Hoxton Ventures, the London-based early stage venture capital (VC) firm, announced yesterday that it has raised $40 million (£24 million) for its first investment fund.
The East London VC, founded by Hussein Kanji and Rob Kniaz, said it will make between four and six investments a year and focus on European start-ups that have the potential to grow rapidly and scale into the next big thing.
“Recent research shows there are four to six billion dollar companies being formed each year in the US, largely on the back of technology industry changes,” said Kniaz. “Europe is consistently producing one or two of these types of companies a year. Finding, funding and nurturing them is our mission.
“We think after the US and China, Europe has the best conditions to build large, valuable companies – ahead of even Israel and India,” added Kanji.
Hoxton said it will invest in the young start-ups through the "micro-cap" venture strategy, which has proved successful in the US over the last decade and involves investors working closely with entrepreneurs to build value.
Kanji said: “In the past couple of years, we’ve seen a gap emerge in the early stage European market. It is difficult for entrepreneurs to raise their first £1-2 million. Too many European investors prefer to wait for businesses to mature."
Hoxton claims that Europe has traditionally been a difficult region in which to build companies as many VCs have pulled back the amount they invest there because they can't achieve the same returns on their investments as they can in the US.
However, the tech boom that is taking place in London's Tech City and many other tech clusters around Europe, such as Berlin and Tel Aviv, is starting to create a growing mismatch between an increasing entrepreneurial talent base and a declining venture capital market, according to Hoxton.
“We are very happy to be contrarian investors concentrating on European entrepreneurs. We think this is a poorly served geography,” said Kanji. “A lot has changed on the ground and the quality of startups is improving rapidly. Too few investors have first-hand knowledge of building companies, and offer experience that can really help entrepreneurs scale their businesses.”
Recent success stories in Europe include the IPO of advertising technology company Criteo, mobile gaming companies Rovio and Supercell, analytics company Qliktech, and social gaming company King.com.
Hoxton said that it expects many of its investments to become part of the US technology ecosystem, either by opening offices or relocating parts of their team to the US.
“The fact that we place a heavy emphasis on Silicon Valley, even though we are based in London, makes us unique amongst other European funds” said Kanji. “We work hard to provide a bridge to the US market – to recruit talent, secure partnerships and ultimately maybe even exit to US companies.”