“Continuing our strategy of investing in Europe’s very best early-stage business software companies”
What’s the News?
We announced today that our fifth flagship venture fund has closed at its €300m ‘hard-cap’, see press release here. A new fund is always a time for reflection and re-evaluation, so I wanted to share some details and my thoughts on the implications and opportunities it creates for Notion.
Almost double the size of its predecessor, the new fund gives the firm considerable new resources to deploy. We think it’s the perfect size for our strategy - large enough to provide meaningful funding to our portfolio companies but crucially, small enough to continue to drive the true outsized venture capital returns we seek for our investors.
I’m very pleased to see the fund oversubscribed despite the challenging macro backdrop. It was not only our largest but also our fastest fundraise to date. We got off to a great start with a tremendous re-up rate from our existing LPs, despite many suffering the denominator effect issues widely publicised in the press. We then brought in a number of great new names across the US, Europe and the Middle East including Shelby County Tennessee Retirement System, Cortes Capital, the Medical University of South Carolina Foundation, TNO Pension Fund and a leading Middle East Sovereign Wealth Fund amongst many others. It’s great to see such diversity in the types of investor and the geos of origin, especially from US, the ‘home’ of venture.
We are extremely grateful to our LPs for the trust they have shown in us – and we will work hard to deliver for them.
Strategy: more of the same…but different
Our ambition when we founded Notion in 2009 was to be the ‘go to’ B2B SaaS investor in Europe. Having built the then largest EU SaaS exit (MessageLabs, acquired by Symantec in 2008), we firmly believed that the SaaS business model was going to be transformational and that we had a unique perspective on the market. We could see a generational opportunity to help transform an industry and create a huge amount of value along the way.
That vision remains the same, but the scope and ambition continue to grow. The SaaS business model has evolved, and we have evolved with it. The vast majority of new business software is now delivered from the cloud (just as we forecast it would be back in 2009), but the ways in which these products are monetized have changed a lot, away from simple per user subscription towards usage and other more complex models. At the same time software businesses have augmented monetization sources with embedded finance (initially payments but now extending to lending and insurance products) and marketplaces. We love this trend as it accelerates growth, improves stickiness and increases the overall TAM; and we have numerous examples in the Notion portfolio including the likes of Paddle, Mews, Easol and more. One of our most recent investments, M3ter, was specifically founded to help support this trend towards more complex variable pricing.
We still refer to our SaaS heritage but the word feels a bit restrictive for our evolving strategy, so we tend to use “business software” to capture our efforts beyond the application layer (in data, AI and infrastructure etc) as well as the wide variations in monetization and delivery models (hybrid cloud, open source, edge computing etc). But whichever way you cut it, this is a very large opportunity in Europe and around the world which technological advances such as AI will only propel faster. And we want to seize it with both hands.
Where do we invest?
Our typical entry point remains Series A but we are flexible across the early-stage lifecycle as we recognise you can’t always perfectly time entry into the very best companies. The best deals are competitive, and you need to work hard to be in them. As such we like to engage as early as possible and nurture relationships over time.
With this in mind, we continue to grow our sourcing capabilities, both in terms of people and technology. Our proprietary ‘operating system’ called “RISTA” reflects some 5 years of investment, helping the Notion investment team to move at a faster pace than traditional VC firms and to see and prioritise investment opportunities before they surface to the broader market, giving it a difficult-to-match advantage even by the firms with larger teams.
As well as internal tooling, we have also broadened our investment proposition to founders, beyond classic Series A to include our Pioneers program of small cheques as early as Pre-Seed, as well as larger later-stage investments for growth-stage companies, anything from €50k to €20m. We would expect around 20 core deals in Fund V, but Pioneers cheques will add another 50+ names to the roster.
It's all about the team
When we founded Notion, we felt that the operating experience and relationships we could bring to bear would be genuinely differentiated in the European market, where VC was an asset class largely run by bankers and treated with some suspicion by founders and investors alike. The firm continues to pride itself on its operational heritage and value-added model, with an extensive Platform team supporting its portfolio companies in areas such as product, go-to-market strategy, talent and pricing. This not only helps existing portfolio companies fulfil their potential, but also provides a compelling differentiator to access the best new opportunities in the market.
We continue to build capability in this regard with recent hires including Andreas Panayiotou as Director of Pricing & Monetization and George Windsor as Director of Research, both fantastic additions to the team.
In parallel, we have also been building bench-strength for succession and broadening team diversity. We are a team of 32 individuals split approximately equally male and female and spanning more than 10 European nationalities which gives us extraordinary reach and access across our market.
Along with the new fund, we announced three senior promotions in the investment team: Itxaso del Palacio to General Partner and Stephanie Opdam and Kamil Mieczakowski to Partner. All tremendous contributors at Notion, this continues our trend at Notion of promoting partners from within the firm - and Steph is also our youngest partner to date. All in all, I couldn’t be happier about the leadership team we have built and the confidence that gives me for the next generation of the firm.
More of the same really. We are always looking for talented and ambitious founders who want to change the world. We will continue to build relationships with the venture community including the many talented angel investors and seed funds who typically invest before us, as well as Series A players to syndicate with and growth equity players to support our companies as they expand. We will continue to diversify our LP base with investors who share our vision and belief in the European opportunity.
We also want to continue to play our part in growing and strengthening the wider European eco-system. We are now on the fourth cohort of Included, a VC fellowship programme we founded back in 2019, to increase the number of underrepresented communities within the venture capital industry and the diversity of deal flow. This has been a tremendous success, with thousands of applicants from more than 100 countries, helping more than 70 fellows secure roles in venture around the world and we hope to see similar successes in a number of other important initiatives we have underway.
In terms of fundraising, Notion expects to be back in market with its third Opportunities Fund in 2024. This is a complementary strategy investing additional growth follow-on capital into the firm’s best performing venture assets and selected other growth stage business software companies in Europe. It will also target parties looking for secondary liquidity in their positions where Notion’s sector knowledge and value-added model should make it an attractive candidate.