Isomer Capital, the London-based fund-of-funds which has backed VC firms like Hoxton Ventures, Seedcamp, Kindred, Future Positive Capital, Entrepreneur First and Hardware Club, is now stepping further into the VC side of the market.
It’s raised a €100m ‘opportunities’ fund to invest in growth-stage startups from its VC funds’ portfolios, alongside those VCs. The company already coinvests at earlier stages out of its main fund-of-funds (the last, a €250m fund, launched last year).
Isomer wants to directly invest €3-6m each into 20 European companies over the next few years through the new fund.
The golden opportunity
Opportunities and ‘breakout’ funds have become popular with VCs lately — Dawn Capital, LocalGlobe and Index all have them — as a way to continue backing startups from their portfolios as they scale, and to get in on deals they missed the first time round.
They’re less common with LPs; Isomer thinks it's the first fund of fund in Europe to make this move. But arguably, it makes even more sense for LPs to get into this game, given how much insight they have into VC portfolios.
Isomer has invested in 32 early-stage VC firms across Europe, giving it an underlying portfolio of 970 startups. Some of them are already big successes — like Cazoo, Darktrace and Deliveroo — while others could be soon, especially if fundraising is made even easier for them.
We want to extend the influence of our VCs.
“We want to extend the influence of our VCs,” says Chris Wade, cofounder and partner of Isomer. “Take Hussein Kanji [of Hoxton Ventures]. He remained on the board of Darktrace right up to the IPO. We want to extend that — to give those VCs more capital, in our name, so they can remain on the board.”
Isomer also wants to help those companies make it to their next rounds more easily which, in today’s heated market, often means providing them with a little more capital between ‘official’ rounds.
3x a week
We tell you what's happening across startup Europe — and why it matters.
“There are more and more interim rounds; round [sizes] are going up and up and more capital is being deployed, and the benchmark for what a company has to achieve in revenue too,” says Wade. “These interim rounds are something we can do with our VCs, on our own, to help the company.”
Choosing which 20 companies to invest in, out of 100s, will be tricky in the current market.
The sweet spot is companies with €10m in annual revenue raising at a €200-250m pre-money valuation. Plenty in the portfolio have already reached a valuation far higher than that, which puts them out of the picture. “We’ve seen some lately that are already multi-unicorns, very young. We get the offer to invest, and it’s at a €3bn valuation…” says Joe Schorge, cofounder and managing partner.
Isomer prefers to have been watching them for 12-18 months before investing. “We’re tracking the performance of [our VCs’ portfolio companies]. We might have met them at an AGM, or if we’ve got excited about them, we’ve probably gone away and met them anyway. We don’t come at this cold,” says Wade.
“Our main metrics are that we want to see product-market fit and enough paying customers so that we can talk to some of them, to see how the product is working,” adds Schorge.
Then Isomer has to convince the startups to take its money. Sometimes, a backseat investor is what they’re after. “We can give you capital, and get out of your way,” says Wade. Other times, they’re attracted to the connections on offer to Isomer’s LP base. “About 25% of our fund-of-fund investors are big Japanese corporates who may be interested in investing and doing partnerships [with startups].”
The plan is to invest the fund over a three year period — “but at this rate, we’ll be done by Christmas,” jokes Wade.