Benchmark Capital is reducing its first European fund from $750 million to $500 million in response to the lower capital requirements of investee companies. The Silicon Valley-based VC firm expects to be able to make as many investments now as it would have done from the larger fund thanks to “a dramatic improvement in capital efficiency among European technology start-ups.”
“Companies that would have required $20-30 million to achieve profitability in 1999 or 2000 now require significantly less financing. Many of the components of a company’s cost structure are considerably less expensive than they were when we raised Benchmark Europe I,” said George Coelho, general partner at Benchmark. The firm said its reputation had also contributed to its ability to invest at lower valuations.
In deciding to downsize the fund, the Benchmark partners were reportedly acting of their own accord, rather than in response to investor pressure. Phil Horsley of Horsley Bridge Partners, an investor in each of the Benchmark funds, said: “We agree with the analysis and the decision that the Benchmark partners have made.”
The fund, still one of the largest devoted to early stage technology investments in Europe, has been reduced to its original target size during fund raising in 2000.
Since Benchmark established its London office two years ago the fund has made 14 investments. It expects to invest the remainder of the fund over the next two to three years. The most recent transaction, completed this month, was a participation in a GBP10.3 million round for Nexagent. The company, set up by Orchestream founder Charlie Muirhead, has developed a network peering architecture and collaborative commerce platform for the telecoms industry.
Benchmark, founded in 1995 manages over $2 billion, including a $220 million fund dedicated to investments in Israel.