British VC Backed has raised $100m for its third seed fund from institutional investors including funds of funds Isomer Capital and Wunderland Capital as well as new US-based family offices and an undisclosed wealth management firm.
It raised the new fund, its largest, in about 12 months, and around 95% of the LPs in the firm’s first fund invested in its third, Andre de Haes, cofounder of Backed, tells Sifted.
“The market overall was in a more challenging place over the last 12 to 18 months,” de Haes says. “There's been a Cambrian explosion in the number of venture funds out there. The challenge for a lot of firms is proving that they have something truly differentiated.”
The fund will focus on three areas: AI-native therapeutics, blockchain and banking infrastructure and manufacturing automation. Backed typically writes pre-seed and seed cheques of $500k-5m.
The firm has invested in startups such as London-based banking software startup Thought Machine and Swiss AI startup General Intuition.
Cashing out
The overall lack of exits in recent years has made LPs impatient to see their money returned, and prompted VCs to explore selling off individual companies as well as parts of their portfolio, like in a strip sale.
“If your fund is performing well, there's an increasingly active secondary market to buy into funds,” says de Haes.
Backed VC allowed investors to cash out of some of their stakes its first fund in a secondary sale in October. De Haes says the firm was approached by secondary buyers in the last six months, and enabled LPs to sell partial stakes to eight fund of funds. Only one LP cashed out entirely, owing to a change in management and getting out of the VC asset class altogether, de Haes says.
He says the firm launched a DPI project — distributed to paid-in capital, a measure of money returned to LPs — to get to know the leading bankers, and the leading acquirers.
“We're having active conversations with them all the time about which companies they think would be the right companies to sell,” says de Haes. He says they’re also having “transparent” conversations with founders about their M&A options.
De Haes says the firm’s first fund, which was €50m, is “top decile”, which, based on different performance metrics for the vintage year, puts it “several times higher than 3x” although he declined to specify further.
The secondary sale is something the firm wants to continue doing, he adds. “One of the things that we'd like to do over time [for] LPs — particularly family offices if they've had a change of generation or something like that — [is to let them cash out] completely. So far, we've only had one person that was willing to do that.”
Expanding in the US
The firm already has one person working in the US and plans to open up an office there.
“It was quite difficult to persuade the US of how attractive Europe is,” de Haes says of fundraising.
“I think in Europe, it's still easier to be a bigger fish in a smaller pond. The challenge is that, especially if you're investing in frontier tech like we are, there are actually very few Series A, B, C funds in Europe that do that,” says Alex Brunicki, Backed’s other cofounder. He says Plural and Atomico are among the exceptions.
“As a fund, we are still backing European talent, but we want to make sure that those companies can build in the areas that help them to achieve maximum success,” says Brunicki. Spending more time in the US will allow them to help companies who need to raise from US investors and need help with hiring and talent, he adds.
