As European startups continue to look beyond the hype surrounding AI companies and for signs of sustained market confidence, Atomico, one of the region’s most iconic and largest venture capital firms, has raised more funds to make investments that can show how the market really works. The VC has closed a new fund totaling $1.24 billion to support early- and growth-stage startups across the region.
London-based Atomico describes it as its “largest fundraise to date,” but it technically spans two funds: “Atomico Venture VI,” which is $485 million for mostly Series A companies (with some reserved for seed), and a separate $754 million fund called “Atomico Growth VI,” which is for Series B through pre-IPO.
While it is common for many venture capital firms today to raise and allocate funds from separate funds, Atomico is notable for closing two separate funds led by separate teams. The company has historically leaned toward early-stage funding rounds and, when reasonable, moved to later stages. Now, with a dedicated fund, it is poised to equally focus on the later stages of a startup’s journey.
The move may also reflect the fears of some investors who are hesitant to invest money in startups before they are profitable. Setting things up this way makes it easier for Atomico to bring in the contributions of risk-averse limited partners (LPs) into the fray. Instead of supporting a single fund that covers everything from seed to Series F, it can invest its cash in proven businesses.
The news comes amid a global venture capital slowdown, a trend that is also affecting Europe.
One of Atomico’s reputations in the investment community is its annual research report on the state of the European tech ecosystem, with a particular focus on the state of the venture capital market. The most recent report was a grim read, pointing out that European startup funding could be halved in 2023, driven by factors such as geopolitical events, inflation, and interest rates amidst a persistent recession. It also found that market and investment data were distorted in 2021 and 2022, with significant outliers in revenues, funding, and valuations due to factors such as a surge in demand for certain technologies (due to COVID-19).
Last year, European VC funding was actually slightly higher than pre-pandemic figures. An optimist would interpret this as a sign that the tech market may be on better footing than the gloomy data suggests. Q2 2024 data could support this claim, and we could see a slew of new funds from several prominent VC firms in the region. In May, Accel announced a new $650 million fund for early-stage startups, and Balderton recently invested $1.3 billion in two new funds: $615 million for early-stage and $685 million for growth.
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Founded in 2006 by Skype co-founder Niklas Zennström, Atomico started out with a $73 million fund and in the nearly two decades since, has launched $165 million Fund II (2010), $476.6 million Fund III (2013), $765 million Fund IV (2017), and $820 million Fund V (2020).
Atomico’s latest fund outperforms its predecessor by more than 50%. But Atomico’s sixth fund stands out because of two distinct focus areas. That may inadvertently tell a story about investor sentiment, given that one of the funds missed Atomico’s funding targets. According to SEC filings last year, Atomico asked for $600 million for its venture fund and $750 million for its growth fund. That means it slightly exceeded its growth target, but fell short of its venture target by nearly 20%.
On the other hand, given Atomico’s investment portfolio has grown over time, it makes more sense for the company to allocate more cash to later-stage companies. Once-early-stage companies are now in full-blown scale-up mode and need more funding than ever. On the other hand, missing its funding target for early-stage startups suggests that there are fewer investors willing to back startups than Atomico had hoped.
Atomico has already made about 21 investments across the two funds, including investments in Atomico Growth VI’s portfolio including DeepL and Pelago, and led Corti’s Series B round. In the early stages, Atomico Venture VI has invested cash in Neko Health, Ben, Dexory, Deeploi, Strise and Lakera since the fund first opened in early 2022.
