Hoxton Ventures’ partners assess Europe’s early-stage landscape

Hoxton Ventures, a London-based early-stage VC firm best known for backing British unicorns Babylon Health, Darktrace and Deliveroo, announced its second fund last week, coming in at just under $100 million.

The firm’s self-proclaimed strategy is to seek out startups that can scale globally into “large, category-defining leaders” in nascent industries — A strategy that appears to be bearing fruit.

However, although fund two is twice the size of the firm’s $40 million debut fund back in 2013 (when new VC firms in Europe were still seen as a novelty), Hoxton struggled somewhat to close a new fund. Despite having the highest ratio of unicorns to investments in Europe, according to Dealroom, it took more than four years to get fund two over the line, leaving many VC watchers scratching their heads.

To find out exactly what happened and to learn more about Hoxton’s strategy going forward, I put questions to founding partners Rob Kniaz and Hussein Kanji — Fidelity and Accel alums, respectively — and new partner and chief operating officer Rob Ludwig. The conversation that followed was refreshingly candid, providing valuable insights into the state of early-stage venture capital in Europe and what it takes to get funded by an outlier VC like Hoxton.

It’s seven years since you announced your debut fund, which I remember at the time was considerably harder to raise than you had perhaps envisaged. However, despite having three unicorns in fund one, this second fund also appears to have taken a long time to get over the line. Why was that?

Hussein Kanji: I see you’re not taking it easy on us. Good question. Fundraising is our Achilles’ heel.

We did our final closing in November 2014 (not widely reported) and did the majority of this fund’s closing in January/February 2019. That’s a little more than a four-year gap, meaning we’re a year (maybe two) past due. That goes to a combination of two things: we are terrible fundraisers and we had a really awkward experience with the European Investment Fund, which set us back by at least a year.

Rob Kniaz: Yes, sadly EIF denied this publicly but they discontinued new fund relationships in the U.K. after Article 50 triggered, so that cost us a significant amount of time due to the length of their process. By that time we had other commitments that had timed out so we probably had and then lost then reraised nearly half of what we eventually raised.

New investment firm wants to change the way we fund early stage companies — from New Hampshire

The three founders of York IE have a vision about how to change the way early stage startups get funding. They have experience shattering norms, having built a successful startup, Dyn, in Manchester, New Hampshire, which is not exactly a hot-bed of startup activity.

The founders want to take that same spirit and apply it to investing, while maintaining its headquarters in New Hampshire (and Boston). In fact, the three founders — Kyle York, Joe Raczka and Adam Coughlin — launched Dyn and built it to $30 million in ARR before taking a dime in venture funding. They went onto raise $88 million before being acquired by Oracle in 2016. They believe they can apply the lessons that they learned to other early stage startups.

“We think, especially in B2B and SaaS, there is a way to build a scalable, effective and efficient business without chasing massive fund raises, diluting your company, bringing on traditional venture investors and chasing those kind of on-paper vanity metrics,” company CEO and co-founder Kyle York told TechCrunch.

For the past five years, while working at Oracle after the acquisition, the founders have been testing their theories while advising startups and acting as angel investors. They believed it was time to take all of those learnings and apply it to their own firm.

“I started thinking about how to transition out of Oracle, and what I wanted to do from a career perspective and we wanted to build a modern investment firm less focused on how to deploy as much capital as possible for the limited partners, and more on working with the entrepreneurs to help coach them on a path to success,” York said.

The company still wants to act as investors, and to make money along the way, but they want to help build more solid, grounded companies. York says that they want the founders truly understand that they are selling a part of their company in exchange for those dollars, and that it makes sense to have a strong foundation before taking on money.

York wants to change this culture of fund raising for fund raising’s sake. He acknowledges that some companies with deep tech or deep infrastructure require that kind of substantial up-front investment to get off the ground, but SaaS companies are supposed to be able to take advantage of modern technology to build companies more easily, and he wants to see them build solid companies first and foremost.

“The goal shouldn’t be to raise more capital. The goal should be to build a healthy successful, scalable company,” he said.

To put their money where their mouth is, the new firm will not take management fees. “We are investing like a normal investor and coming through with equity position, but we are betting on the future. In essence, if the startup wins, then we win.”

Apply now to compete in Startup Battlefield at Disrupt SF 2019

Is your early-stage startup ready for prime time? Do you have what it takes to step onto the Main Stage at Disrupt San Francisco 2019 and compete in Startup Battlefield? Show us what you’ve got and apply here today.

In our premier startup pitch competition, you’ll go up against some of the best early-stage startups and compete for the coveted Disrupt Cup and — here’s the real kicker — $100,000 in equity-free cash.

All participating teams, regardless of where they place, receive invaluable exposure to more than 400 media outlets and hundreds of influential investors hungry to discover the next big thing. That kind of intense attention can change the trajectory of your business. Indeed, 857 startups have competed and collectively raised more than $8.9 billion in funding and produced more than 110 exits. You might recognize some of the companies that launched, like Mint, Dropbox, Yammer, TripIt, Getaround and Cloudflare to name just a few.

Here’s how Startup Battlefield works. Our TechCrunch editors thoroughly vet every application and select approximately 15-30 startups to compete. No need to freak out about your presentation, because you won’t go it alone. Our Battlefield-tested editorial team will coach you extensively until your pitch is primed and refined to perfection. You’ve got nothing to lose. Applying and participating in Startup Battlefield — including the coaching — is free.

Come game day, you’ll have six minutes to pitch your company to a panel of expert VCs and tech leaders — and then answer any questions they may ask. If you survive to the second and final round, it’s lather, rinse and repeat your pitch to a new panel of judges.

All the nerve-wracking action takes place on the Disrupt Main Stage in front of a live audience numbering in the thousands, and it’s also live-streamed around the world (and available later on demand) on TechCrunch.com, YouTube, Facebook and Twitter. That kind of media exposure is a gift that keeps on giving.

Other Startup Battlefield benefits include free exhibition space in Startup Alley for all three days of the show, invitations to VIP events, free passes to future TechCrunch events and complimentary subscriptions to Extra Crunch, our new editorial offering that provides in-depth content, coverage, products and events. You will also get connected into the illustrious Startup Battlefield Alumni Community.

Startup Battlefield takes place at Disrupt SF 2019 on October 2-4. Will you hoist the Disrupt Cup? Take your shot and apply to compete in Startup Battlefield today.

If you’re not ready for the Main Stage yet, you can still apply for our TC Top Picks program and receive a free Startup Alley Exhibitor Package.