A new $400 million tech fund wants to help European start-ups compete with Silicon Valley and China

Key Points
  • Balderton Capital has raised a new investment fund that focuses on start-ups seeking Series A financing.
  • The London-based venture capital firm says its new fund will make roughly 12 investments per year.
  • Balderton has now raised a total of $3 billion across eight separate funds to back European tech firms.
Partners and executives at European venture capital firm Balderton Capital.
Balderton Capital

Venture capital firm Balderton Capital is launching a new $400 million fund, which it says will be used to invest in early-stage European tech start-ups.

Balderton said Tuesday that the fund is targeted at start-ups raising funds at the Series A stage — in other words, businesses that are looking to raise their first significant round of funding. The company, which is based in London, added that the new fund would make roughly 12 investments per year.

Europe's tech sector is seen as lagging behind its U.S. and Chinese counterparts, especially when it comes to venture capital, or VC, inflows and valuations. There have been some signs that the industry on the continent may be gathering steam though.

Last year, a report by another VC firm, Atomico, said that Europe was home to twice as many tech initial public offerings as the U.S., while newly-listed European firms were seen to be outperforming their American rivals. A prominent IPO in 2018 was that of Adyen's, the Dutch payments firm, which has seen its share price rise over 50% since it debuted.

Lars Fjeldsoe-Nielsen, a general partner at Balderton, told CNBC he doesn't think Europe is far from creating a tech firm that can rival Silicon Valley giants like Facebook and Google or large internet companies out of China like Alibaba and Tencent.

"I don't think we're far away at all," said Fjeldsoe-Nielsen, a former Uber executive. "I spent 10 years in the Valley prior to joining Balderton. For me, there's this shift that's happened that means we're not lagging behind now."

He did however add that Europe is home to tech companies with much lower valuations than their U.S. and European peers, but said this was due to "considerably lower" hiring and housing costs. The venture capitalist suggested that interest from American investors in Europe's private tech firms gave Balderton more impetus to launch a new fund.

"We're actually seeing a lot of U.S. funds doing investments in Europe as well, because the tech talent is on par with what we're seeing in the U.S.," he said. "But the valuations are lower here. So there is an opportunity in the immediate future right now that is attractive."

Profitability 'the name of the game'

Fjeldsoe-Nielsen referred to Revolut, a U.K. financial technology firm Balderton invested in, as an example of a company vying to compete with U.S. and Chinese behemoths. Revolut is reportedly seeking a $1.5 billion financing round comprised of both equity and convertible debt that could value it at up to $10 billion. The company has declined to comment.

But one thing that has been haunting the VC industry of late is the flurry of unprofitable tech firms looking to go public in the U.S. The recent shelving of WeWork's IPO and SoftBank's deal to rescue the office rental start-up has added to concerns over such lossmaking businesses.

Europe's tech environment 'has changed completely' over the past 5 years, VC says
Europe's tech environment 'has changed completely' over the past 5 years: VC

"The name of the game is profitability now," Fjeldsoe-Nielsen said, adding that tech companies have been staying private for much longer. "I think WeWork has really helped emphasize that."

Revolut, which Balderton first backed in 2015, ran up a £32.8 million ($42.2 million) loss in 2018, according to its most recent accounts.

Known for backing primarily European start-ups, Balderton said the launch of its latest fund means it's raised over $3 billion in total across eight separate funds. Other than Revolut, the company's portfolio includes German farming upstart Infarm and Swedish scooter-sharing firm Voi Technology.