Dawn Capital, a prominent investor in European business-to-business software companies, has successfully secured $700 million across two new funds, reinforcing its commitment to identifying tech leaders within the region. This strategic move comes at a time when venture capital funding for tech startups has faced challenges.
Based in London, Dawn Capital stands out as a major tech investor in Europe, boasting a portfolio that includes notable companies such as Swedish online payments firm iZettle, acquired by PayPal for $2.2 billion in 2018, and Swedish open banking company Tink, which Visa acquired for 1.8 billion euros ($1.9 billion) in 2022.
Hannah Gubbins, recently promoted to partner at Dawn Capital, acknowledged the difficulty of raising these funds in a climate where private startup valuations have declined, and investor sentiment toward technology has become less optimistic. She emphasized that the success was due to the strong relationships the firm has cultivated with institutional investors over the years.
Gubbins explained, “For us, on the LP [limited partner] side, even those not historically heavily invested in venture programs, 18 months ago, felt the need to increase their venture allocations. However, market fluctuations and the denominator effect led to overallocation in their private portfolios, limiting their ability to invest in new funds. Many could only reinvest with existing managers or those with strong track records.”
She continued, “In such cycles, despite challenges, capital remains available, and investors are eager to participate in this market. Some of the most successful companies and investment periods emerged from the dotcom bubble and the global financial crisis, and investors are well aware of this historical data.”
Dawn Capital’s plan with these new funds is to invest in 20 companies. The funds consist of Dawn V, split into two segments: a $620 million early-stage fund for Series A and Series B investments, and an $80 million “opportunities” fund aimed at supporting successful companies in Dawn Capital’s portfolio, which may pursue exit strategies through initial public offerings or acquisitions later in their development.
Venture capital investment has faced challenges recently as investors reassess their allocations due to higher interest rates and rising inflation. Innovative, growth-focused companies with longer paths to profitability have become less attractive, while stable, profitable firms with reliable revenue streams have garnered more attention.
Gubbins stated that she doesn’t possess a crystal ball for predicting when the IPO market will fully recover, but Dawn Capital is closely monitoring IPOs such as Arm and Instacart for signs of stabilization in the public listings landscape.
Additionally, Gubbins emphasized that IPOs are not the sole exit option for founders. She pointed to the acquisition of LeanIX, an enterprise architecture management software company in Dawn’s portfolio, by German software giant SAP as an example of European tech firms achieving successful exits.
In contrast to the broader decline in tech investments, one area experiencing robust growth is artificial intelligence (AI). Investments worth billions of dollars are pouring into AI companies, particularly those working on foundational AI models capable of generating content from written prompts. Gubbins highlighted AI as a notable topic in discussions with limited partners. Nevertheless, Dawn Capital’s primary focus remains on investing in a diverse range of business-to-business software companies, spanning fields from fintech to security and infrastructure.
“We’re doubling down on what we’ve always done,” Gubbins affirmed. “AI is unquestionably one of the areas we’re exploring, both as an investment and as a disruptor across various sectors and industries.”