Northzone raises new $500M fund to back startups in Europe (and the East Coast, US)

Northzone, the European VC firm that’s probably best-known for being an early backer of Spotify, has raised a new $500 million fund, which it claims was oversubscribed and will reach its final close imminently.

Dubbed “Northzone IX,” the new fund pretty much represents business as usual for Northzone and will be used to invest primarily at Series A and B, with “selective” Seed investments (as many Series A firms increasingly do).

Geographically, Northzone is targeting Europe and the East Coast of the U.S., and is eyeing up early-stage consumer and enterprise companies that are addressing “large and established industries saddled with legacy technology”. This includes financial services, healthcare, education, mobility and construction.

The VC firm is also announcing two promotions. Hello Fresh co-founder Jessica Schultz and Dots co-founder Paul Murphy have been promoted to General Partners, in addition to existing GPs Pär-Jörgen Pärson, Jeppe Zink, and Michiel Kotting.

“Tech businesses are becoming giants in new industries like construction, food, and finance,” says Murphy, during a telephone interview alongside Schultz and Kotting. “And these industries are 4 trillion to 10 trillion in size, so quite a bit bigger than media, which is where most of the focus has been in the past few decades. I think it’s exciting, we look at huge addressable markets, both in terms of existing incumbents, and consumers and users and businesses. But it’s also challenging because it means we do sort of become, you know, pretty deep on multiple industries, instead of just one”.

To manage this, Murphy explains that Northzone takes a “thematic approach” to investing, whereby themes cut across sectors. “So it could be a certain theme that leads us to a finTech investment or to a mobility investment,” he says. “We try to let the themes take us where they take us, instead of having to focus in on one particular sector”.

“I think our strategy is still looking for founders with huge ambition and conviction to build transformative businesses,” adds Schultz.

With an avalanche of new European VC funds being announced — I chalk this up as the fourth I’ve covered in the last week, I posit that we could be in a bubble or at least somewhat frothy times.

“I think that there’s always cycles,” says Murphy. “And I think where we are in this cycle, there’s a lot of people that are speculating. I think the broad macro climate indicates that we’re maybe at the high end of that cycle, and tech is core to many, many countries’ economy now. So I don’t want to claim that we’re immune to any sort of downturn that may come.

“That said, as I mentioned before, tech is now going after industries that are exponentially larger than what they’ve gone after in the past. There is a whole lot of opportunity out there. Yes, there’s more funds than ever, but if we want to fully capture all of the opportunities that exist around the world in tech, I think we need many more funds than exists today”.

“I think that’s where we have the benefit of history a little bit, as we’ve been in the business for 23 years now,” says Schultz. “We’ve seen a lot of the downturns from dot com boom to the financial crisis in 2008. And I think that also gives us a little bit of a perspective on the opportunities you get in the downturns and also the important areas to focus on during challenging market conditions. As Paul said, we think there will still be a lot of opportunities regardless of the economic cycles”.

The key to VC investing, regardless of cycle, is to stay disciplined “and look for the fundamentals of the businesses” that fit a long term view of how the world is changing.

Somewhat related to this, although Northzone isn’t able to disclose a list of its LPs — who are said to be a mixture of existing investors and new ones — General Partner Michiel Kotting says the majority are in Europe.

“We have always maintained that as a European product, we want predominantly European investors behind us. So it’s an awful lot of European but we’re not one of these EIF [European Investment Fund] dominated funds at all. And we also have systematically stepped up Asian and U.S. LPs in recent years. But the key thing for us is, we learned that lesson a decade ago, you can’t be a European product and be dominated by U.S. or Asian LPs. Because when a financial crisis comes around, they tend to drop those sort of products first. So we’ve always made sure that we have a natural alignment with our LP base”.