Finch Capital, the early-stage fintech VC with a presence in London and Amsterdam, has raised a 3rd fund targeting to final close of €150 million, the fund has already secured €85 million from LPs able to deploy.
At Series A and B Stages Finch Capital “Europe III,” the VC will invest in fintech startups, minimize its previous inclusion of seed. Specifically, it says it’s on the lookout for “European category leaders,” and especially those leveraging AI with €2-5 million in revenues a corporation profile, the firm argues, that’s currently seeing a funding gap. More importantly in early 2020, Finch Capital added Google and DeepMind alum Steve Crossan as a venture partner.
As with its previous funds, Finch plans to back 15-20 European startups over subsequent three years, and candidly reveals it’s targeting liquidity (i.e. exits) “3-5 years post investment”.
Radboud Vlaar, MD Finch Capital, told that though we have a comparatively good hit rate on seed deals, the general impact on the fund is little, as we’ve made the simplest returns on deals with €2-5 million in revenues. As a team, to leverage our network to assist companies to scale, which is harder within the earlier stages when the businesses search for product market fit.
On a possible funding gap, Vlaar says there’s tons of early-stage capital getting to companies with €0.5-2 million in revenue, with the aim to urge to €5 million and beyond in revenue quickly. And there’s also tons of capital chasing companies with €5-10 million in revenue. In reality, B2B takes time and lots of companies aren’t growing linearly, he observes. They may need to change the team, strategy etc., on the thanks to cracking the market.
In addition, most of the U.S. or European growth firms like better to see signs of a “winner takes all” market, which in Europe, thanks to its fragmented landscape, is more like an exception than the rule that has a greater proportion of €100-500 million exits.
This means that Finch is seeing promising companies with “great products” that face a funding gap at €2-5 million in revenue, which the VC aims to plug. “Our strategy is fairly dynamic in terms of ownership but specific in terms of theme: we will aspire for 30-40% in certain companies also because the more traditional stake of 15-25%,” adds Vlaar.
Meanwhile, Finch’s current portfolio includes pure-play fintech, regtech and insurtech, and includes Trussle, Fourthline, Goodlord, Grab, Hiber, BUX, Twisto and Zopa. Exits include Salviol and Cermati, plus two exits currently unannounced or ongoing.
In 2020 the firm launched “Flowrence,” its machine learning tool to assist source and manage deal flow. Finch says that over the last SIX months, 20% of its shortlisted deals were sourced by Flowrence, especially useful during the present pandemic.