Dawn Capital, the UK-based backer of iZettle and Tink, has raised a new $620m flagship fund — even amid a huge slump in funding for the B2B software sector.
The B2B software-focused VC, which has also closed an $80m follow-on fund, has doubled down on a sector that has seen funding dip from a record $18.5bn in 2022 to just $5.2bn so far this year, according to Dealroom, one of the biggest falls in the wider tech sector.
Dawn tells Sifted that the money comes from an even split of existing and new investors, including sovereign wealth funds, pension funds, endowments and funds of funds. More than three quarters of Dawn’s portfolio founders also stumped up cash.
Dawn’s fifth flagship fund will back startups at Series A and B with initial investments of between $10-40m. The VC’s best performing portfolio companies will also get the chance to tap its third follow-on fund as they look to raise capital at Series C and beyond.
Opportunities ahoy
Dawn Capital Partner Dan Chaplin tells Sifted the downturn in funding — as well as valuations and entry prices falling from their sky high levels during the heady days of 2021 — means there’s an “abundance of opportunity in the current environment”.
Sectors like AI, digital assets and cloud software are all in their early stages and ripe for disruption by new entrants in the market, he adds.
Dawn also sees potential in B2B payments startups — especially for startups that serve companies that sit between the SME and enterprise levels — as well as B2B commerce.
The fund will be used to back around 20 startups across Europe over the next three years. It's already invested in Croatian tax compliance startup Fonoa, US embedded insurance platform Cover Genius and Romania’s application modernisation company FlowX.AI.
Adapting to a downturn
Chaplin says that while Dawn’s strategy of backing software across the tech stack, from infrastructure to end-user applications, hasn’t changed since raising its last fund, what it is looking for in a startup has.
“Some of the business models that were rationally backable in the past now aren't,” says Chaplin.
He points to examples like US insurtechs Lemonade and MetroMile, which raised huge amounts of capital to go deep into the market a few years ago but had business models that were highly inefficient. “Investors believed just in the growth game — that if you got to scale, at some point you’d become profitable.
“Because capital is now more expensive, we’re looking for business models that can prove profitability and efficiency earlier in the journey,” he adds.
It’s not just startups that are having to adapt to a new fundraising environment.
Dawn’s existing relationships with LPs — 90% of previous backers invested in this fund — meant it avoided some of the challenges faced by emerging managers right now, Chaplin tells Sifted, but it did take longer to raise the funds than previous years.
LPs also asked different questions this time around, he adds. There was more of a focus on managing investments through economic cycles and how Dawn plans on returning capital.
Dawn Capital's track record
Since launching in 2007, Dawn has backed more than 80 companies and raised more than $2bn from LPs.
The $620m is a record raise for Dawn and comes three years after it picked up $400m for its fourth fund. It has previously backed SaaS unicorns like Collibra, Dataiku, Copper and Quantexa.
Dawn has also exited scaleups like Tink, iZettle and LeanIX in billion dollar deals in recent years.
