Fund of Funds | Powering Europe's Seed and Early-Stage Tech Ecosystem

It's a big week for our Fund of Funds team. Firstly, we have published the exciting news that we have closed a deal with Castlegate Investments, the private family office investment vehicle of serial entrepreneur, Tommy Kelly, to syndicate part of our Fund of Funds (FoF) programme and grow it even further. More on that here. 

Secondly, we have been writing the Fund of Funds history books here at Molten, designed to update you all on our journey so far, what we believe and where we're headed. We are delighted to share with you an extract from this report below.

Finally, for more updates, insights and opinion, sign up for our quarterly newsletter through this link.

Molten launched its Fund of Funds model to bring more capital to the European seed and early-stage ecosystem. Five years on, we see it as part of our role in that ecosystem to ensure that the grassroots are properly served.

In 2016, Molten took venture capital beyond the traditional GP/LP model by listing on AIM and becoming a public company. In 2017, through the launch of our Fund of Funds programme, we took on the role of an LP: indexing and investing in the most promising seed and early-stage venture capital funds across Europe. Molten is not a specialist seed investor, so the FoF platform model allows us to invest from seed through to pre-IPO—supporting some of the best European companies at every stage as they grow.

As of September 2022, we had committed over £130 million into 67 funds across Europe and we are now seeing significant opportunity to increase our investment cadence in top managers.

The seed and early stages of investment have historically been of less appeal to traditional institutional investors (for example: pension funds or non-VC specialised asset managers) due to its specialist geographical focus and the inference that early stage is a niche—often necessitating additional risk for investors. Molten sees this as an opportunity.

In the years since we launched FoF, we have developed an efficiency-focused methodology of picking what we believe to be the best European fund managers—helping fund this ecosystem either with a first investment or help to close a fund when it is near its target raise.

We look specifically for early-stage funds in geographies or sectors where we see potential for innovation and value creation and where our in-house team does not have direct exposure.

Molten’s FoF programme began in the UK and we have since expanded across much of Europe. So far, we have invested in over 27 local funds covering Europe, including in the UK, France, Germany & DACH, Ireland, the Nordics, Spain and Portugal as well as Eastern Europe.

Molten considers seed and early-stage investment to be a highly localised endeavour, requiring deep networks in the local environment of angel investors, incubators, and technology entrepreneurs. We believe that nascent businesses are best funded by investors who can engage the founders locally or within a very specific vertical, aiding in the practical steps of the start-up phase.  

Nothing beats having feet on the ground and being part of a local ecosystem. 

In our experience, major hubs such as London, Paris and Berlin still have momentum, but virtualisation increasingly enables regional hubs to compete. EU cities with one-billion-dollar unicorns climbed from just eight in 2011 to 65 in 2021[1] as US Funds continued to increase their share of European VC—from 22% to 37% over the same period[2].

The European market therefore likely has untapped potential for further growth—especially for the angel, seed and early stages.

Over time, strong thematic verticals have emerged in the programme in areas of innovation and value creation—providing a complete range of coverage across the early stage-tech ecosystem. We look at our programme like a periscope on innovation across different emerging themes:

Our view is that the investment landscape for early-stage funds of funds remains under-addressed, despite the practice becoming established in the US. We see an opportunity to change this and provide funding to accelerate growth in the seed and early stages of the European technology market. What’s more, we can do so from a broad base, which breathes and understands venture capital.

We're here not only for the financial return but to also create an ecosystem in the process. For us, while it is a competitive industry, we believe the secret to ecosystem growth is to make sure there are many more of us.

At Molten, we believe that supporting the best entrepreneurs goes beyond investing capital. We offer support and guidance as our portfolio companies grow and we look to the seed and early-stage fund managers we back to do the same. We actively manage our investments and put decades of collective experience to good use with our founders and their teams. This way of working is replicated in our FoF programme, where we offer seed and early-stage managers access to a wider ecosystem.

“What does a winner look like? The winner is a fund where we find a very strong cultural fit. You pick up the phone; they pick up the phone. We share information, knowledge, and ways to work better together. Ultimately this is about those early-stage entrepreneurs we help backing, not about the GPs and certainly not about us” — Jonathan Sibilia

As of today, a third of our funds are first-time funds and the overwhelming majority of the remainder are classed as ‘emerging managers’ (widely defined as those with three funds or fewer). Only five GPs in our entire FoF programme have more than three funds. We’re not just backing the same usual suspects.

On gender, a quarter of our funds have one or more female GPs. And while we can – and will – do a lot better, we are significantly ahead of the market. It is something that we watch very carefully.

“One of the biggest criticisms levelled at fund of fund programmes is that often they continue investing in the same GPs, reaping no additionality or diversity. At Molten, by actively diversifying our pool and seeking out heterogenous GPs to back – from gender to race – we’re doing exactly the opposite.” — Mohadeseh Abdullahi

Through backing the best seed and early-stage managers in Europe, we can better understand insights into GPs and nascent technologies gathering pace.

As we expand the programme, we hope to better compile this information, in order to give back to our Portfolio, to our GPs, and to their underlying portfolio—building market insights that can generate value across the ecosystem.

“Working in VC, we all know that data can paint a thousand pictures. There is a huge value on what Molten’s Fund of Funds can give back to our portfolio and to the market. We are excited to be a part of the impact that this can create.” — Dave Neumann

Speedinvest

Speedinvest is one of the most active Seed investors in European tech unicorns, has more than €600m in AUM and 40+ investors based in Berlin, London, Munich, Paris, and Vienna.

Its dedicated sector-focused teams are the first to fund Europe's most innovative technology startups and its in-house Platform+ operational experts are on-hand to offer founders ongoing support with growth, people (HR), market expansion, and more throughout every stage of their journeys. 

Wefox, Bitpanda, TIER Mobility, GoStudent, Wayflyer, Open, CoachHub, Schüttflix, TourRadar, Adverity, and Twaice are among Speedinvest’s portfolio of nearly 300 companies.

[1] https://sifted.eu/articles/europe-china-unicorn/

[2] Data source: Dealroom. Sourced at 26 October 2021