UK-based VC Smedvig Ventures has closed a new €115m fund targeting B2B startups across Europe, with a focus on the UK, Nordics and Benelux. All the cash was stumped up by the Smedvig family office.
While it’s the family office’s first venture-specific fund, its investment arm, Smedvig Capital, has been in the VC game since launching as a private equity (PE) and fund backer in the late 90s.
It’s deployed €50m into startups over the past two years. That included participation in a €15m Series A round for online advertising fraud prevention platform Lunio and two $30m Series B rounds in Swedish customer support platform Mavenoid and Romanian chatbot maker Druid.
‘There aren’t that many great B2B businesses…’
Smedvig’s latest fund will look to back around three to four startups a year — roughly the same pace of investment as the past two years, says partner Jonathan Lerner.
The fund will invest in B2B software startups in any sector, with a particular focus on infrastructure software, data platforms and tools, startups that use AI models to create applications for business solutions — which it calls applied AI — and tech-enabled services.
“We’ve tried to stay pretty broad in terms of sectors, because actually there aren’t that many great B2B businesses,” says Lerner.
That’s because it’s so difficult to find a genuine market need in a large enough market in B2B software, he adds. “Building [a business] that is VC backable is even tougher because so much is expected with so little resources before a business gets to truly great Series A metrics.”
The fund is targeting what Lerner and Joe Knowles, another partner at the firm, call the “Series A to B gap”.
It’s the “really difficult bit” along the startup journey, says Knowles. “You’ve got the early seed traction which is really exciting and then the inspiring success story when you make it at the end, but then there’s this bit [in the middle] where things tend to fall apart.”
“Founders and the business have to develop more drastically and quickly than any other part of the journey,” he adds. “It’s an operational gap where loads of businesses fail.”
Smedvig will write initial tickets of €4-8m, leading or co-leading rounds at startups which have found product-market-fit and are looking to scale.
“That typically starts around €750k annual recurring revenue, with around 10 customers,” says Knowles.
Between 30-40% of the fund will be reserved for follow-on deals.
2024: the year B2B bounces back?
After something of a mini B2B golden age across Europe during the boom times of 2020-2022, customers started cutting software budgets amid the recent economic downturn.
B2B startups picked up $48.7bn across 2023, according to Dealroom — dropping from $80.1bn the previous year, mirroring the wider drop off in funding for tech startups.
While Lerner doesn’t think that the global economic outlook will mean businesses will buy B2B software at a “huge pace” in 2024, there will be fewer “headwinds”, he argues.
“I’m hoping we’re at the bottom of the trough of the B2B buying cycle. That at least means [B2B startups] can adjust to a normality, rather than managing a business through a crisis.”