Responding to a popular request, we are now sharing transcripts of our investor podcast interviews in this new series. The following interview with EQT Ventures was recorded in December 2017.
Alastair Mitchell, Partner at EQT Ventures, talks about the European Startup Funding trends.
Sramana Mitra: Tell us about your investing focus. How big is the fund? What size investment do you make? Help our audience get to know your investment activity.
Alastair Mitchell: EQT Ventures is a relatively new firm that is about 18 months old. We started out of Sweden, the Silicon Valley of Europe. It’s an amazing place with a phenomenal track record of building some global companies. When we started off, we were a $630 million fund.
We are pretty big. We invest in Series A through C, but at fairly early stages. Most of our investment is centered in Europe. About 30% of it is in the US. Our two main offices are in Stockholm and London.
Sramana Mitra: What type of ventures are you focusing on?
Alastair Mitchell: It’s all tech, so it’s pretty broad, covering software and software-enabled hardware, but we don’t do Biotech or Pharma. We’re very ambitious and we’d like to back ambitious founders trying to create global winners. That’s our mission.
Sramana Mitra: Is it B2B and B2C?
Alastair Mitchell: Yes, B2B and B2C. My previous company Huddle was a file-sharing collaboration business. It started in London and grew across Europe into the US. We basically came together to found a VC firm that we thought Europe needed at that point in time. It’s a VC firm that we would have wanted when we were founders and operators.
It was a big fund. Europe has been on a huge tear recently in terms of the number of startups that have exponentially grown over the last few years due to a bunch of reasons. It’s partly cyclical, partly due to the amount of exits, angels, and favorable tax breaks in the UK that’s really enabled people to go to the seed stage.
Then as those companies grow, then you see Series A funds start. But there was always a big gap in the growth stage – in taking companies from Series A to C from a money perspective. We are able to back the most ambitious entrepreneurs with a lot of money and to create global winners because Europe has always lagged behind the US in doing that. Secondly, we’ve expertise to do that and the network to help big companies grow in Europe and in US. So we set out to do that.
We’re able to deploy checks of between $5 million to $50 million into companies. A starting sweet spot is maybe around $8-$10 million. For the biggest companies we have, we have $50 million, and we really help them grow.
Sramana Mitra: We, obviously, are focused on early stages – and often very early stages. So help us double-click down on a couple of questions here. First and foremost, what is the size of the Series A investments that you make?
What are you looking for in terms of validation? Is it revenue, pre-revenue? Is it a revenue run rate that you look for? Can you help understand what is the qualifying criteria for a Series A investment and what size Series A investment are we talking about in your first investment in a company?
Alastair Mitchell: First thing is that the labels are changing a lot. What might be a seed round now was a Series A just a few years ago. Firms have become ambitious. They’re growing fast and they’re raising more money. What people would like to do in revenue in terms of Series B a few years ago, now we’re seeing in Series A and even seed.
Things are changing rapidly because companies are becoming so great, which is amazing. You could say, yes we do Series A. But we do sometimes invest in, what some call, late seed. First of all, revenue is not necessarily important. We have many companies that are, even at Series A, not generating any revenue. Maybe they are building a great product on the hardware side or have a huge user base.
I think it’s less about revenue. However, if you’re a B2B company, there are some easier landmarks. For B2B, we’re talking about $80,000 to $100,000 MRR. But what we’re really looking for is product-market fit both on the customer side and on the enterprise side. That’s what we’re obsessed about – product-market fit and amazing founders.
Assuming you are an amazing founder, what are you looking for in product-market fit? You have a differentiated edge to grow a very big business and there is evidence that people want that. There is a huge market demand. It could be a billion dollar business.
Also, you have a way to get customers super capital-efficient and delight them as you get them because you’re solving this problem in a way that no one else can. Then you can prove that you can start to grow that and that could be because you can hire a great team, because you’re able to get in front of a lot of users, or you’re able to monetize it.
Sramana Mitra: Just one clarification, is e-commerce part of your investment thesis?
Alastair Mitchell: We have some e-commerce companies and more market play. I think it’s fair to say that we have several marketplaces. We have a vacation rental company, a healthcare company, and gaming companies. We probably have fewer pure e-commerce companies and more marketplaces and platforms, but we have a lot of very strong B2C companies.