Early stage VC firm Nauta Capital, which has offices in London, UK, Barcelona, Spain and Boston in the US, has closed out a 2016 fund raising — capping it off at $170 million.
The firm has already closed eight investments with this fund, which had a first closing at $70M, with a further $100M added in parallel — now closing oversubscribed vs the original target for the fund of around $120M, according to general partner Carles Ferrer. (Its prior funds were $55M raised in 2006, and $115M in 2010.)
Nauta has a focus on what it describes as “capital-efficient Series A software propositions”: aka startups that take a leaner approach to taking on funding vs money-gobbling wannabe unicorns. Its areas of tech interest include b2b software, digital media and “enabling technologies” for mobile and the Internet — with an overall focus on large markets with “limited previous technology impact”.
“We believe the VC model has been lately too centered around the Unicorn concept, that is too many times return-unrelated,” Ferrer tells TechCrunch. “Too many companies are pushed to grow more and more but too early, and for that, raise too much money, again too early. Many of them don’t have enough evidence from the market to know if they should be spending so much money.
“If it happens to be too early, that company may end up wasting so much money and energy and having a conflict between equity raised, valuation, and its performance. This too often results in good companies that are actually severely damaged by a poor funding strategies.”
Ferrer argues that the risk for startups raising too much too soon can be especially “delicate” in the b2b sector — describing the firm’s philosophy for startups here being “lean for a good while is beautiful”.
Too many companies cannot make good money for their investors unless they become a semi or full unicorn and we think this is wrong.
“Once you have enough proof, then it is time to run, but not before. By being lean you maximise chances to obtain premium multiples for yourself and entrepreneurs, at any exit valuation. Too many companies cannot make good money for their investors unless they become a semi or full unicorn and we think this is wrong,” he adds.
Staying away from risky unicorn bets is also pragmatic, given falling startup valuations and the clutch of down rounds in recent years. Albeit, investors in Europe do typically ask to see a clearer path to monetization earlier vs their Silicon Valley counterparts.
The 40+ startups in Nauta’s portfolio thus far include companies like Brandwatch, Fizzback, GreatCall, Eyeview Digital, Scytl, Basekit, ForceManager, Marfeel, Getapp, Privalia (which exited to Vente-Privee last year) and Social Point (which exited to Take-Two earlier this year).
While the investments the firm has made most recently, with the 2016 fund, are: in the UK and Ireland: CloudIQ, BeMyEye and ChannelSight; in Spain: Nextail, Geoblink and Lodgify, and in the Boston area: Content Raven and Connected2Fiber.
It says it plans to invest in around 25 companies in total with the fund — mostly at Series A level, though Ferrer notes there “may be a reduced number of earlier deals (A minus) when we know very well the entrepreneur”. He says the firm typically invests between $1M and $7M per startup, but describes “the sweetspot” as “usually as a first ticket $1M to $3M”.
What makes a team catch the firm’s eye? Responding on this he describes its investment thesis as “very disciplined”, saying: “We only do what we understand very well and try to stick to it. Capital efficiency is a concept our entrepreneurs believe in also very passionately.”
Overall, he says the approach is to look for industries that have not been disrupted and then pick “the best companies to do it”, citing a couple of startups it’s backed (InCrowd, BeMyEye) that are aiming to disrupt the “huge and inefficient market research industry”, for example.
In terms of geographical spread, Nauta has full investment teams in its three locations, and Ferrer says from London it’s able to cover the whole of the UK and Ireland plus “other continental European countries where companies are born and naturally migrate to London as a hub”; likewise covering Spain and Portugal — and looking further north into Europe — from its Barcelona base.
“We look at other geographies in Europe when companies migrate to our hubs, or have a special interest on our geographies (where we have a team). Eventually, we can learn enough from those geographies to probably in the future invest more actively there too. We think it is so important to have an investment team based where the dealflow is originated. We also have a Boston presence where we cover the east coast and also help European companies migrate,” he adds.
Nauta’s current fund has been backed by a group of international investors, based in the UK, Continental Europe, Latin America and China, which it says include leading Institutions (Fund of Funds, Financial Institutions, Insurance Companies, Endowments and government agencies) and large Family Offices.