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Dawn Capital, one of Europe’s leading investors in business-to-business software companies, has secured $700 million in funding across two new funds. This move reaffirms their commitment to supporting technology companies in the region during a time when venture capital funding for startups has significantly decreased.
As a major tech investor in Europe, Dawn Capital’s portfolio includes successful companies like iZettle, a Swedish online payments firm acquired by PayPal for $2.2 billion in 2018, and Tink, a Swedish open banking company acquired by Visa for 1.8 billion euros ($1.9 billion) in 2022.
Hannah Gubbins, a newly promoted partner at Dawn Capital, shared that raising funds in the current market climate, with declining valuations and deteriorating investor sentiment towards technology, was not an easy task. However, the firm’s strong relationships with institutional investors built over many years played a crucial role.
In an interview with CNBC, Gubbins stated, “Despite the challenging market conditions, many investors still recognize the potential in tech and are eager to invest. Some of the best companies have emerged from previous market downturns, and experienced investors understand this.”
With the new funds, Dawn Capital plans to invest in 20 companies. The funds consist of a $620 million early-stage fund focused on Series A and Series B investments, and an $80 million “opportunities” fund to support successful companies in Dawn Capital’s portfolio that may go public or be acquired in the future.
The Decline in VC Funding
Venture capital investment has significantly declined as investors reassess their portfolios amidst higher interest rates and inflation. Companies that rely on long-term investments and have yet to turn a profit are now less appealing. On the other hand, stable, profitable firms are attracting more attention.
Investors are closely monitoring the IPOs of companies like Arm, a UK chip designer, and Instacart, a US grocery delivery firm, for signs of a possible tech market resurgence.
The tech industry experienced rapid growth in 2020 and 2021 due to the COVID-19 pandemic, which increased the demand for online platforms. Additionally, low interest rates made it easier for companies to raise funds. However, the situation has changed significantly in the past year.
Gubbins acknowledged that she cannot predict when the IPO market will fully recover. Nonetheless, Dawn Capital is monitoring the IPOs of Arm and Instacart as an indication of when the market will stabilize.
While an IPO is not the sole exit strategy, Gubbins pointed out the success of LeanIX, an enterprise architecture management software company in Dawn’s portfolio, which was acquired by German software giant SAP.
The Booming Field of Artificial Intelligence
Amidst the decline in overall tech investment, the field of artificial intelligence (AI) is seeing significant growth in funding. AI companies, especially those focused on “foundational models” that generate content based on written prompts, have attracted billions of dollars in investment. Examples include OpenAI, Anthropic, and Cohere.
Gubbins highlighted AI as a prominent topic in discussions with limited partners. However, Dawn Capital remains committed to investing in a diverse range of business-to-business software companies across various sectors such as fintech, security, and infrastructure. She stated, “We’re continuing to focus on our core strategy while recognizing the disruptive potential of AI in every industry.”
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