Backed VC raises EUR 150m across two new funds

Backed Core 2 had a EUR 60m target, while Backed Encore 1 had a EUR 40m target. The firm closed both funds at their hard-cap in November 2021, managing partner and co-founder Andre de Haes told Unquote, adding that the firm concentrated its fundraising over a two-month period.

“The funds have separate structures, to ensure that we don’t over-invest in any one company,” de Haes said. “Many of our companies are growing quickly: we have had three unicorns emerge in the past three months and we have two more that are in the process of raising rounds that may make them unicorns. Taking up our pro-rata stakes in those rounds, where these companies are often raising more than EUR 100m, would involve committing EUR 10m-20m just to maintain our ownership stakes. This is too big a ticket for our seed funds, so our LPs wanted us to have Backed Encore 1 as a follow-on vehicle to be able to keep backing the winners without over-investing from the main seed funds.”

The firm’s current unicorns are NFT blockchain game Axie Infinity creator Sky Mavis, banking platform Thought Machine, and Ethereum Layer 2 solution Immutable X.

The firm’s debut fund held an interim close in 2016 on EUR 30m, followed by a EUR 51.5m final close in 2017. The fund is expected to make a return of more than 10x its volume, de Haes said.

Backed VC now has a portfolio of 67 companies with an aggregate value of EUR 10.7bn, according to a statement. The VC has seen four exits from its portfolio to date, including the USD 375m sale of racing games platform Hutch to MTG in November 2020. The exit generated a 15x return for Backed VC, de Haes said.

Backed VC was founded in 2016 by de Haes and fellow managing partner Alex Brunicki. The firm aims to build a sense of community among European startup founders, including its 18-month founder support programme, workshops, hiring support, and various community events. In addition, the firm sources its deals via a 60-person Venture Scout programme. “Members can angel invest in a deal and we double that up from on our side,” de Haes told Unquote. We pay commission and they get access to our founder workshops and the deal-flow from other scouts. We still give carry to advisers or people who send us deals, such as our unicorn founders, but the most impactful way of playing on the structure of our network is that we effectively have an full time team of 10 plus a scaled team of 60 scouts.”

In addition to its community projects, Backed VC has launched various ESG initiatives on both deal-making and portfolio management, de Haes told Unquote. “More than 50% of the people in our scout network come from diverse backgrounds. On the deal side, we have a vehicle with a separate pool of capital to back founders from BAME backgrounds. We track metrics in our deal pipeline, such as how many founders we invested in within a certain demographic and how many we are seeing at the top of the funnel.”

Further to its internal initiatives, Backed VC’s head of network & community Daisy Onubogu is COO of non-profit initiative Diversity VC, which aims to promote diversity, equity inclusion across the VC industry on a global basis.

The firm has also made a series of investments in sustainability-related initiatives and intends to develop this further. “We are developing a sustainability investment focus to back sustainability tech companies,” de Haes said. “We have made around eight to 10 investments in this area to date including Hoxton Farms and Meatable. We have also invested in optimised agriculture, such as Phytoform Labs.”

Investors
The fund saw an 80% re-up rate, according to a statement. The fund is backed by Groupe Bruxelles Lambert’s Sienna Capital vehicle, as well as private firm Wilshire Associates, plus 20 venture-focused family offices and more than 20 entrepreneurs, including several from Backed VC’s portfolio.

“Europe is the best represented region, with the UK and Switzerland representing the largest portion,” de Haes said. “We also have US LPs, as well as LPs from the Middle East and Asia. We are only backed by private investors, rather than government-backed investors.”

Investments
Backed Core 2 will lead or co-lead seed rounds, deploying tickets of EUR 500,000-3m with a EUR 1m-3m sweet spot. It is expected to back around 30 companies and will typically take equity tickets of 10%, but can be flexible to the needs of founders and co-investors, de Haes told Unquote.

The firm focuses on European seed-stage deep technology companies across a range of sectors. According to a statement, 21% of its portfolio is made up of Web3 and blockchain investments, with 15% in the gaming and entertainment sector, plus 12% in biotech, 10% in financial services and 10% in manufacturing.

Backed Encore 1 will invest in Backed VC’s existing portfolio companies at Series C and D stage, taking up pro-rata subscription rights. It expects to deploy tickets of EUR 4m-10m and to back around 10-12 companies.

Asked about the criteria for its seed investments, de Haes said: “When we make a seed investment in the deep tech space, it’s normally in an early version of a product that is not yet fully functional, and it’s yet to deploy commercially. When investing in consumer facing companies, we normally expect them to have their first few customers, but no material revenues yet.
“In short, we are willing to invest pre-revenue and pre-product, and what is interesting is that the speed with which those companies then end up growing is remarkable – we back teams of one or two people, then within two years’ some already have around 600 people,” he added.

De Haes cited current portfolio companies Thought Machine, experience and events platform Pollen, and workplace healthy food startup Garten as examples of businesses that the VC backed at an early stage which now have teams of more than 500 people.

Backed VC is keeping an eye on the current public market environment, particularly when it comes to its later-stage portfolio, de Haes told Unquote. “The current market situation is affecting valuations, but the question is whether it affects the valuations of the later-stage rounds of some of our earlier portfolio companies, making valuations at Series D and beyond come down a little,” he said. “Companies are definitely staying private for longer and the reality is that any seed fund will likely have some assets that are not fully divested after 10 years, but those may be the biggest return drivers over the long-term.”

In light of this, parts of the VC market are turning to alternative liquidity solutions, according to de Haes. “Right now, LP terms have not really evolved, but there has been lot of secondary activity with funds buying out entire existing funds or individual assets to provide liquidity when needed at the end of fund terms – that is a very healthy evolution to ensure LPs achieve liquidity.”

However, the firm expects to stick to traditional VC exit routes. “Our preference though would be to achieve liquidity for LPs through IPOs or by selling our companies to strategics – those still tend to generate the best returns,” de Haes said.

People
Backed VC – Andre de Haes, Alex Brunicki (co-founders, managing partners).

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