Milo Yiannopoulos Thursday, 3 May 2012
Passion Capital celebrated its first birthday last month. This week, the partners shared some statistics about their fund’s progress so far with The Kernel.
A year ago, Passion Capital unveiled itself as the tenth Enterprise Capital Fund. With £37.5 million in the bank from a mixture of public and private sources and three experienced partners, Passion sought to differentiate itself from traditional venture firms in a number of ways: its smaller fund size, which many now argue is the best way to secure returns in Europe; the size of its investments, which have been as small as £15,000 and its open, approachable manner.
The informality cultivated by partners Stefan Glaenzer, Robert Dighero and Eileen Burbidge reverberates throughout the company and White Bear Yard, the open-plan co-working space in London’s Clerkenwell from which Passion operates. Many of the businesses Passion has invested in choose to locate themselves at WBY, partly because their investors are so readily accessible: Glaenzer, Dighero and Burbidge sit on the same floor in the same open-plan format as their portfolio companies.
Close proximity to the companies they have already invested in has not distracted the partners from seeking out new opportunities. Passion Capital has been aggressively reviewing every good idea they can lay their hands on: a year into operation, the partners have seen 1,532 business plans, 652 of which were received via their website, 444 from conferences and events (each of the partners is active on the European circuit) and 436 from personal introductions.
In that year, Passion has made 20 investments in 18 seed rounds and two Series A rounds, with an average seed round cheque size of £189,936. The largest amount of money deployed in a seed deal has been £355,000. It will be some time before the fund’s performance can be judged, but seven of the portfolio have, in the past year, already gone on to raise follow-on financing at higher valuations with new investors.
The fund is focussed on London, where there it has located a strong and multicultural talent pool: 29 per cent of Passion’s founders are German and 14 per cent Swedish. 209 employees globally, across the 20 start-up businesses, owe their salaries in part to Passion. Other statistics look fairly standard: the average founder salary across the portfolio is £32,767, with the lowest at £7,200 and the highest at £54,000.
“Above all, we like to think of ourselves as accessible and transparent,” Passion Capital told The Kernel. “And we’re former entrepreneurs and operators ourselves, not investment or fund manager types. To that end, our term sheet, which we think is the most founder-friendly in Europe, is publicly available and downloadable on our website.”
“We back people, not necessarily ideas and definitely not models, at an early stage. So we take greater risks as a result, but then take a meaningful ownership stake because we think we can add value and increase value creation for the next stage of the business. We do early stage because we like it. We want to help build teams. When a company is at a point where it’s looking to optimise profit margins, it’s less interesting to us.”
Almost uniquely for a venture firm, Passion doesn’t employ a public relations agency or have any in-house administrative staff besides an accountant. (There is also one associate.) This doesn’t appear to be doing them any harm: partly as a result of the partners’ individual reputations, and partly thanks to their open-plan methodology, Passion makes connections and finds deals through its own networks and from unsolicited contact, which it welcomes. It is no place for pomp: the partners are yet to take a business class flight.
In the year since it began operating, Passion Capital has attracted a good deal of attention and even some competitors. Yesterday, a new fund, Connect Ventures, unveiled a first close of £13 million. Connect has been founded by Bill Earner, formerly of Amadeus Capital Partners and entrepreneur Pietro Bezza. There is at least one other fund of comparable size currently brewing in London as well.
But Passion remains perhaps the best example in Europe of the sort of radically deconstructed, low-friction venture pioneered by First Round Capital, Lowercase Capital and True Ventures, all of whom are noted for similar attitudinal virtues. The lack of ceremony evident at some European funds – often comically at odds with performance – appears to be paying dividends, at least with the companies who make a successful connection to the fund.
Praise for the firm from its investees is often lavish. “These days, everybody is a venture capitalist,” says Picklive’s Tim Morgan. “VCs now have to offer something other than money to attract the best opportunities. Passion Capital are almost unique in the UK in their ability to empathise and communicate with entrepreneurs. Their depth of understanding stems from the fact that the partners are entrepreneurs themselves. They are in the club and there is nothing more valuable than that.”
Of Burbidge, Morgan says: “I don’t believe there is a better VC board member in Europe. She understands the destination as much as any VC I’ve met but what sets her apart is that she also understands the journey. As for Stefan, what sticks out for me is that, with hindsight, his gut instincts were proven to be correct every single time.”
Alexandra Chong, founder and chief executive of Luluvise, says much the same: “Passion Capital is far more than an investor. Stefan Glaenzer, Eileen Burbidge and Robert Dighero are my mentors and are always willing to roll up their sleeves and get dirty.
“They were also our first landlord, and being part of their incubator space – with daily access to fellow start-ups – is invaluable.”
“Personally I’m excited to see where Passion Capital goes next,” Smarkets chief executive Jason Trost told us. “I’d like to see them capitalise on their good reputation and network and start feeding more services into the portfolio. I’m thinking specifically about things like public relations. Passion could retain an agency very cheaply to represent all of us. With 20 companies there are great economies of scale possible.
“Perhaps the same could be done with lawyers and accountants. Perhaps there could even be SEO or metrics experts giving monthly classes.
“I’d like to see White Bear Yard become a Valley-style incubator, with more collaboration between companies. Passion is best placed to create something like that in Europe. They’d make themselves investors of choice if they did.”
Mr Trost’s suggestions make for some intriguing hypotheticals. Among investors much is often made of value add, and Passion does indeed seem well placed to start providing further support to the young companies it invests in, should Glaenzer, Dighero and Burbidge sense a wider clamour for it.
Little can usefully be said at such an early stage in a firm’s life. But, for now, Passion seems to be getting things just about right, regularly bracketed with, and compared favourably to, other entrepreneur-led funds such as Atomico.
Time will tell if openness and a hands-on approach to Passion’s portfolio has succeeded in creating significant value in these businesses – and, of course, if the firm manages to score that elusive big hit. In the meantime, they’ve every right to enjoy their status as one of the most popular new kids in school.