Caroline Brochado and Sophia Bendz on the boom in Europe’s early and growth-stage startups

Published September 17, 2020

As part of Disrupt 2020 we wanted to look at the contrasting positions of both early and later-stage investing in Europe. Who better to unpack this subject than two highly experienced operators in these fields?

After a career at Spotify and then as a VC at Atomico, Sophia Bendz has rapidly gained a reputation in Europe as a keen early-stage investor. She recently left Atomico to pursue her early and seed-stage passion with Cherry Ventures. Bendz is a prolific angel investor, with a total of more than 44 deals in the last nine years. Her angel investments include AidenAI, Tictail, Joints Academy, Omnius, LifeX, Eastnine, Manual, Headvig, Simple Feast and Sana Labs. She is known for being a champion of the femtech space, and her angel investments in that space include Clue, Grace Health, Daye, O School and Boost Thyroid.

Carolina Brochado, the former Atomico partner and most recently a partner at SoftBank Vision Fund’s London office, recently joined EQT Ventures to help launch EQT’s Growth fund, which is positioned between ventures and private equity. Brochado led investments in a number of promising companies at Atomico, including logistics company OnTruck, health tech company Hinge Health and restaurant supply chain app Rekki.

After establishing that these two knew each other while at Atomico, I asked Bendz why she headed back into the seed-stage arena.

“I’m a trained marketeer and storyteller by heart… What makes me excited is new markets opportunities, people, culture, teams. So with that, in combination with my angel investing, I think I’m better suited to be in the earlier stages of investing. When I was investing before joining Atomico, I said to myself, I want to learn from the best, I want to see how it’s done, how you structure the process and how you think about the bigger investments.”

Brochado says the European “cat is out of the bag,” as it were:

When I first moved to Europe in 2012 and first joined Atomico, after having been at a very small startup, there was still a massive gap in funding and Europe versus the U.S. I think you know the European secret is no longer a secret, and you have incredible funds being started at that early-stage seed and Series A, and because I was here in 2012, I’ve seen the amazing pipeline of growth companies that are coming up the curve, how the momentum of those companies is accelerating and how the market cap of those businesses are growing. And so I just became super excited about helping those businesses scale… I just now felt like bridging that gap in between was really exciting.

One of the perennial topics that come up time and time again is whether or not founders should go with VC partners who have previously been operators, versus those with a finance background.

“Looking back, my years at Spotify, we had great investors, but there were not many of them that had the experience of scaling a big company,” Bendz said. “So, I’m happy to give [a startup] more than just the check in a way that I would have wished I had a sounding board when I was 25 and tackling that challenge at Spotify.”

Brochado concurred: “Having operators in the room is just is an incredible gift I think to a fund and at certain levels, having people that understand you know different forms of financing and different structures can also be incredibly helpful to founders who may not necessarily have that background. So I think that the funds that do it best have that diversity.”

Bendz is passionate about investing in female founders and femtech: “It’s such a massive business opportunity that is completely untapped. We’ve seen it many times when you have a female investment partner [that] the pipeline opens up and you get more deal flow from female founders…. So I think we have a lot of work to do. I think it’s definitely improved a lot in the last couple of years but not enough… That is one of the drivers for why I put my money where my mouth is and invest in lifting the founders, but also because there are incredibly interesting business opportunities… There are so many opportunities and products or services that we will see being developed. When we have a more equal society, and more women, both building their own companies, coding and also investing… I can’t wait to see what that world will look like.”

Brochado’s view is that “even beyond founders… the best managers today are putting a lot of focus on this and I think what’s exciting is, I think we’re past the point where you have to explain to people why diversity matters.”

Is there a post-Series A chasm?

Bendz thinks: “We have more big funds in Europe [now]. We have a really solid ground here in Europe of A, B and C investors.”

Brochado said: “It’s definitely getting better. You don’t hear as many founders say that to do my Series B or my Series C I have to move to the Valley as you used to. But there’s a lot of room still for growth investors in Europe. I think Series B is the hardest round actually because, at seed or Series A, you can raise on very early traction or the quality of the management team. At Series B the price goes up but the risk doesn’t necessarily go down as much. And so I think that’s where you really need investors who are sector or thematic focused, who can come with conviction and also some knowledge around the company to really propel that company forward.”

Did they both see European entrepreneurs still making silly mistakes, or has the ecosystem mastered?

Brochado thinks 10 years ago it was hard for European founders as a lot of the talent to scale companies was still in the U.S. “What you’ve seen is a lot of big companies grow up in Europe, a lot of people come back from the U.S., and so I think that pool of talent now is larger, which is very helpful. I don’t think it’s yet at the scale of where the U.S. is. But it gives us, you know as investors, a great window of opportunity to help get some of that talent for our portfolio companies.”

The impact of COVID-19

Bendz thinks we will “see a much slower spring, but… I think it has been overall a good exercise for some companies, and I have not seen a slower deal flow. I’ve actually done more angel deals this spring than I normally do… Some businesses have definitely accelerated their whole business concept because of COVID. Investments are being made even though we haven’t met the founders. We’re able to do everything remotely so I think the system is kind of adjusting.”

Brochado’s view is that at the growth stage “there’s been a flight to quality. So actually, the really great companies or the companies that are seeing great tailwinds or companies that will still be category-leading once [have] seen a lot of interest. It’s been a very busy summer, which usually it isn’t, particularly at the growth stage… I think a lot of money is still in the system, and has flown into technology. And so if you look at how tech in the public markets has performed it’s performed extremely well. And that includes European public companies and within tech.”

Watch the full panel below.