“After 20 years, this ecosystem is up and running,” said Saul Klein, co-founder of Phoenix Court Group† “Now it’s about to get interesting.”
I chat with Klein to discuss today’s news that venture capital investor, Phoenix Court Group has secured an additional $500 million to support what he describes as “values-based innovation” in the UK and beyond. However, it soon becomes apparent that it’s not just the money raised that excites him. As an accomplished investor, he sees exciting times ahead for a tech ecosystem that he believes – even today – is somewhat understaffed by global and local investors. Equally importantly, with the launch of the new fund, Phoenix Court may provide support to companies at all points along the path from Seed and Pre-Seed to an IPO or trade sale.
Klein is perhaps best known for investments made through Seed stage specialist, LocalGlobe and its sister breakout fund, Latitude. But as he explains, the Phoenix Court Group’s operations will now formally include four separate funds, namely the aforementioned LocalGlobe and Latitude, plus Solar and Basecamp.
So what does that mean in practice? Well, Solar and Basecamp are not entirely new developments. Previously, they were funded internally within the LocalGlobe and Latitude operation. Under the new arrangement, they will be institutionally funded. Solar will focus on supporting companies on their way to the public or private market, while Basecamp is intended as a network of early stage investors.
Beyond the household
You could simply think of this as a piece of internal housekeeping for an established investor, but Klein says it’s more than that. By establishing four separate but linked funds, Phoenix is better positioned to build relationships with early stage founders with the ability to support at least some of them on a longer journey. As such, it turns into a lifestage investor, with a focus on impact.
So why is this important? Klein is stepping back to look at the bigger picture and says that while Seed investments are popular with the LPs investing in funds, the UK and European markets are still falling short when it comes to investing in the breakout and scale-up phases of development. This is despite the growing number of unicorns in the region.
Phoenix Court is eager to play a role in closing that funding gap, while – it must be said – promoting its own strategic interests. So far, Localglobe has pledged seed capital to 14 companies that became unicorns. The new Phoenix Court structure means it can now provide further funding to would-be unicorns and, indeed, other high-growth companies through Latitude and then Solar. “With Solar, we expect 80 percent of the companies it invests in have come through LocalGlobe and Latitude,” he says.
A changing technical profile
It’s a strategy that to some extent reflects the changing profile of tech investment. Fintech is of course still looming in London, but investors are increasingly looking for opportunities in areas such as Deeptech, Biotech, Climatetech and Agritech. Founders who work in these industries often take longer to build viable businesses. So patience is required.
“If you look at the technologies needed to tackle the climate, food and energy transition, there’s a lot of science,” Klein says. “We’ve always said that science companies should think in terms of at least 24 months of income-free runway.”
Phoenix Court has tried to attract LPs who think long-term. “Money comes from institutional investors – pension funds and insurance companies,” Klein says, and they’re here to stay.
Klein says Phoenix Court is also having more success attracting local investors. “In 2015, we had one UK LP,” Klein says. “At our last count, 20 per cent of LPs came from the UK. More UK investors are investing in this asset class.”
Good or bad timing?
But is this a good time to attract more investors? After several years of growth, there is mounting evidence that factors such as the war in Ukraine, high inflation and the prospect of a recession are eroding investor confidence. Sentiment may also be cooling off after several years of record investment. Sure, valuations are falling. “The coming years could be challenging for companies looking to raise capital,” says Klein. “The pace of investment will slow down.”
But the way he sees it, the foundations are in place for the ecosystem’s long-term success. The major problems facing the world – climate, food, digital transformation – are not going away and new solutions are needed. “This is a great time to hit the market,” Klein said.
The new Palo Alto†
During my conversation with Klein, a term that comes up repeatedly is “The New Palo Alto.” As highlighted in a recent report from anslyst, deal room this region is defined as anywhere within a four and a half hour train journey of the Kings Cross/St Pancras area of London, which is home to Phoenix Court and a host of technology companies. By that definition, we’re not just talking about most of the mainland UK, but also cities like Amsterdam, Berlin and Paris. It is an area that now offers enormous scaling-up and breakthrough opportunities. From Somers Town, the Phoenix Court Group team is at the epicenter of this imaginary area.
According to Klein, this was once considered a Frontier Market by American investors. That’s no longer quite the case, but investor support should still fully match that of the Bay Area or Beijing, despite being rich in tech companies. Phoenix Court hopes its structure will fill some of the funding gaps.