Draper Esprit's Decision to Remain Publicly Listed

Venture Capital Firms Navigating a Changing Landscape

TechCrunch consistently reports on developments within the venture capital world, covering new fund launches, shifts in partnerships, and the funding rounds themselves. Recent trends include the rise of rolling funds, the increasing prevalence of solo GPs, and an accelerated investment pace that has fundamentally altered venture investing norms. The speed of today’s private markets means investors can no longer afford lengthy due diligence periods.

The Trend of Publicly Listed Venture Capital Firms

Alongside these shifts, a noteworthy trend is emerging: venture capital firms are increasingly choosing to go public. In July, for instance, London-based Forward Partners debuted on the AIM, a segment of the London Stock Exchange. Augmentum Fintech represents another example, focusing its investments on European fintech companies and maintaining a listing on the London Stock Exchange.

Draper Esprit, a British venture capital firm, recently transitioned from the AIM to the main LSE, with a secondary listing on Euronext Dublin. TechCrunch has previously featured Draper Esprit partners in its coverage of the European venture capital ecosystem, particularly when analyzing startup data.

Draper Esprit’s Decision to Go Public

To gain insight into Draper Esprit’s decision to not only remain public but to enhance its structure through a move to the primary exchanges in London and Dublin, we spoke with the firm’s co-founder, Stuart Chapman. The following is an edited transcript of that conversation. Further analysis and interviews regarding the potential spread of this trend, and the reasons behind other firms’ choices, will follow in The Exchange.

Interview with Stuart Chapman

TechCrunch: Let’s begin by discussing the timeline of this listing change.

Stuart Chapman: Simon Cook and I established Esprit in 2006. After a decade of raising traditional funds, we were approaching the point of launching our fourth fund. However, we encountered frustration with limited partners attempting to categorize us rigidly. Simultaneously, the London market expressed increasing dissatisfaction with private companies remaining private for extended periods, limiting access for investors.

We were approached by City funds to explore raising our fourth fund through a public market listing, as ARM was becoming the last major tech company on the London Exchange. We spent five successful years on AIM, raising capital annually, until our capitalization exceeded £1 billion. At that point, it became clear that to achieve our ambitions for the next five years, we needed access to a larger market with a broader investor base.

A core part of Draper Esprit’s mission is to democratize venture capital, as Simon often states, and a main market listing enhances that opportunity. Initially, on AIM, we attracted capital from professional funds and tech enthusiasts with a positive bias. However, this pool is limited. Expanding to general funds, perhaps those focused on the U.K. or technology, meant dealing with smaller funds. Stepping up allows us to access larger funds and meet their minimum investment criteria.

Capital Raising Expectations

And can we anticipate Draper Esprit raising more capital annually as a result?

Ideally, no. Realizations should equal investments, creating a self-sustaining cycle. However, Draper Esprit strives for innovation. It’s remarkable that venture capital, backing some of history’s most groundbreaking technologies for 70 years, still relies on a legal structure from 1958 New York property ventures. Surely, we can evolve and push boundaries as much as we encourage our entrepreneurs to do.

Simon and I have always been driven to explore new possibilities that empower entrepreneurs.

The Role of Retail Investment Platform PrimaryBid

Regarding innovation in venture capital models, what motivates your use of the retail investment platform PrimaryBid? Is it primarily about opening investment opportunities to a wider audience, or does it significantly contribute to Draper Esprit’s capital base?

It’s the former. In 2010, we launched our Enterprise Investment Scheme (EIS) product. The EIS is a U.K. tax incentive allowing individuals to invest in tech businesses and receive a 30% tax credit, with tax-free gains if successful. It’s a beneficial government initiative. However, the industry often used it solely to facilitate tax credits.

We believed it should empower individuals to back promising businesses, with the tax credit as a bonus. We enabled entrepreneurs and individuals within the tech ecosystem to participate in the Draper Esprit EIS program, democratizing equity. Today, that vehicle holds approximately £150 million, with another £50 million in the VCT, a similar U.K. tax-advantaged scheme. This totals over £200 million from individual investors. Our goal is to expand our ecosystem to include influential individuals.

Supporting Innovation in the Venture Capital Space

How do you view having paved the way for other funds to go public?

Personally, and at Draper Esprit, we strongly support innovation. We’ve assisted Mark Boggett at Seraphim, sharing our experiences and insights. We also invested in Forward Partners through our fund of funds program, demonstrating our support for Nic Brisbourne’s efforts. He was a former colleague of Simon and mine.

Our approach differs from technology transfer firms like IP Group, which focuses on backing computer science research from universities. While we support others following our lead, we value diversity within the sector.

Investing in Other Funds and Geographic Expansion

Why is Draper Esprit investing in other funds, and does this broaden your geographic reach?

There are two key reasons. First, a strong ecosystem benefits all of Europe. Historically, seed fund creation in Europe has been fragmented. Finland, for example, had 80 programs for early-stage capital, with regions receiving seed funds but lacking follow-on investment.

It’s crucial to recognize that venture capital is an escalator. Without the ability to pass the baton to the next investor, startups struggle. A robust ecosystem attracts headhunters, talent, bankers, lawyers, advisors, and innovators.

Second, venture capital is often constrained. Funds typically cannot invest in other funds. Simon and I, driven by our innovative spirit, questioned why we couldn’t invest in early-stage funds, partner with them, and serve as their go-to Series A or Series B investor.

[TechCrunch note: The firm developed a 2x2 matrix, analyzing geography and skillset. Draper Esprit identified areas of strength and weakness in both, partnering with other funds in areas where it lacked expertise or geographic presence to ensure consistent deal flow.]

This partnership approach allows us to leverage their talent and geographic focus while providing them with our capital. It has been remarkably successful. We now have investments in approximately 42 funds across Europe, with initial commitments of £75 million and a recent additional commitment of £75 million, totaling £150 million, making us one of the largest private commercial investors.

Ireland’s Role in the European Ecosystem

What are your thoughts on Ireland, and do you see it as simply a gateway to Europe?

Ireland has a long and established history with us. The Irish government, through the Ireland Strategic Investment Fund, was once our largest shareholder and remains a significant investor. There’s a strong relationship between Simon, myself, and the investment group there.

Ireland boasts a renowned education system, with strong universities like Trinity and UCD in Dublin, and Queen’s University Belfast in the north. It has also benefited from the presence of major tech companies like Facebook and Google. However, Ireland is relatively small, and the number of Series A and later-stage deals originating there is lower compared to other major cities. We value Ireland’s talent but view it as a component of a larger ecosystem, rather than a London or Berlin equivalent.

Future Startup Hotspots and Exciting Sectors

Where is Draper Esprit looking for the next generation of startups, and are there any sectors you find particularly promising?

In fintech, we’re adopting a contrarian approach. Large incumbents possess outdated systems but enjoy strong customer loyalty and trust. European regulators are supportive of both incumbents and challengers. We hear less positive feedback from our American colleagues regarding the SEC.

The environment encourages challenging the established banks, but challengers lack trust and the financial strength of incumbents. We believe the large banks need to modernize their legacy systems, but won’t replace them entirely. This creates opportunities for incremental updates, projects worth tens or hundreds of millions of pounds, targeting a lucrative customer base.

Does this modernization rely on fintech startups?

Yes, that’s our strategy. It’s considered unfashionable because it doesn’t directly impact consumers and involves lengthy sales cycles. However, the expertise within the teams we back is exceptional, positioning them as leaders in the sector. This high barrier to entry gives Europe an advantage over the U.S., as attacking European startups from overseas is challenging.

More to come shortly; stay tuned.