups that use true SaaS, big data and analytics to offer completely new applications,” he says. “There is strong technical talent in Europe and we are seeing some very innovative companies.”
The investment in Blockchain reflects another key focus for the fund: fintech. “The regulatory environment [for financial services companies] is more open to new entrants than it has been in the past and London is a terrific place to launch,” says Coppel.
“The currency market is interesting; we are looking at payments, credit, Bitcoin and the blockchain. We are going to be very active in the fintech space.”
Another area is marketplace businesses such as Etsy and Hailo, Criteo and Alibaba. As their track record shows, “we like those business models,” Coppel says.