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Are markets cooling down?

September has, for years, had a reputation (deservedly) as a month best avoided in stock markets (or perhaps one to lean into, if you look to “buy the dip”). In fact, since 1982, September has been the only month to deliver negative S&P 500 returns on average.

September 2021 didn’t disappoint. The S&P 500 index was down 5% in what has been the first real blip since May.

While September was disappointing for public stock markets, Q3 was an excellent quarter for venture capital. Unfortunately, we don’t have real-time reporting in quite the same way as for public markets. Still, even based on the investments that have already been reported, Q3 has been another record quarter for venture capital, with more than $150bn invested on a global basis (Dealroom.co).

Once again, this expansion was mainly driven by growth in later stage rounds. While it isn’t surprising that most of the capital is deployed in larger rounds, it is interesting that pre-seed and seed rounds now account for only about half of all funding rounds, down from 80% just a few years ago (Dealroom.co). However, the shift from smaller to larger rounds has been significant since 2016 so we have enough data to see that the trend is real.

In other words, we continue to see many investors shift their focus to later stages where they can deploy more capital and companies can be more easily diligenced based on financial KPIs. However, as we know, these rounds are getting very competitive, and valuations have increased rapidly. 

From our side, we remain entirely focused on the seed-stage where valuations and risk-adjusted returns remain attractive, and there is a rich opportunity to partner with great teams before the rounds get too competitive.

What is the future of work? 

Over the past 18 months, we have all been part of a fascinating experiment on the impact of remote working. While there are undoubtedly benefits, we are still not fully aware of the long-term implications.

A recent piece of research by Longqi Yang et al. took the pandemic as an opportunity to analyse the effects of remote working in more detail. Looking at those already working remotely alongside those forced to. This background enabled the researchers to separate the effects of firm-wide remote work from other pandemic-related confounding factors. They used rich data from emails, calendars, instant messages, video/audio calls and workweek hours of 60k Microsoft employees over the first six months of 2020 to understand the effects of firm-wide remote work on collaboration and communication.

Their results showed that firm-wide remote work caused the collaboration network of workers to become more static and siloed, with fewer bridges between disparate parts. Furthermore, there was a decrease in synchronous communication and an increase in asynchronous communication. Together, these effects may make it harder for employees to acquire and share new information across the organisation.

This certainly won’t be the last word on remote working and the future of work.

Portfolio News

Following more than a year of break-neck growth, most of our portfolio reported a quiet August as customers and partners took the month off. However, we have now closed September and Q3, with preliminary reporting showing that customers returned from holidays with plenty of buying appetite. From what we know so far, Q3 was overall a great quarter fuelled by a strong September – more next month once all the numbers are in.

We had several up-rounds in Fund I and returns across the portfolio are good.

  • Dopay announced an $18m Series A and now have plenty of capital in the tank to expand following the regulatory approval of their new platform back in June.
  • We also have three additional portfolio companies soon to close their Series A rounds.
  • Integrated Finance are looking to hire a couple of superstar Java developers if you know anyone in your network?
  • Kluster are flying with growth driven by both strong upsells and returning customers. 2 new feature releases and 4 new team members.
  • Duel are also keen to hire hungry junior salespeople and a head of customer success. They’ve just signed Mint Velvet, Beauty Pie, Charlotte Tilbury and Spectrum as new customers in Q3.
  • And last but not least Ai Build having just closed their £820k round are also proud to share that they just signed their 5th subscription client with several large automotive OEMs almost ready to sign.

Events

On October 27th we have our next startup pitch event, showcasing several companies in our pipeline plus a fireside chat with Henry Whorwood from Beauhurst talking about data! Discussing crazy valuations, who is moving the needle, how attractive is the UK really, the angel deal landscape and so much more.

Put October 27th, 430-530pm in your diaries and please REGISTER HERE.

(We are also planning a live event towards the end of November – more news on that to follow.)

SuperSeed Fund II

In September, we had pre-closing on the new fund and will be making the first investments out of the warehousing facility in October (these investments will be rolled into Fund II). The strategy remains to back Europe’s best entrepreneurs in the business automation space. 

We are targeting the first formal closing on Fund II at the end of November. Please get in touch if you would like to learn more about the fund and SuperSeed’s investment strategy (only open to qualifying investors).

Oh, that’s interesting

  • China Bans Crypto – In a very bold move, China’s central bank declared ALL crypto transactions to be illegal. China is one of the world’s largest crypto markets. PBOC stated cryptos “seriously endangers the safety of people’s assets.” 
  • Chase’n Retail Banks – JP Morgan Chase debuted their first overseas retail bank in over 200 years in the UK but don’t expect to see a branch near you anytime soon, it is digital only. We shall now see what deep tech pockets can do to the challenger bank landscape. ​​
  • Down, Down, Down – With Facebook, WhatsApp and Instagram all having global outages, many millions turned to Twitter for answers. Did you know that over 55% of Twitter users regularly get their news from the site? 
  • When the boat comes in – Ports are bursting at the seams, with some ports showing container loads up to 70% more than pre-pandemic rates. Shortages and delays are becoming commonplace as ports struggle to adapt to demand.
  • Ever (not so) Grande – Evergrande, the world’s most indebted property developer, is missing bond payments, trading on its shares has been suspended and its fire sales are not generating the liquidity needed. This could become something to watch.

Best October greetings from Dan, Mads and the SuperSeed team

This article is published by SuperSeed Ventures LLP, authorised and regulated by the Financial Conduct Authority. The article does not constitute substantive research or analysis and should not be construed as an investment recommendation. Please note, investments in unlisted companies are illiquid and expose investors to a significant risk of losing invested capital. Please always seek independent financial advice before making investment decisions.