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Dark October Clouds?

To some investors, October represents a tumultuous and historically challenging month.

This largely psychological reaction called the “October Effect” has its origins in the many dramatic financial crashes that have happened in October. The Bank Panic of 1907, the 1929 stock market crash and Black Monday 19th October 1987. And, oh – October 2008 was pretty grim too, with the S&P 500 delivering a negative 16.79% hit to investors.

However, when you look over the last 50 years, October has, on average, been a positive month. And since 2000 the tally has been 14 up years (including the October just closed) vs only 8 down years. It turned out that this year’s “dark month” delivered a smooth and steady 5.8% monthly climb for the S&P 500 from 4357 to 4605.

Halloween also came and went, but it seems we avoided the worst of the October ghosts this year.

What’s new in Venture Capital?

At SuperSeed we invest in business automation which includes AI and industrial tech. Both of these areas are growing rapidly, and often-times in an interlocking way, as advances in AI are paving the way for progress on the industrial automation front. And much as it can feel like automation “has been done”, it is surprising how many factories still operate with machines that don’t deliver continuous sensor data, and therefore can’t be optimised using machine learning.

Until now, that is.

Exciting startups in our portfolio, like ThingTrax, are working to address this, and they are not alone. A significant number of startup founders (and venture capital investors) are looking to make our manufacturing base more efficient including resource efficiency which is key from a sustainability perspective.

Let’s look at some of the latest numbers. State of AI & Industry 4.0 tech Funding for European AI startups hit $4.6bn in the first 9 months of 2021, already outpacing the FY 2020 number by 35% (CB Insights). But it is not just investments that are taking off.

European exits are surging again with 72 AI exits recorded in 2021 Q1 – Q3 with the majority being M&A activity (CB Insights). On the industrial side, we are seeing a rapid increase in investment in industrial automation (Industry 4.0) startups, with investments in the first nine months of the year nearly 2x of 2019 which was the previous record year. And while the pandemic slowed industry 4.0 investments in 2020, it’s likely to accelerate it going forward as the pandemic has given manufacturers a big incentive to accelerate the deployment of digital transformation projects.

We have a strong pipeline of AI and industry 4.0 companies and are planning several investments in these areas in the coming months.

Portfolio News

Q3 portfolio revenue numbers for SuperSeed Fund I are now in, and topline numbers were up almost 35% quarter-on-quarter (+10%/month). After a very quiet August that generally saw B2B buyers down tools and take overdue holidays, sales engines roared back to life in September to deliver another great quarter for sales and revenue. Portfolio company revenue is now at 2.85x year-over-year on a like-for-like basis.

We had several up-rounds in Fund I and IRR across the portfolio is now 25% net. We are aiming for this to increase over the coming 6 months as more companies graduate to Series A.

Fund I investors can find the updated Q3 valuations from this week via the fund portal

The team at Kleene have had a phenomenal year and have just closed their $14m Series A() led by Octopus Ventures. We met Andrew Thomas and Matt Sawyer more than a year ago and have been working closely with them since then. The round is a great milestone, but only the beginning for an incredible team that’s making magic in a super hot space.

Following hot on the $18m Series A by Dopay last month, we are now starting to see the first batch of companies hit the next valuation milestone as they graduate to Series A.

ThingTrax had a great quarter, winning several major contacts and growing recurring revenue by 73% quarter-on-quarter.

Kluster, Duel, Kamma, Techsembly and Integrated Finance have all continued to win solid contracts and have posted robust growth in recurring revenue. Based on their current trajectories, these companies are all on track for Series A in 2022. Overall it has been a very strong Q3 and the current outlook is for an equally strong Q4.

Events

We forwent our usual monthly pitch event to host a special Investor only event on 17th November to discuss our success to date and also our future plans.

The strategy remains to back Europe’s best entrepreneurs in the business automation space but please get in touch if you would like to find out how we plan to do that going forward (only open to qualifying investors).

Oh, that’s interesting.

  • Amazon keeps delivering – Amazon’s dominance in almost every area of business it touches continues as they surpass FedEx in number of delivered packages.
  • Buffets Brazilian Bank – NuBank, who received a $500m investment from the Oracle (Buffet) in June, is set its sights on going public at a reported $50bn valuation.
  • Flipping Business Shut – Zillow’s ill-fated house flipping business has been shut, with a recent deal to sell 2000 of the nearly 18k homes it has. This move is set to cost the company $500m and lay off ¼ of its staff.
  • Sequoia gently changes the VC landscape – Their new fund model removes some of the structural pressures that have historically led to needing to liquidate positions based on an arbitrary 10yr timeline rather than what’s the best investment decision. Their new model allows for truly patient capital plus liquidity.
  • The artist formerly known as . . .Facebook – After who knows how much spent on advertising and branding consultants, Facebook has changed its name to Meta. Wow, I know you are as moved as we are. Who knows if it will be enough to distract from the disturbing revelations of Frances Haugen.
  • And finally, what makes a good seed investor? Napala Pratini recently shared her experiences from 100 investor meetings. Not surprisingly, she found that working with investors who themselves have startup backgrounds makes a positive difference.

Best November 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.