Illuminate Fund II: partnership in all its forms

Today marked a major milestone in our team’s journey as we announce the final close of our second fund at a little over $100m (£72m) — more than double what we achieved in our first fund and adding some significant new partners to the Illuminate family. What the succinct headline and press release do not fully capture are the journey to this close. I hope this post sheds some light on the furious activity going on under the surface and our appreciation for the great partnerships we have been privileged to enjoy along the way.

Our evolution into a thematic enterprise software investor

From the day we set up Illuminate we had a clear objective — to be the most value-added investor for our companies. Venture firms all have their own ways of adding value. We do this by proactively partnering with key buyers in the financial services industry. By leveraging both those longstanding, trusted relationships and our team’s domain expertise we help businesses trying to sell their products to this highly valuable buyer group.

There are no shortage of companies trying to sell their products to financial services firms. We had to find ways to filter. We did this by doing deep dives into areas we saw change about to take place in buyer groups. From crypto to wealth to ESG we pick up signals from our network and educate ourselves so we can make targeted investments and support our portfolio with additional insights on the board. The impact on our companies is, we hope, demonstrable.

Partnership, connectivity, trust and expertise are the at the core of Illuminate’s DNA

We have been humbled by the support of organisations like Barclays (our first industry partner), JPMorgan (our newest), as well as Deutsche Boerse and IHS Markit who were there for us as anchors for our first fund and came back as anchor partners for our second.

To each of these organisations and the individuals that have supported us within them a heartfelt thank you.

Relationships like these, and the many others we have enjoyed with institutions and individuals over the past years, are about way more than capital. Great relationships are mutual. The discussions we have with these partners help us improve our understanding of the ever-shifting enterprise software landscape and allow us to make better investment decisions. For our partners, we help them understand the changes taking place outside the factory gates, highlight fantastic new companies with products they can adopt and support their digital initiatives to future proof their own operations. This isn’t just highlighting our portfolio companies, it’s also about the relevant companies for them from our pipeline. Every discussion, every introduction makes us a little more knowledgeable, and the whole ecosystem wins.

Fundraising is really really hard, time consuming, and can be a bit of a box-tick exercise

Like the entrepreneurs we back, we set this business up from scratch. That means we had no established brand to fall back on, no neatly packaged track-record, no revenue and had to start building our culture from zero. The lessons learned along the way are enough to fill several other posts but suffice to say we got some things right, some things wrong, and have continued to grow and evolve along the way.

For us to keep the lights on, we needed to grow our own revenues — for a fund that means successfully raising capital. Here are some of the high and lowlights of that process:

• The best laid plans. We launched our second fund early in 2019 and completed the final close in January 2021. It has been a true fundraising marathon with Brexit deadlines and Covid shutdowns being major events outside our control that we had to contend with. We had to just pick up and adapt as our plans and timelines were wrecked time and again.
• It’s not you, it’s us. Fund I was performing very well but we still didn’t have enough of a track record (read “distributions”) as a team to tick enough boxes to convince most institutional allocators to write us a cheque. To all the other ‘emerging managers’ out there, hang in there.
• Always be selling. In hindsight one of the biggest mistakes we made was not engaging and nurturing investors soon enough. I should have picked up the phone the day we closed Fund I, got email lists together for Fund II targets, and started drip feeding them our positive news. We didn’t. So when we started to wind up the Fund II launch in 2018 it was like starting cold all over again.
• Invest in the relationships not the transaction. Being a trusted partner with someone else’s capital is a long sales process. We have had a few almost incredibly quick turnarounds from people and organisations that appreciated our positioning from the off but, in reality, the vast majority of our support has been built by investing over time. Our early support in our unproved days came from some key industry figures who were backing decade long relationships that started well before Illuminate was even the seed of an idea. To those individuals and institutions — thank you. You know who you are.
• The numbers. We closed Fund II with just over £72m of commitments (~$100 at current FX). To get these 45 fantastic LPs over the line we had contacted 1,389 organisations or individuals and heard the word ‘no’ from 1,344 of them…
• You will be surprised. You will be surprised who you don’t raise from and surprised who you do raise from. You will be surprised which nodes in your network connect you to interesting new nodes that yield, and which ones do not. In the words of Dory “Just keep swimming…”

What’s next?

So here we are, not yet post-Covid but feeling like there is light at the end of that tunnel with a whole series of new opportunities to find and challenges to overcome. Working out how to deploy this capital whilst also working out what everyone’s “new normal” will become and how it will impact change. Yet the next set of surprises have already begun: with 7 investments already made from the new fund and an 8th about to close we were astounded to achieve our first exit from the new fund before we had even announced it when PayPal announced their acquisition of Curv last week. Who knows what else might be around the corner but I do know that we are all incredibly excited about working with our new investor partners to further catalyse our network and help support the many great new business we are looking forward to meeting and backing.

Last but not least

I would like to thank everyone that every connected us to a new node, everyone that ever said a good word, anyone that took a reference call, anyone that backed us with capital (institutional or personal), those that invited us to be part stewards of their own businesses and of course those who’ve worked with us as industry partners or as members of our own team. Thank you all for your support, let’s create more value together.