Last January, I took an in-depth look back at our first year at Speedinvest Network Effects. I received a lot of great feedback, so I decided to make the review an annual tradition. There’s a lot to cover, so I’ve split this year’s look back into three separate posts and changed the structure to better align with our day-to-day business operations.
The three-part series will follow the actual investment process in chronological order: from deal flow (Part 1) to portfolio management, i.e. new and follow-on investments (Part 2) and, eventually, everything that is related to running the fund itself — team, events and LPs (Part 3).
At the end of 2019, the Speedinvest Network Effects portfolio included 17 companies, which means we added 6 new teams to the Speedinvest Network Effects family throughout the year. In terms of new investments, that’s 1 deal less than 2018 when we added 7 new companies to the portfolio. While the beginning of 2019 started off a bit slow, we had a very active second half of the year and made 4 new deals in the last 4 months alone.
For strategic reasons, none of the companies we backed in 2019 decided to announce their funding rounds yet, hence our investment remains undisclosed for the time being. This twitter list and our portfolio overview contain all our publicly disclosed investments to date and are constantly updated.
Since launching the fund 2 years ago, we made, on average, one new investment every 43 days or approx. every 6 weeks. This means a negligible slowdown of our average investment pace by 2 days (+5% YoY) compared to the last review. However, taking only the last 12 months into account, our average investment pace slowed down significantly to almost 61 days vs. 52 days (+17% YoY).
If you take a look at the year-on-year development of our deal flow (see Part 1), the decrease of our investment pace is certainly not related to a lack of promising investment opportunities. We simply focused a lot on supporting our existing portfolio companies (more on that below) as well as getting all the new joiners in the Speedinvest Network Effects team up to speed (more on that in Part 3). We’ve also increased our investment activity in the second half of the year, as we made 4 new investments in the last ≈4 months of 2019.
In every new deal of 2019, we either co-led or led the round — meaning we contributed 50% or more to the total initial round size. In fact, there was only 1 co-lead scenario and 5 clear leads in 2019. This is the split between Lead, Co-Lead and Co-Investor since inception of the fund:
On average, we contribute 56% to the initial rounds we participate in; an increase of +4%-points compared to 2018 (+8% YoY) and a testimony to our continued highly conviction driven investment style. Looking only at the 6 new investments we made in 2019, we contributed, on average, 64% to each initial round ranging from €340k to €1.95M (with an average of €1.1M) in sizet, while our own average initial check size amounted to €656k in 2019.
As you can tell from the numbers, in 2019 we continued to build on the foundation that we laid in 2018: We invested according to our mantra of being conviction-driven, fast, the first institutional investor on board, acting as a lead and investing 50% or more of Pre-Seed or Seed rounds.
Here is an update of our investment activity so far (since launching Speedinvest Network Effects, initial investments only):
Although there are no material differences to the 2018 review, this does not mean that the market hasn’t evolved. We simply adapted our approach to changing market conditions and moved even more early-stage in order to “stay close to the very early stage” as already announced in last year’s review. This becomes more obvious when only considering the 6 new investments we made in 2019: On average, total round size (-15.4%) and initial check size (-7.6%) are actually below 2018 numbers while, at the same time, our average contribution to these rounds went up significantly to 64% (+11 p.p. or +21% YoY) as laid out above.
All this happened in an environment of growing valuations, increasing round sizes and pressure from upstream investors going downstream; especially at the Pre-Seed to Series A stage as you can read in Andy’s summary of our predictions for European Venture Capital for 2020 and Atomico’s latest “State of European Tech” report (on that note, Dealroom’s report on the journey to Series A in Europe is also worth a closer look).
In 2019, we broadened the geographic footprint of our portfolio by adding the United States, France and Spain to the map, where we also saw more and more deal flow. Despite a looming Brexit, we continued to be very active in the UK and made 2 additional investments into British teams, bringing our total count of British portfolio companies to 5. We added 2 investments in the USA, of which, one has already secured follow-on funding. More on that below. This is the geographic breakdown of our Speedinvest Network Effects portfolio at the end of 2019:
As you can see, the German-speaking area (DE & AT) and the UK each represent almost 30% of our total geographic footprint (5 companies in each region). After that, Poland and the US are strongly represented with close to 12% (2 companies each).
Besides broadening our geographic footprint, we’ve also tried to increase the diversity within our portfolio founders. Four of the six companies we backed in 2019 are led or co-led by founders from underrepresented minorities. In total, 6 out of 17 (35%) portfolio companies are, at least, co-founded and co-led by founders with such a background.
Here are some of the investors that co-invested together with us (apologies to all angels that remain unmentioned, but are amazing partners and a great resource for shared co-investments):
For 2020, I’m very confident that our investment pace will accelerate again (as we already observed in the last 6 months). We will stay disciplined and continue to invest according to our strategy, focused on leading Seed rounds across Europe, but are flexible to adapt to changing market conditions. In terms of geographic focus, following Speedinvest’s pan-European approach, we will try to double down on our existing footprint but are always open to new opportunities from all over Europe and, occasionally, the US.
To put the following into perspective, our average holding period at the end of 2019 was 13.1 months (median 15.5 months). The “youngest” addition to the portfolio was made in the final days of the year and the “oldest” portfolio company has been part of the family since day 1 — approximately 24 months. This means, on average, we have only been an investor for 13 months for every portfolio company. During this time, 7 (41%) of our portfolio companies have secured significant follow-on funding rounds led by new, external investors. Some have already secured several follow-on’s.
So far, TIER Mobility is definitely a striking outlier, as you can read in this blogpost. CoachHub might not have raised as much (yet), but the company managed to secure 2 additional rounds (a significant Seed and a large Series A) within less than a year after we led the company’s Pre-Seed round in late 2018. Thanks to the support of our LPs and the backing of the founders, we could invest across all rounds in both companies through special purpose vehicles (SPVs).
Overall, Speedinvest Network Effects participated in five out of these seven follow-on funding rounds to-date. In aggregate, our portfolio companies have raised €130M (!) in follow-on funding after our initial investment (excluding our initial financing round). That’s more than 10x (!) compared to our combined initial funding to-date. Here is a selection of follow-on investors in our portfolio companies thus far:
At Speedinvest, in order to not only rely on the “hard facts” such as fundraising success (as laid out above), operational progress and financial KPIs, we also share a simple NPS survey with our founders on a half-yearly basis. The most recent survey is almost finished and preliminary results for Speedinvest Network Effects are looking pretty promising: We received an NPS of 87! That’s just 3 points short of our internal portfolio NPS target of 90!
Disclaimer: As the current NPS survey is still ongoing, I’ll update this paragraph once the current survey is finished and the final verdict is out.
Currently, several of our existing portfolio companies are in the process of finalizing significant follow-on funding rounds. Hence, 2020 seems to be off to a good start and we expect our “follow-on ratio” to further increase in the following weeks. Also, the companies we’ve backed over the last 12 months will mature to the next stage in their development and potentially fundraise again in the coming months.
In the context of a growing portfolio, our challenge is to juggle all these different processes and help our founders to find the best future funding option and partner. Above all and everything else, aspiring to be a trusted and supportive partner to our portfolio companies and their founders is our primary goal. Helping them secure whatever type or amount of future financing they need in order to realize their ambitious plans is why we exist.
Authored by Mathias Ockenfels, a member of the Speedinvest Network Effects team, with contributions from NAME. The team invests in SaaS-enabled platforms and marketplaces and other Network Effects-driven businesses where the value of a product increases with every new user. Enabled by new technologies in areas we cannot even imagine today, the team believes these are the businesses that will continue to revolutionize the world.
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