Despite tech startup venture capital investments declining, Dawn Capital - one of Europe's top supporters of business software firms - raised two new funds totaling $700 million. The London-based VC company, known for its investments in iZettle (PayPal) and Tink (Visa), will allocate $620 million to an early-stage fund, and $80 million to an "opportunities" fund for growth-stage businesses within its current portfolio.
Dawn Capital, one of Europe's leading business-to-business software venture capital firms, raised $700 million through two new funds, underlining its commitment to finding tech champions in the region amidst a decline of venture capital funding for tech startups. The London-based firm, renowned for its tech investments, boasts a portfolio that includes notable names such as iZettle - acquired by PayPal for $2.2 billion in 2018 - and Tink - bought by Visa for 1.8 billion euros ($1.9 billion) in 2022.Hannah Gubbins, recently promoted partner at Dawn Capital, commented on the difficult task of obtaining the new funds given the decreased valuations for private startups and the dwindling investor confidence towards technology. However, she underlined that it was the result of longstanding relationships with institutional investors. "For us, the LP side, even those which weren't building venture programs where a lot of people were allocating more resources to venture, were still in theory over-allocated given their own benchmarks. This meant that many funds had to stick with existing managers or those with strong convictions," Gubbins told CNBC in an interview. She further added, "There is still capital out there, and investors are keen to invest in the market. They know that some of the best companies of various vintages have come out of the dotcom bubble and the global financial crisis."Dawn Capital plans to invest in 20 companies with the new funds - the firm's fifth to date. The $620 million early-stage fund will focus on Series A and Series B investments, while the $80 million opportunities fund will be used to back future potential IPOs or takeovers of companies from Dawn Capital's portfolio.
Venture capital investment has experienced a steep decline as investors reassess their allocations in the face of elevated interest rates and escalating inflation. Riskier, growth-oriented companies that may take longer to produce a return on investment are becoming less attractive with rates at multi-year highs, and instead, more steady, profitable businesses with more consistent revenue streams are seeing a greater interest. Investors are observing IPOs from organisations like U.K's Arm chip designer and America's Instacart grocery delivery firm to find out if the tech industry is on the upswing. Technology thrived in 2020 and 2021 thanks to the Covid-19 pandemic, which led to a proliferation of digital platforms being utilised for activities from buying to remote working, in addition to the central bank's very low interest rates that created an environment conducive to raising capital. Nevertheless, this all underwent a dramatic change recently. Dawn Capital's Gubbins can't forecast when the IPO market will fully recover, though she is watching the debuts of Arm and Instacart attentively for any clues as to when the public listings sphere will stabilise. Gubbins highlighted that besides IPOs, there are other routes to successful exits for founders illustrated by the purchase of Dawn Capital's LeanIX, an enterprise architecture management software corporation, by German software giant SAP.
Despite overall declines in tech, investment in AI is booming. Venture capital firms, such as OpenAI, Anthropic and Cohere, are ploughing billions of dollars into so-called "foundational models" that are able to create new content based on written prompts. Felicia Gubbins of Dawn Capital claimed that AI has been a prominent part of their conversations with private investors, yet they remain committed to their previous focus on a diverse array of B2B software companies, from fintech and security to infrastructure. "We're doubling down on what we've done," she noted. "AI is a priority, not only in terms of investing in AI companies, but also as something that is disrupting every sector and company."
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