Following the success of the inaugural Campfire in California last year, we decided to take the relationship intelligence conference on the road. First stop: London.
Industry-leading dealmakers, attendees, and speakers from across the region came together to discuss and learn how relationship intelligence helps firms source, manage, and close better deals—pressing topics in today’s changing market.
To better understand how dealmakers are navigating 2023, we sat down with three experts to discuss how they’re adjusting their strategies.
The panel featured:
- Divij Ruparelia, Chief Operations Officer at DAI Magister, an investment bank that provides advisory services within the climate and tech-for-good sectors.
- Itxaso del Palacio, Partner at Notion Capital, a VC firm that focuses on SaaS and Cloud.
- Thomas Schneider, Partner at Isomer Capital, a firm that invests in European early stage funds.
Here are five key takeaways from the conversation.
Highlight #1: Europe is catching up to the U.S. (and surpassing it in certain pockets)
The unpredictability of 2022 has caused investors to rethink their approach in 2023. While 2020 and 2021 saw a boom in venture funding, the market in the last quarter of 2022 decreased by nearly 47% compared to the same period in the previous year.
“We’re thinking of where to invest with more in-house planning,” explained Itxaso del Palacio of Notion Capital, a move that is part of her firm’s goal to “plan efficiently”.
European investors would be wise to look to what has worked in the past to guide their next steps, as the market has shifted exponentially over the past decade.
“Europe is in a very different place compared to 10 years ago,” Isomer Capital’s Thomas Schneider shared, adding that the region now boasts 352 unicorns—a gigantic leap from only two before 2008.
According to Schneider, more and more U.S. investors are refocusing their international investment towards Europe, creating a J-curve that is indicative of a successful ecosystem.
While Europe’s current investment landscape is an exciting one, there are fewer opportunities for later stage investors.
“We work at a slightly later stage and the gulf between Europe and the U.S. is still pretty big,” Divij Ruparelia, Chief Operations Officer at DAI Magister, said. “Europe is earlier in its development, so late stage financings haven't quite caught up.”
However, in spite of this gap, Ruparelia said he believed there are specific sectors within Europe that are catching up to—or even surpassing—the U.S.
“Between Europe and the U.S., it's two and a half times the difference in climate tech,” Ruparelia, whose firm DAI Magister focuses on climate and tech-for-good, explained. “So we're seeing certain verticals, where actually, Europe has sort of bedded down its ecosystem at the same time and at the same pace as the U.S.”
Highlight #2: Data is crucial to finding deals in a competitive market
Respondents to Affinity’s 2023 Investment Predictions report said that they spend an average of 34 hours researching potential deals. With that figure in mind, it’s clear that data already plays a critical role in a dealmaker’s investment strategy.
However, in a year like 2023, investors are becoming more cautious about the deals they take on—focusing on solid fundamentals and proven paths to profitability over growth at all costs. And with a smaller pool of candidates to draw from, efficiency and accuracy will be key for firms that want to take fast action to find and close high quality deals before their competitors do.
This is where data can be pivotal.
“We use data to do predictive analytics and to understand why a company is growing,” Schneider said, “Because of that particular predictive analytic, we [are] faster to invest and make a decision.”
For Del Palacio’s team at Notion, data doesn’t just mean allocating capital to the right places, but also building efficient growth.
“We gather data, in terms of a C-level and founder’s years of experience, [...] aggregate that, and compare them to where they are,” she explained, adding that her team specifically looks for “game changers” or those with three years of growth after the first raise of $5 million.
“We've been doing that for many years, even much earlier than anything that is happening today,” she said.
Highlight #3: Relationship intelligence has a tangible impact on deal sourcing
The current investment landscape is changing, and the renewed focus on deals having strong metrics is putting the spotlight on data. But while it’s critical to successfully identifying, qualifying, and managing deals, pinpointing data signals is easier said than done.
Schneider talked about some of the signals his firm looks for. Isomer Capital, which invests in the best European early venture funds, uses data-backed insights to see the evolution of a fund and its trajectory towards stated goals. Enriched data also gives them insight into firm status, like if they’re fundraising or not—making his team’s outreach more timely and relevant.
Beyond these quantifiable metrics, relationships are vital to the success of the team’s investments. “When we partner with a VC and invest in a VC, [we’re looking at] its potential return [and] how it fits in our portfolio,” Schneider said. “Another element is if we can work together for the next foreseeable future over the next 10-20 years.”
