Notion Capital Raises $130M Growth Fund for European Startups

Addressing the European Growth Capital Gap

A consistent shortfall of growth capital within Europe has prompted some early-stage investment firms to proactively address the issue. London-based Notion Capital stands as a prime example of this initiative.

Launching a Dedicated Growth Fund

In 2017, Notion Capital pioneered a strategy in Europe by establishing an opportunities fund specifically designed to provide follow-on funding to its existing portfolio companies. Now, the firm has successfully closed a $130 million growth fund – almost double the size of its previous fund – with the mandate to invest beyond its current holdings, as exclusively reported by TechCrunch.

A Shifting Landscape for Growth Capital

Managing partner Stephen Chandler observed that U.S. venture capital firms, traditionally filling the growth capital void, are increasingly concentrating on their domestic markets. This shift, he stated, “creates an opening for European firms like ours to compensate for this difference and become true European leaders.”

Focus Areas for Investment

Notion Capital’s new Growth Opps III fund will target companies benefiting from the increasing demand for greater autonomy, particularly those specializing in areas like defense and supply chain logistics. Furthermore, the firm recognizes the transformative potential of AI, viewing it as a significant technological cycle driving “a fundamental change in how software is both delivered and utilized.”

Strategic Approach to Artificial Intelligence

Rather than investing in the foundational infrastructure of AI, such as large language models, Notion Capital intends to focus on the application layer. Chandler believes this area will “substantially expand” the firm’s potential market. While historically focused on SaaS, cloud, and fintech, these sectors will now be augmented by AI, alongside the inclusion of new investment verticals.

Initial Investments and Deployment of Capital

The firm anticipates making approximately a dozen investments and has already begun allocating capital from the fund. Initial investments include Upvest, a stock trading API from its early-stage portfolio, as well as external companies like Kraken, a manufacturer of dual-use unmanned surface vessels, and Nelly, a startup developing software and financial solutions for the healthcare industry.

Ensuring Objectivity in Investment Decisions

To maintain “robust objectivity,” as Chandler described it, follow-on investments will be managed by dedicated growth fund partners. These partners will also actively seek out growth-stage opportunities outside of the existing portfolio.

Expanding the Investment Team

Stephanie Opdam, an existing Notion Capital partner, will lead this growth strategy. She will be joined by Jessica “Jess” Bartos, formerly a principal at Salesforce Ventures. Bartos represents Notion Capital’s first external partner hire, as previous partners were promoted from within the firm.

Leveraging External Expertise

Chandler explained that the decision to bring on an external partner was driven by the novelty of the strategy, believing that “external expertise at that growth stage could be beneficial.”

A Favorable Shift in Fundraising Dynamics

Future growth funds may prove easier to raise, given evolving incentives in several European countries. Initiatives like France’s Tibi program and the U.K.’s Mansion House Accord are encouraging greater investment in venture capital by pension funds.

Geographical Flexibility and Fund Structure

Despite its origins in the United Kingdom, Notion Capital is not solely reliant on U.K. regulations. The latest Growth Opps III fund is denominated in euros and is based in Luxembourg.

Strong Limited Partner Relationships

The firm successfully raised the new fund, bringing its total assets under management to over $1 billion, by leveraging its established relationships with limited partners across continental Europe, the U.K., the MENA region, and the U.S.

Institutional Investor Base

Chandler noted that approximately 85% of the firm’s capital originates from institutional investors, with a geographically diverse distribution.

Positive Trends in Institutional Capital

While recent initiatives to mobilize long-term institutional capital weren’t a primary factor in this fundraise, Chandler expressed optimism, stating, “the indicators are extremely encouraging, which is positive for addressing the fundamental issue of growth capital gaps in Europe.”

Potential for Increased Competition

Increased participation from limited partners in growth-stage investing could lead to greater competition for Notion Capital, particularly at the growth stage where it is less established than in early-stage investments. However, Chandler views both stages as interconnected.

Leveraging Early-Stage Network

“Our true competitive advantage in this growth strategy lies in utilizing the network we’ve built through our early-stage investments,” Chandler stated. “Most growth funds lack this advantage, as they begin sourcing opportunities at the growth stage once they’ve achieved a certain scale and momentum.”

Active Platform and Flexible Check Sizes

Notion Capital maintains frequent engagement with founders through its active platform team and offers flexibility in investment amounts.

Portfolio as a Key Asset

Despite its broadened scope, Notion Capital’s portfolio remains a central asset. The firm has invested in over 150 startups, including Currencycloud, GoCardless, Mews, Paddle, and Quantum Systems. This track record is expected to attract external companies, even as growth capital becomes more readily available in Europe.

Note: This article has been updated to clarify that Notion Capital invested in Kraken Technology, not Octopus Energy spinoff Kraken.