83North partner Laurel Bowden warns startup founders to be careful about raising too much too quickly, arguing the fund takes its own advice.
In the wake of WeWork’s failed intial public offering, Laurel Bowden, London-based partner at 83North, is urging startups to think carefully about their fundraising plans.
I will often advise founders not to just go for the biggest amount... If you raise at a $200m valuation now, can you really raise at two times that valuation in the next round?
The warning comes — ironically — as 83North, whose past investments include iZettle (acquired by PayPal for $2.2bn in 2018) and Just Eat (inital public offering in 2014), announced that it has raised a new $300m fund — its fifth, bringing the total capital under management to $1.1bn.
But Bowden argues the problem is not money flowing into the VC market. There is plenty of that: 83North’s new fund was oversubscribed and was mainly composed of US investors who have participated in the previous four funds. With a decent hit-rate (eight “unicorn” investments valued at over $1bn so far) the company has found it relatively easy to raise again.
The problem, she said, is the growing mismatch between outsized valuations and still relatively modest exits for European companies.
“This fixation on raising huge amounts is crazy,” said Bowden. “Both public and private valuations have become very heated.
“In our portfolio companies, we detest ridiculously high valuations. I will often advise founders not to just go for the biggest amount. You have to raise at what you think you are really worth. If you raise at a $200m valuation now, can you really raise at two times that valuation in the next round?”
Bowden said she has seen many cases where companies have later regretted raising more than they need. That includes one of their portfolio companies, Celonis, which is helping some of the world’s biggest corporations automate their internal processes. Celonis raised $50m in 2018 when it was already profitable, intending to use the money to accelerate development and help launch in the US. Yet the company later concluded it could have managed with about half as much.
83North, which is based across London and Tel Aviv, plans to invest its latest fund at a rate of around five companies a year — “one investment per partner per year,” said Bowden.
The focus is on enterprise software, marketplaces and fintech, similar to the company’s previous themes. The firm has backed more than 70 companies so far and its current portfolio includes a range of consumer-facing companies, like Finnish food delivery service Wolt and B2B vendor Mirakl, which makes software that helps companies like Best Buy and Walmart manage their ecommerce marketplaces.
“We don’t raise huge funds and we don’t want to do hundreds of investments. We only do sectors that we like and understand,” said Bowden.
Bowden is becoming wary of some overheated sectors, such as the food delivery sector. Only very specific niches here are still worth investing in, she said. Autonomous cars are similarly overcrowded, but Bowden has her eye on some promising Israeli companies who are developing some of the underlying technologies like LiDAR.