All of these things, Schneider explained, can’t be captured in hard data, but are made available through what he called “soft data”—essentially what’s documented about a relationship and an individual’s interactions with the firm.
Isomer Capital uses Affinity to collect and analyze both hard and soft data so that his team can find, manage, and close high quality opportunities. Schneider described the impact this relationship intelligence has on how his firm works: “We use Affinity to make sure that the collective intelligence of our company is loaded in one central point,” he says. “So every conversation, every point of interaction we have with any VCs at any point in time is loaded there.”
Ruparelia from DAI Magister agreed on the increasingly important role of relationship intelligence.
“It's the intel we get from our relationships— talking to funds, talking to different types of investors, talking to companies—and understanding what's top of mind for them. What are the challenges they're seeing—that's the layer that you can't capture in data.”
“I'm not necessarily looking for deals to come my way,” Ruparelia admitted. “But it's understanding people's priorities and their investment thesis, and how that evolves over time.”
Notion Capital’s del Palacio elaborated on this, saying, “What you can do with other VCs is win deals. Having relationships with VCs will allow you to win deals and get into their deals because you need to win first the relationship with the founder.”
Highlight #4: A spotlight on using Affinity to source deals
The panel discussed how Affinity helps their firms find high quality deals, with del Palacio sharing a detailed look at her team’s use of the platform and its integration capabilities.
“This environment means involving Affinity for research and sourcing [that] will allow you to identify the companies that are growing and so on,” she started. “We built a proprietary tool, which basically scrapes the [data] inside PitchBook, LinkedIn—anything that shows you what is tracking in all these companies—and we link that to Affinity.”
With all that enriched data brought together in Affinity, prospect companies are assigned to associates who conduct outreach to determine thesis fit.
“Connecting with Affinity allows you to see [relationship] scores,” she explained, adding that scores allow her team to rank opportunities and find warm introductions.
Ranking opportunities has already changed the volume of deals that del Palacio’s team can assess. Her team automatically filters out B2C companies and categorizes B2B organizations based on geography. This eliminates manual data entry and prevents associates from spending time on opportunities misaligned to the firm’s investment thesis.
Highlight #5: The state of dealmaking in 2023
The final key takeaway from Affinity’s 2023 Investment Predictions report was a lack of consensus among investors about the volume of deals this year. Thirty-six percent of investors theorized there would be fewer investments, but nearly as many thought there would be the same amount or more.
Our panelists predicted a bumpy first half the year before we start to see rising valuations again.
“I think the first half of this year will be as tough as the second half of last year, you know, I think we've still got a lot of uncertainty in the market,” Ruparelia said. “It's going to be the second half of the year where we start seeing larger fundraising.”
“We are in a bit of a wait and see position,” Schneider concurred, noting that investors may be waiting for more information as the year continues that will help them make more confident decisions around their strategy. “I was talking with somebody in M&A who told me that the first part of the year was at full throttle, and everybody's getting ready to execute, because they see a lot of deals that are coming.”
Many VCs are holding back to wait for deals with a proven track record of success. “It's different now to what it was two years ago,” Schneider said. “We will see deals being done, and funds have got huge amounts of dry powder. But they can be more selective.”
For del Palacio, the market is adjusting to the reality of more realistic valuations. “I think valuations have probably come down around Series B,” she said. “We've been very, very active, but at the same time, we've been active because as you can imagine there are many companies that raised money at a valuation that was way too high.”
The problem at the heart of these oversized valuations? A lack of product market fit.
“Because many companies raised money, let's be clear, huge rounds without having a product market fit,” she said. “And with no product market fit, you can throw money into buying customers, but you cannot grow efficiently. And so there is no point [in putting] more money into that business.”
For those that have reached product market fit, now is the time for firms to capitalize on investor-friendly terms.
“You can still go to companies that have found that product market fit,” del Palacio said. “You can see the inflection point, provide some more cash, some more capital at a lower valuation, [and] companies are happy to take it.”
“So I think, opportunistically, there are good deals out there. And definitely we cannot [wait]. We are not waiting.”
Interested in more insights from dealmaking leaders and experts? Make sure you tune in and watch all of the sessions from Affinity Campfire London—now available on-demand.