Top European investor raises $700M to invest in B2B software startups, defying VC funding slump

The venture capital funding drought is not over yet but one of  Europe’s largest venture capital funds dedicated to B2B software is bucking the trend with the announcement of millions in funding to invest in promising early-stage tech startups.

Dawn Capital, a top European VC firm, has raised $700 million in two new funds, doubling down on its investment in B2B software startups at a time when venture capital funding for tech startups has slowed down.

The London-based firm has a track record of backing successful B2B tech companies, including Swedish online payments firm iZettle, which was acquired by PayPal for $2.2 billion in 2018, and Swedish open banking company Tink, which Visa acquired for 1.8 billion euros ($1.9 billion) in 2022.

Raising the new funds in a challenging market environment was far from easy, said Hannah Gubbins, a newly promoted partner at Dawn Capital. But the firm was able to do so thanks to its deep relationships with institutional investors built up over the years.

The new funds will be used to invest in early-stage B2B software startups across Europe. Dawn Capital is looking for companies with innovative products and services that are solving real-world problems for businesses.

The investment is a sign of confidence in the future of European B2B software. Despite the current market challenges, Dawn Capital believes that there are still many great opportunities for investors in this sector.

“For us, the LP [limited partner] side, even those that weren’t building programs in venture where lots of people felt historically, 18 months ago, they ought to be allocating a lot more to venture,” Gubbins said in an interview with CNBC

“Suddenly with everything with the markets and the denominator effect, their private book was overallocated even if technically by their own benchmarks they weren’t. That meant a lot of funds could only re-up with existing managers or those with high convictions.”

“It’s the same as in those cycles where there is still capital out there, there are still investors investing. Investors are excited to be investing in this market,” Gubbins added. “There’s some of the best companies, some of the best vintages have come out of the dotcom [bubble], out of the global financial crisis. They know that they sit on the data.”

The fund is split into two parts: a $620 million early-stage fund for Series A and Series B investments, and an $80 million “opportunities” fund for backing winners in Dawn Capital’s portfolio that may go on to exit through an initial public offering or takeover later in their business lifecycle.

Dawn Capital is investing in B2B software startups at a time when venture capital funding for tech startups has dwindled. This is due to a number of factors, including rising interest rates and inflation, which have made investors more cautious about investing in risky, long-term assets like startups.

However, Dawn Capital believes that there are still many great opportunities for investors in the European B2B software sector. The firm has a track record of backing successful companies in this sector, including Swedish online payments firm iZettle and Swedish open banking company Tink.

One area where Dawn Capital is particularly interested in investing is artificial intelligence. AI has been one of the few areas of tech that has continued to attract investment despite the overall decline in funding. Dawn Capital believes that AI has the potential to revolutionize many industries, and the firm is looking to invest in companies that are developing innovative AI products and services.

Dawn Capital is confident that its new fund will be successful, even in the current challenging market environment. The firm has a deep understanding of the European B2B software sector, and it has a strong track record of backing successful companies.

“We’re doubling down on what we’ve always done,” she said. “AI is absolutely one of the areas we’re looking at. Both investing in AI companies but also as something that’s disrupting every sector and company.”