Isomer Capital, an investor in top European VCs like Seedcamp, Hoxton Ventures and Entrepreneur First, has done a first close of a new €250m fund.
It’s raised a third of the fund so far, from returning investors including British Business Investments, the European Commission, “a well-known US endowment”, “one of the largest foundations in Germany” and investment firm Italmobiliare.
London-based Isomer will invest between €5m-10m in 20 early-stage funds in the UK and Europe, across all sectors. It will also invest in six to eight "micro VCs", writing cheques of more like €1.5m. It plans to deploy the fund over three years.
Raising a fund of funds in 2023 hasn’t been entirely smooth sailing, says Thomas Schneider, partner at Isomer. “There are some headwinds in the market… and investors are definitely asking more questions.”
But managing partner Joe Schorge says he expects that thanks to “Europe’s maturing talent base and prudent valuations” these “can be some of the best vintage years in the VC sector”.
Isomer's backstory
Isomer has invested in over 70 European VCs, including Kindred, OTB, Frst and Atlantic Labs. That means it is (or was) an indirect investor in 29 European unicorns, including UiPath, wefox, Sorare, Deliveroo and Tractable.
It likes VC funds which are “typically quite contained in size and really focused on what they do”, says Schneider; often local or sector-specific “champions”.
Isomer has also made 31 co-investments and secondary transactions giving it direct stakes in companies like refurbished electronics marketplace Refurbed, ebike maker Cowboy and temporary work platform Zenjob.
Its €100m opportunities fund, launched in 2021, is now nearly fully deployed, says Schneider; Isomer will probably do two more investments out of it.
Boom and bust
Isomer may have dozens of unicorns in its underlying portfolio for now — but perhaps not for long. One company that it has shares in, used car marketplace Cazoo (which acquired Cluno, a startup Isomer co-invested into), has seen its valuation tumble 99% since it IPO'd.
“Yes, that has impacted the performance [of the fund],” says Schneider. “But it’s counterbalanced by early-stage companies that have continued to grow. Some assets are down, but others are growing.”
Isomer is less impacted by valuation ups and downs than the VCs it invests in, he adds, because it’s invested in so many of them, across various sectors and geographies. It’s also helped by the fact that valuations at the earliest stages, where the VCs Isomer backs invest, haven’t changed as much as at later stages.
VCs are also getting savvier about when to exit from portfolio companies, Schneider says. “VCs are realising that liquidity is important.”
He’s seeing some VCs actively trying to find exits through M&A deals, while some growth-stage funds are moving earlier in the food chain, offering early-stage VCs another route to exit. “That’s great for us,” he adds.
