Deal in focus: Endomondo exit is largest ever for Seed Capital

After the sale of fitness tracker app developer Endomondo to American technical sportswear maker Under Armour, Seed Capital is left with broad smiles and an $87.5m exit to answer critics who question the ability of Danish venture capital to generate sizeable windfalls.

In 2014, Danish venture capital funds were criticised on a number of occasions for being unable to consistently create adequate returns for investors. Critics have included Carsten Stendevad, the CEO of Danish pension giant ATP, as well as other pension funds and government growth fund Vækstfonden.

"The deal means an unbelievable amount to us, as it proves the model we're using works," says Lars Andersen, general partner at Lyngby-based Seed Capital. "It shows we can find good Danish deals, that we can develop them in the right way through active ownership and find a good buyer for them, so we return money to our investors."

The exit also comes at a perfect time for Seed Capital, which is speaking to investors as part of preparations for raising a new fund in 2015. The new fund would be the VC's third, following 2010's DKK 677m Seed Capital Denmark II, which closed short of its DKK 750m target.

Under Armour's acquisition of Endomondo, which posted profits of DKK 1.3m last financial year, began when the VC was approached with an offer in the summer of 2014.

The bid resulted in Seed Capital launching a structured sales process, to scout the market for the best buyer, which was eventually found in Under Armour.

"It always made sense to do a trade sale," says Andersen. He points out that after Under Armour had bought MapMyFitness, another fitness-tracker app developer, and German media company Axel Springer took a 51% stake in Endomondo's competitor Runtastic, there was a clear trend of consolidation in the sector.

Solo run
The VC first invested in Endomondo 2010, having been tracking different businesses in the ‘quantified self' sector, that is, companies whose products measure parameters about its users, such as fitness tracker apps or sleep-monitoring apps.

From the time Seed Capital began looking at Endomondo until the VC invested, the company had grown its number of users from 700,000 to almost double that amount.

Seed Capital's decision to back Endomondo was influenced by a combination of the company's good traction in the space the VC had been tracking; and the management team, which consisted of the three co-founders – all of whom were former McKinsey employees.

Founded in 2007, the company had raised capital – which would total would total $550,000 by the end of 2013 – from a business angel before Seed Capital invested, but had not been able to drum up interest with venture funds.

In $800,000 seed round in December 2010 was followed by a $2.3m series-A in 2011. The year following the first round, Seed Capital topped up its investment with series-B and -C rounds, totalling around $2.7m.

Andersen says he and Endomondo did not find any other VCs interested in investing alongside Seed Capital in later funding rounds, which resulted in the investor having a 40% stake (fully diluted) when the company was sold.

He struggles to explain why there was so little interest, but suggests it may have been due to the 'quantified self' sector being very crowded – with big players such as Nike having a large international market share. These firms, meanwhile, faced competition from smaller developers with a healthy local market share, but no regional or international reach, selling products broadly similar to Endomondo's, which Andersen suggests may have also contributed to the lack of interest in the company.

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• Topics
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