Venture Capital funds, like other commercial entities, have shareholders and customers. Our shareholders are the Limited Partners that have trusted us to invest their money and generate a financial return over the life of the fund. Our customers are the entrepreneurs whom we back and through whose success we will be able to deliver on the promise to our shareholders.
Last week, White Star Capital held its Annual General Meeting (AGM), which served as an opportunity to share White Star’s progress with our Limited Partners, and for a number of our portfolio CEOs to present their stories to directly to our LPs.
The AGM also served as a milestone to measure ourselves against the founding tenets behind which we created White Star Capital. These tenets encapsulated the vision we had for both the firm and the opportunity in the VC landscape.
White Star Capital’s founding tenets:
- Address the funding gap at late Seed and Series A in our core geographies.
- Establish a cross-Atlantic presence to identify the best opportunities across geographies and support entrepreneurs as they scale internationally.
- Build a team with product, financial and operational expertise to partner closely with the entrepreneurs we back.
So why did we choose these tenets and how are we performing against them?
On our stage of investment, intuitively we felt that our core markets in North America and Western Europe were decently served at the Angel stage but still underserved by early-stage (late Seed through Series A) investors relative to the West Coast. With the help of CB Insights we have been able to corroborate this:
CB Insights analyzed all Seed, Series A and B investments in their database from 2012 to present and the investors behind each round. We defined an “Active Investor” as a fund that had made at least 5 deals in that stage in that geography during the 3 year period. (NB: Geography in the graph above relates to the location of the investment not the location of the VC fund.)
Given New York is the second largest VC market in the US and in light of recent momentum towards exits in Europe, it was surprising to see 1/4th the number of “active funds” for Series A in New York and Europe compared to the West Coast and 1/8th the number for Series B. This means that if you are raising a Series A in New York or Western Europe you have fewer value-add funding options, and for us it means there is an opportunity to fill that funding gap.
We can also see that not only are there fewer funding sources in Europe relative to the US, but the “Series A crunch” is twice as acute with only 6% of seed-funded companies in Europe raising a Series A.
The data, therefore, validates our assumption that there is a funding gap at Series A in the markets in which we are present, and White Star Capital is well suited to help address the gap. Our portfolio now includes over twenty companies where we invested at Seed and Series A. To date, 52% of our funds deployed have been at Series A with 27% at Seed. We expect the majority of our capital deployment from this fund to continue being at the Series A stage.
Our physical presence across London, New York and Montreal allows us to tap into some of the most vibrant entrepreneurial markets across the East Coast, Canada and Western Europe. These markets have many of the components needed to build a vibrant tech ecosystem, but as shown above, still face the challenge of less access to funding options. We passionately believe that fantastic entrepreneurs can be found anywhere. The ones we eventually back truly believe that they can build global winners from Stockholm, Montreal, New York or Paris.
To date we have evenly deployed funds across North America and Western Europe with investments in Stockholm, Berlin, London, Paris, Lisbon, Ottawa, Montreal, New York, Phoenix and Los Angeles.
A final, and critical component of the vision we had for White Star, was to build a team with high complementarity. This would allow us to provide the most comprehensive service to our entrepreneurs.
We are now a team of six investment professionals with a broad spectrum of experience from product expertise (leading engineering and product teams, founding startups) to operational experience scaling businesses to M&A (as bankers, lawyers or acquirers).
The promise to our entrepreneurs is that the aggregate skill set of the team is available to them. Be that speaking to JF about the operational challenges of scaling from 2 to 200 employees, to asking John about how to game the App Store rankings for maximum impact, or having advice from Eric on how to respond to an inbound acquisition offer.
We believe this matters, and it is refreshing to see our Portfolio CEOs agree. Some supporting quotes that were shared with our own investors last week:
“White Star has consistently rolled up their sleeves to help us tackle challenges. Whether it’s recruiting, product strategy, technical consulting, or other issues, their team has demonstrated an eagerness to contribute that is above and beyond the average investor.” — Greg Marsh, CEO & Founder, KeyMe
“The entire White Star team have helped us get us to where we are today. They help us run at full speed while avoiding any pitfalls along the way.”- Lee Silverstone, CEO, Gymtrack.
“As an entrepreneur I couldn’t be happier with White Star. Besides being champions during our fund raising they’ve helped us with introductions to key industry players, insights in how we can grow our user base faster and how to recruit top talent.“- Mattias Swenson, co-founder, Bloglovin’.
The reality is that the one metric against which we will be measured by our investors and by the industry will be returns relative to our vintage, and that will take several years to be validated. Our belief is that executing on the tenets we’ve articulated above will position us to identify and invest in great companies, help them win, and deliver financial returns to our investors as a result.
We are thankful for both the trust that institutional and individual investors have placed in us, and for the opportunity granted to us by the founders of our portfolio firms to partner with them for the ride.
Eric, Christian & Jean-Francois