Earlier this year, we reported on Liquidity Group’s successful fundraising, securing $40 million in capital and unveiling a $250 million debt fund tailored for technology companies. Notable backers for this endeavor included Apollo (a private equity firm and owner of Yahoo!) and MUFG (a Japanese bank).
Liquidity Group presents a unique fusion of technology and lending capabilities. The company functions as both a tech platform and a lender, harnessing its technological infrastructure to make informed decisions regarding the deployment of debt facilities and other financial solutions ranging from $5 million to $100 million. Liquidity Group prides itself on its efficient and expedited processes, which are notably swifter compared to traditional approaches.
In addition to its offerings, Liquidity Group operates “Mars Growth Capital Europe,” a substantial $250 million debt fund dedicated to providing growth financing, with a particular focus on late-stage tech companies and mid-market firms.
Presently, MUFG and Liquidity have joined forces to introduce a series of five non-dilutive (debt) funds under the Mars umbrella. Notably, this marks the launch of their very first equity fund, leveraging the same cutting-edge technology mentioned earlier. This equity fund will primarily cater to late-stage and growth-oriented companies. Mars Growth Capital and the Dragon Fund are headquartered in Singapore, focusing on equity investments within the APAC region.
“Dragon Fund I” is set to initiate growth equity investments in private tech and tech-enabled companies, with a specific focus on mid to late-stage firms, initially targeting opportunities within the Asia-Pacific region. These investments will range in size from $20 million to $100 million. Furthermore, MUFG is increasing its capital commitments to MARS Growth Capital’s non-dilutive funds, elevating its support from $750 million to $1 billion.
Ridhi Chaudhary, Managing Director and GP Partner of Dragon Fund commented, “Leveraging the robust capabilities of Liquidity Group’s machine learning platform, our investment teams will be empowered to comprehensively evaluate investment prospects with increased efficiency.”
In parallel developments this week, Dawn Capital, a prominent European venture capital firm specializing in B2B software, successfully secured a substantial $700 million for investment purposes. This development carries greater significance for early-stage enterprises.
This funding encompasses two key components: the $620 million Dawn V fund, which is specifically tailored for Series A and B stage startups, offering initial investments ranging from $10 million to $40 million, along with provisions for subsequent funding rounds. Additionally, Dawn Opportunities III is an $80 million follow-on fund, primarily targeted at later-stage companies, specifically those in the Series C stage and beyond.
Dawn Capital has an impressive track record, with past investments including Mimecast (formerly listed on NASDAQ and later taken private by Permira in a $5.8 billion transaction), iZettle (acquired by PayPal for $2.2 billion in cash), Tink (purchased by Visa for $2.0 billion), LeanIX (recently acquired by SAP), and more recent additions like Collibra, Dataiku, and Quantexa, all of which have achieved unicorn status.
Haakon Overli, General Partner at Dawn Capital, views the current investment landscape as highly favorable, stating, “This is an excellent point in the investment cycle, and we anticipate the growth opportunities in Europe will only continue to expand.”
What implications should we draw from the emergence of these funds?
Certainly, here are some noteworthy observations worth considering.
Firstly, according to discussions within the venture capital community in London, there is a resurgence of late-stage funding aimed at strengthening companies gearing up for an initial public offering (IPO).
It’s widely acknowledged that the final quarter of this year is expected to be rather sluggish. However, it’s becoming evident that this period is shaping up to be a critical marketing window for late-stage and growth-oriented investment funds. These funds are keen to invest in companies that are poised for growth when the market is anticipated to rebound in the first or second quarter of the coming year. Consequently, Liquidity, as mentioned above, is leading the charge, and it’s highly likely that other funds will follow suit.
Moreover, there’s a notable trend among early-stage venture capital firms, such as Dawn, which specialize in deep tech investments. They are actively raising and deploying funds in the early stages of startups. These investments typically take several years to reach maturity, and given the current lower valuations, early-stage VCs with newly acquired funds in 2023 are securing more favorable deals than those who invested in 2021 and 2022, a period marked by sizable and challenging investments. Additionally, the surge in Generative AI technologies is absorbing a significant portion of early-stage capital.
These insights were reaffirmed during two events I recently attended in London—one featuring an early-stage fund and the other focusing on late-stage investments. For instance, a partner from an early-stage fund remarked during a casual conversation over drinks, “The early-stage market, especially in AI, is thriving. As for IPOs for the remainder of this year? It’s rather stagnant. Everyone seems to be holding out for next year.”
Meanwhile, during the late-stage venture capital gathering, there was an optimistic outlook for the upcoming year. Discussions revolved around deploying late-stage and growth capital to prepare their portfolio companies for mergers and acquisitions (M&A) and initial public offerings (IPOs). A recurring sentiment among attendees was something along the lines of, “We’re gearing up to support our portfolio companies in pursuing M&A opportunities this year, with our sights set on the second quarter for the market resurgence.”
This sheds some light on why these larger funds are making their presence felt in what might outwardly seem to be a subdued or stagnant startup market at present.
