VC Profile: Target Global assesses B2B opportunities in final stretch of current fund deployment

The VC firm wants to make three more new investments by the end of 2023 via Target Global Growth II, which closed on EUR 525m in 2021, to add to the 15 tickets it has deployed so far, said Barros. The firm has reserved half of the fund for follow-on investments, he added.

The growth strategy mainly targets Series B rounds, although it can invest up to pre-IPO, backing startups with valuations of up to EUR 250m pre-money. It deploys average equity cheques of EUR 10m-EUR 30m but can double or triple down on some investments, meaning that it can deploy up to EUR 100m per company.

Barros would not comment on fundraising for the firm’s next growth fund, but the registration of successor vehicle Target Global Growth III with the Luxembourg Registry in December 2022 suggests that another will be in the works.

In addition to its growth strategy, the firm participates in seed and Series A rounds via its early-stage funds, usually deploying tickets of EUR 1m to EUR 5m. In its early stage deals, it targets startups of up to EUR 50m valuation pre-money.

Institutionalising the industry
The firm has raised six funds across both its investment strategies, all of which delivered “at least” top quartile returns, Barros said. Target Global is relying on the support of a loyal LPs base despite the difficult fundraising market right now, he said. The majority of its capital is institutional, coming from Europe, Israel, the Middle East and the US, with LPs in its second growth fund, including Feri Group and UBS Wealth Management.

Barros joined the firm in 2019 and is the first non-investment partner in its history. His prior experience as an LP and placement agent allows him to identify investment sectors that fit well with LPs’ interests, he said. Seeking to expand and further institutionalise its co-investment strategy and investor base, Target Global wants to become a bellwether that sets the tone when it comes to institutionalising capital raising and entrepreneurial activity across the European VC space. “We would like to make the industry mature a little bit faster,” he said.

For future capital raising, the VC will seek to maintain a diversified base of investors while continuing to engage closely with founders, building a portfolio that serves the needs of both. “Our strategy has not changed since our inception and even in this more difficult market it remains centred around backing exceptional founders looking to disrupt industries that Europe excels at,” he said.

Backing trends
Apart from deployment and value creation, Target Global is also prioritising carrying out liquidity planning across its portfolio and has remained “quite active” in the market over the last year, said Barros. The firm typically completes 20 to 25 deals per fund over a three-year investment period, which translates to approximately 10-15 new companies being added to its portfolio per year.

It continues to invest in fast-growing technology startups that have the potential to become multi-billion businesses and remains very active in fintech, tech-enabled consumer, business software, healthtech, and mobility and logistics. With a growing interest in edtech and energy transition, the firm is largely focused on B2B companies, which it sees as slightly “more defensive,” he said. “Direct to consumer models usually require more capital and that's something we are shying away from currently,” he added.

Across the fintech space, the firm has been active in payments and banking insurance, with investments targeting infrastructure and B2B fintech. It invested in UK-based transactions software company Rapyd from its Series A round in 2018 up to its Series E in 2021, with the company reportedly reaching a EUR 15bn valuation last year. It has also backed Paris-based B2B payment infrastructure provider Fintecture, among others.

The wellness market and app ecosystem within the tech-enabled consumer industry, as well as all things generative AI, remain interesting for the firm, driven by life improvement trends. Portfolio company Crisp, a Dutch online supermarket, raised a Series C financing round in October 2022. In September 2021, the VC co-led a USD 500m Series B round for US and UK-based women’s health app developer Flo Health at a USD 800m valuation. The app is used by more than 10% of women in the US, he said, and has 250 million users globally, according to its website.

Downturn opportunities
While VC is opportunistic in nature and is aware that trends move very fast, Barros sees the firm’s core themes remaining central to its investment strategy, noting that the themes of future work and silver economy are also important. ESG is another growing area of focus for the firm, where interesting businesses are being formed, he added.

Market dislocation does not have a direct effect on startup valuations in the early stages, which see no compression, he said. Although deals might take longer to complete, this is a sign of normalisation when it comes to timelines, he said. Making early-stage deals can balance out the need to have several multi-billion exits in each growth fund and ensure a successful fund in essentially any market condition, he said.

It is currently around 20%-30% less expensive to deploy capital in early growth startups, he added. “At the peak of the market, some funds were giving term sheets in a few hours, and now it takes two to four weeks, which is great, because it is impossible to gain a deep understanding of a business in a one-hour Zoom call,” the partner said.

Moreover, non-traditional VC investors known as “crossover investors”, who are typically more active in late stage rounds and at pre-IPO stage, have left the market completely as a result of so many assets being mispriced, Barros said. Although IPO windows remain shut, resilient assets will pave the way when the IPO environment returns, leaving behind those with higher burn models, he said.

[Editor's note: Pedro Barros' quote in the penultimate paragraph has been amended to say that at the market's peak, funds were giving term sheets in a few hours.]

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