Finch Capital Launches Third Fund with €85 Million Initial Close

Finch Capital, a venture capital firm specializing in early-stage fintech investments, with offices in London and Amsterdam, has announced the launch of its third fund. The fund is aiming for a final close of €150 million, and has already secured commitments totaling €85 million from limited partners (LPs).

Focus on Series A and B Fintech Startups

The new fund, designated “Europe III,” will concentrate investments on fintech startups operating at the Series A and Series B funding stages. This represents a shift in strategy, with less emphasis placed on seed-stage investments compared to previous funds.

Finch Capital is actively seeking “European category leaders,” particularly those integrating artificial intelligence (AI) into their operations and demonstrating revenues between €2-5 million. The firm believes this revenue bracket currently represents an underserved segment within the funding landscape.

Strategic Expertise and Portfolio Approach

The firm notably brought on Steve Crossan, a former Google and DeepMind venture partner, in early 2020 to bolster its expertise.

Similar to its prior funds, Finch Capital intends to invest in 15-20 European startups over the next three years. The firm is transparent about its exit strategy, targeting liquidity events – such as acquisitions or IPOs – within 3-5 years of initial investment.

Rationale Behind the Revenue Focus

Radboud Vlaar, Managing Director of Finch Capital, explained the strategic shift. “While our seed deal success rate is respectable, the financial impact on the fund is limited. Our most substantial returns have come from companies generating €2-5 million in revenue.”

He further elaborated, “This aligns with our team’s strengths – leveraging our network to assist companies in scaling their operations, a process that is more challenging at earlier stages when companies are still establishing product-market fit.”

Addressing a Funding Gap in the Market

Vlaar identifies a potential gap in funding availability. He notes a significant influx of capital into companies with revenues of €0.5-2 million, aimed at accelerating growth to €5 million and beyond.

Conversely, substantial capital is also directed towards companies already achieving €5-10 million in revenue. However, Vlaar observes that “B2B growth often isn’t linear, and companies frequently need to adapt their teams and strategies as they navigate the market.”

He adds that U.S. and European growth firms often prioritize companies demonstrating the potential for a “winner takes all” market dynamic, which is less common in Europe’s fragmented business environment, typically resulting in exits valued between €100-500 million.

Flexible Investment Strategy

This dynamic creates an opportunity for Finch Capital to support promising companies with “great products” that are encountering funding challenges at the €2-5 million revenue level.

Vlaar states, “Our ownership strategy is adaptable, ranging from 30-40% in select companies to the more conventional 15-25% stake.”

Current Portfolio and Deal Flow Management

Finch Capital’s existing portfolio encompasses companies in the fintech, regtech, and insurtech sectors, including Trussle, Fourthline, Goodlord, Grab, Hiber, BUX, Twisto, and Zopa.

The firm has previously achieved successful exits with Salviol and Cermati, with two additional exits currently underway or in the process of being finalized.

In 2020, Finch Capital launched “Flowrence,” a machine learning tool designed to streamline deal sourcing and management. The firm reports that Flowrence has identified 20% of its shortlisted deals over the past six months, proving particularly valuable during the recent pandemic.