A Conversation with LocalGlobe: New Funds and Investment Strategy

“Were you aware I was recording this?” Saul Klein, a founding partner at LocalGlobe, inquired.

“Merely as a precaution, in case you share something noteworthy,” I responded with a playful tone.

“I anticipate others will contribute more substantially to the discussion,” Klein replied with a straight face, before offering a smile.

The LocalGlobe Team and a Shift to Virtual Meetings

I once again participated in a group interview featuring several members of the LocalGlobe investment team: Klein, George Henry, Suzanne Ashman, Julia Hawkins, Mish Mashkautsan, and Remus Brett. This time, however, the meeting occurred via Zoom, a departure from my 2015 visit to their offices at Tileyard Studios, and their current Phoenix Court location in London’s King’s Cross.

Unlike my previous engagement, where I sought information about their latest fundraising efforts – which Klein initially resisted sharing – this time I was invited to write an article centered around the announcement of two new funds raised the previous year.

New Capital for Seed and Growth Stages

LocalGlobe, focusing on seed-stage investments, has secured an additional $150 million in capital for deployment across the U.K., Europe, and beyond. Complementing this is Latitude, a growth-stage fund now boasting $220 million, enabling the LocalGlobe team to re-evaluate successful portfolio companies or invest in promising scale-ups that may have been overlooked previously.

“Latitude originated from the desire to ensure continuity,” explained George Henry, a general partner at LocalGlobe. “For existing LocalGlobe companies, Latitude builds upon our initial investment, providing the capital to further support their growth.”

Latitude: More Than Just Follow-On Funding

The firm distinguishes Latitude from traditional follow-on funding. It allows investment in companies LocalGlobe hasn’t previously backed, and even for those it has, the team – including Julian Rowe, who leads Latitude – conducts a fresh assessment before committing capital.

“Approximately 80% of Latitude’s portfolio companies have at least one LocalGlobe partner actively involved,” Klein stated.

“Insights and Access”: The Core Strategy

Internally, LocalGlobe frames its investment strategy, regardless of fund or stage, as “insights and access.” While the precise meaning wasn’t explicitly defined, I understood it to mean possessing the expertise to understand a market and identify promising opportunities, and having the network to secure deals.

“It’s naturally easier to gain insight and access when you’ve been involved with a company since its pre-seed or seed stage,” Henry clarified. “However, we’ve also identified opportunities where our existing knowledge of the founders, the market, and the investor landscape gave us the confidence to participate in Series B funding or later.”

Learning from Past Decisions: The Case of Monzo

LocalGlobe isn’t alone among European early-stage VCs in launching separate later-stage funds, aiming to minimize dilution for high-potential companies or capitalize on opportunities with reduced risk. This raises the question of how discussions unfold when Latitude considers investing in a company LocalGlobe initially declined.

A prime example is Monzo, the U.K. bank known for its vibrant coral-colored debit cards. “We were aware of Monzo from its inception,” Klein admitted. “Initially, we didn’t believe in the potential of consumer neobanks, favoring their application in SME or business banking, where incumbents were less focused. We considered business banking a more sustainable model than consumer retail banking.”

Instead, LocalGlobe invested in Cleo, a financial chatbot, and Tide, a business bank account.

“In retrospect, we were mistaken,” Klein conceded, revealing that Suzanne Ashman, a LocalGlobe general partner, was an early supporter, investing in Monzo’s equity crowd fund personally.

“When Latitude presented an opportunity to invest in Monzo, we recognized its exceptional potential,” Klein continued. “We valued our relationship with investors like General Catalyst and Accel, who were also involved, and saw it as a compelling opportunity.”

Cazoo and the Challenge of Conflicts of Interest

Another instance of an initial missed opportunity involved Cazoo, the used car retailer founded by Alex Chesterman. Klein and Chesterman have a long-standing relationship from their time at Lovefilm, and LocalGlobe previously invested in Zoopla, a proptech company Chesterman led to an IPO. Access wasn’t the issue; a potential conflict of interest was.

LocalGlobe had invested in Motorway, which was initially perceived as a competitor to Cazoo. Once this concern subsided, Latitude made a later-stage investment. Last month, Cazoo announced plans to go public via a SPAC, with a valuation of $7 billion, demonstrating the potential cost of overlooking opportunities due to conflicts.

Latitude’s Focus: Supporting Portfolio Breakouts

These instances are exceptions, according to Klein, emphasizing that Latitude’s primary goal is to support the growth of LocalGlobe’s portfolio companies. “LocalGlobe focuses on the pre-seed and seed stages, while Latitude supports companies experiencing rapid growth and reaching an inflection point,” he explained.

However, the existence of a later-stage fund could also lead to a more cautious approach to early-stage investments, allowing LocalGlobe to observe and assess opportunities before committing capital.

Henry vehemently disagreed with this notion, prompting Klein to address the question.

“The earlier you invest, the stronger the relationship you build,” Henry asserted. “Being the first to believe in a team is invaluable.”

“Furthermore, in the current market, delaying investment with the expectation of joining a Series B round is risky. The longer you wait, the more challenging it becomes to invest in a promising company.”

Insights from LocalGlobe: Navigating the Investment Landscape

Regarding Capital Flow into Private Markets

Saul Klein notes the unprecedented influx of capital into private tech markets. He emphasizes this substantial investment isn't merely remarkable, but fundamentally crucial for fostering both growth and innovation.

Having spent two decades in the field, Klein observes that reaching a viable starting point previously took 20 years; now, the real potential is unfolding.

Investment Potential in Heavily Regulated Sectors

Suzanne Ashman highlights the significant opportunities present within highly regulated industries. These areas were largely overlooked during the initial wave of venture capital investment.

Even five years ago, founders were less inclined to build businesses in heavily regulated spaces, but the landscape is shifting, and the potential is expanding alongside the growing capital base.

Healthcare: A Promising Investment Area

Julia Hawkins expresses strong optimism regarding the healthcare market, recognizing its immense size and potential. LocalGlobe is strategically increasing its investment in specific healthcare themes.

This includes developing improved communication systems for healthcare providers and enhancing patient connections with hospital networks. Furthermore, mental health is identified as a particularly large market with significant potential for positive impact.

The Role of Investors in Successful Exits

Suzanne Ashman describes the investor's position during successful exits as a supportive one. She emphasizes that the founders are the central figures in these achievements.

As a seed investor, and with support from Latitude, the journey is long-term, allowing for deep relationships with founders, their families, and partners, making the experience a genuine privilege.

Fintech's Continued Evolution

Remus Brett predicts continued innovation within the fintech sector over the next five years. This spans areas like payments, core banking, and insurance.

He suggests that even as market leaders appear to emerge, new companies will continue to disrupt the landscape and redefine the competitive dynamics.

The Capital Needs of Frontier Technologies

Mish Mashkautsan points out that truly groundbreaking, or foundational, technologies demand even greater patience and a long-term vision focused on future possibilities.

The amount of capital available for these frontier tech startups is considerably more constrained compared to general startups, a reality keenly felt within the industry.