Introducing Acton VI: A Different Kind of Venture Capital
The startup and VC ecosystem is a beautifully weird scene that has come a long way since Acton Capital started investing in 1999. We have witnessed the meteoric rise and irrational exaggeration of the dot-com era with IPOs priced on eyeballs, the valley of tears post the crash (including 2008), a seemingly never-ending bull run with COVID-19 adding fuel to the fire, and then a sudden halt that has not yet been fully processed. However, while the music has been turned down significantly, it certainly hasn’t stopped. In 2022 in Europe, over 12,200 funding rounds were closed — a testament to the resilience the industry has achieved over the last two decades.
Fixation on the Biggest Stars
What has been true in all these phases is that the ecosystem is mostly consumed by its starlets. Breakaway companies become household names and are even adapted by Hollywood’s dream factory. However, while “The Social Network” (should have dropped the “the,” though), “The Playlist,” or “WeCrashed” make for a great movie night, only the tiniest, most minuscule fraction of startups come even close to this stage of success. We all know this, but let’s reiterate some numbers for perspective: Pitchbook tracks over 30,000 startups in Europe that have raised funding since 1999. Only 166 of those (according to Sifted) have reached a valuation that warrents the much sought after unicorn status. Of this exclusive list, only a very modest subset have actually been exited above the magical one Billion Dollar mark. Let’s not do the percentages here.
Digesting those figures, it’s painfully obvious that all founders embark on a journey with the odds stacked heavily against them. The teams fighting every day to make it to the next milestone know this intuitively and deserve all the praise in the world for their tenacity. However, we don’t talk frequently about the vastly difference risk profiles and economics of different industry participants. Without turning this piece into an Econ 101 lesson, one has to appreciate the idiosyncratic nature of the outcome faced by founders inherent in building a singular enterprise. Conversely, VC funds enjoy a diversification shield by creating portfolios. This strategy acknowledges that not all ventures will succeed, but the gains from successful ones should outweigh failures. The VC industry is vocal about this fact, and “the power law of venture” or we frequently voice statistics like “only 1 in 10 or even 25 of companies become truly meaningful” for a fund generation (backed up by the unicorn statistics above). When a VC feels like they have hit one of those companies, it is rational to focus support and funds on this company to maximise the outcome. On the flip side, it becomes more difficult to justify meaningful bandwidth for other companies (read: the vast majority of the portfolio) that are facing tough times or will not result in a billion-dollar outcome.
Founder — VC Alignment?
In our observation, this effect — exacerbated by the enormous fund sizes resulting from the last super cycle — often leads to a one-size-fits-most playbook for investments. If traction allows, companies raise large pools of follow-on capital in an effort to spend their way to market leadership. Astonishingly, 932 companies in Europe alone have raised over €50m in the last five years. How many of those will make it to unicorn land? That question will be answered in years to come. To be clear, this approach makes complete sense from a portfolio perspective when the objective is to make every company a potential (mega) fund returner. It is, however, mixed news at best for founders of viable and sustainable businesses that are not obvious top performers.
Beauty Comes in More Than One Size
This inherent conflict in the founder-VC relationship has always bugged us at Acton and has led to a fund philosophy that is not purely outlier-driven (while appreciating that a truly great fund generation relies on breakaway successes, and we feel grateful to have partnered with the likes of Mambu, Etsy, Knix, SoSafe, and others in the past). Typically coming in at an early growth stage, we lean in on the opportunity to fundamentally analyse business models and only invest when the signs indicate a company is truly ready to scale. Combining this mindset with a highly focused investment approach (we typically do 3–4 new deals per year), we help our founders develop optionality and sensible growth strategies that fit their unique situations — that’s why “growth, driven by reason” is our mantra. We let ourselves be guided by economics and market dynamics to understand whether, in fact, a sizeable follow-on financing round or more controlled, profitable growth increases the likelihood of long-term success. Also, we’re receptive to the fact that an exit in the hundreds of millions is already an improbable achievement that changes lives and can be a great return if achieved efficiently.
Be it the next trailblazing unicorn or a mid-sized but capital-efficient outcome — for us, beauty comes in more than one size. Our measure of success: a portfolio in which a large share of companies become meaningful and stand the test of time. To back up this ambition: approximately 80% of Acton portfolio companies from all funds have exited successfully or are still up and running.
Hello World, Acton VI
To continue this journey, we’ve raised Acton VI, a €225m vehicle that aims to be risk-aligned with the founders we back and where the fund size reflects our strategy. The capital is invested by a multi-generational team that combines energy and curiosity with the insights of some of the most experienced venture investors this continent has to offer. Because we prefer doing the work over talking about it, we’ve already been busy collecting the first Acton VI portfolio companies. Thank you to the teams at Klaus, Henchman, Eco Group, Skribble, and Seatti for taking us on your journey!
If you’re a founder looking for capital at the early growth stage and are looking for a partner with more optionality than most to be in your corner — it’s 2023, you know how to reach us!
The Acton Team
