VC Profile: Isai reaches 1st close in lockdown

Entrepreneurs-backed venture capital firm Isai celebrated its 10th birthday in style in early May with the €90m first close of its latest fund, Isai Venture III. Founder and managing partner Jean-David Chamboredon says the timing of the pre-marketing phase was well-judged in hindsight: "We had around €90m in soft commitments at the end of February, before countries entered lockdowns. Notably, all the investment committees of our institutional investors had taken place before that came into play, so we ended up with very few defaults when we started firming up commitments at the end of March."

Nevertheless, the VC has had to stretch its initial timeline expectations for the fundraise overall. While Isai initially expected to close the fund before the summer, it now sees it wrapping up toward the end of Q3 or later in the year, Chamboredon says. The fund has a hard-cap of €120m.

Like predecessor Isai Venture II, the new vehicle has so far prioritised individual investors, with institutional investors accounting for around 40% of commitments. Isai stated that it was able to rely on its historical investor base for the first closing of Venture III, while also welcoming a handful of newcomers. Institutional investors that have backed the latest fund at this stage include BPI France, Arkéa, Quadrille and Idinvest. Isai co-founder and French entrepreneur Pierre Kosciusko-Morizet (who notably founded marketplace PriceMinister) is the largest individual investor in the fund.

Isai Venture II collected €75m in June 2015, above its €70m hard-cap. According to Chamboredon, Isai closed the investment period of the vehicle in the first quarter of 2020 (when it could have run until the end of the year) as it felt it had reached a suitable number of platform investments and decided to maintain some dry powder to support the portfolio. The fund has 25 assets in the portfolio, including the likes of CodinGames, DataBerries and Hopwork.

Chamboredon says that while the coronavirus outbreak has had an impact on the portfolio, the firm has not had to deal with major flash points: "A number of businesses are at a standstill, naturally, because they're just unable to bring in any revenue at the moment. But we haven't had any investments reach critical condition, with an emergency financing need."

Deployment mode
Venture III will focus on startups in the digital space, including software-as-as-service developers, and marketplace and AI businesses. It will invest as the lead in around 20 businesses with equity tickets of €1-3m, with the ability to return for follow-up rounds. A separate pocket of €150,000 will be dedicated to seed funding and will be deployed along the lines of a "super angel", according to the firm.

The VC is looking to bolster its cross-Atlantic investment capacity with this new fund – it will back US startups founded by French citizens, in addition to supporting French companies in their expansion into the US.

Isai stated that capital efficiency would be a key criteria in selecting and backing potential investments, with co-founder and general partner Christophe Raynaud saying: "You don't necessarily need a lot of money to develop a product, test a market and validate a business model. We strongly believe that creativity is greater under constraint."

Asked about his appetite to actively pursue deals in the current environment, with France set to slowly emerge from lockdown from 11 May onward, Chamboredon says: "We are starting again to look at some dealflow; but to be honest, and as much as video calls are good to initiate contact, it is very unlikely we'd ever sign anything before meeting management face-to-face. If conditions are indeed improving on that front, it is not impossible that we'd look to ink something as early as June, but there is nothing definite for now."

Broaden the scope
Venture III is the sixth fund managed by Isai, which launched its first vehicle 10 years ago. While still focused on digital-driven businesses and a fundraising model based on support from a large network of entrepreneurs, the firm now has around €500m under management across a family of funds for different sub-strategies.

The 2015 Isai Venture II fund was double the size of both its predecessor and Isai's debut fund, Isai Développement, which closed on €35m in October 2010.

In 2013, Isai also held a final close on €50m for its second fund, Isai Expansion, which targeted larger tickets compared with its venture counterpart. The vehicle's successor, Isai Expansion II, closed on its hard-cap of €150m in July 2018 and deploys tickets of €5-30m.

In June last year, Isai teamed up with consultancy Capgemini to launch Isai Cap Venture. The fund has a €90m target and will aim to take minority stakes in 15-20 technology startups that develop software products for B2B services, providing equity tickets in the €1-5m range.

Click here for a full overview of Isai's fundraising and deal activity

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