SpeedUp Bridge Alfa gets measured!

In 2014 Polish National Center for Research and Development (NCBR) launched the pilot of the BRIdge Alfa program (co-financed within European Regional Development Fund) laying the foundation for the deep-tech startups’ financing ecosystem in Poland. BRIdge Alfa is indeed dedicated to projects based on R&D activities that are in the early development stages, either Proof-of-Principle or Proof-of-Concept. Since that time, two more editions of the program have been launched establishing the cooperation with around 60 professional VC funds that ensured the private capital. In SpeedUp Group we also run the Bridge Alfa fund among others under the management. Actually, the Bridge Alfa vehicle of ours is the 6th investment fund activated within the group and still not the last one. Our team has built a portfolio of more than 100 early-stage startups over the last 12 years and the Bridge Alfa structure gave us the opportunity to add some more companies to this squad.

Although there have already been a few hundred startups supported through the Bridge Alfa program in Poland, it has to be admitted that it is not the most preferable financing mechanism on the market. Founders are not being attracted to the requirements that public aid brings to the table and the fact that very often they don’t fully understand those rules makes them scared off.

It may seem obvious that the founders would choose the private capital over the one involving public grants. But it doesn’t mean the companies backed up by Bridge Alfa funds have lower potential. On the one hand, it means we need to target earlier investments that increase our risk, but at the same time raise the ROI potential. It also means, people managing Bridge Alfa vehicles have a rough ride winning good investment deals. Being the Bridge Alfa operator, our team needs to combine the capital with operational support as well as network access to supercharge tech startups and work with the best teams.

Therefore, it makes us even more satisfied with results we’re achieving with our portfolio companies. Ultimately, on top of our investment of around 250k EUR, we provide entrepreneurs with access to potential customers & partners, market experts and investors. We also help them execute their idea and leverage the business building process delivering strategic on-the-go support.

SPEEDUP BRIDGE ALFA PORTFOLIO REVIEW

At the end of 2015, SpeedUp Bridge Alfa fund closed its first investment into StethoMe, after the team of entrepreneurs & scientists came up with the idea to build a home medical stethoscope. Since then, the company has gone on to raise an additional 4,5 mln EUR, launch and deliver products to hundreds of homes across Poland, Spain or France and create a brand recognized on a European scale. Six years on the fund completed further 21 early-stage investments, finalizing 6 of them through 2021. Therefore, we believe it’s the right time to highlight some numbers behind our growing portfolio.

As most VCs care a lot about valuations, we find it the proper indicator to refer to when assessing the investing success. The VC business model is indeed based on the return on invested capital. The commonly used performance metric capturing the liquidity coming back to LPs from the paid-in capital is TVPI (Total Value to Paid-In). Measuring the fund’s performance this way, it is also vital to understand the TVPI doesn’t consider the timing of cash flows as for example the IRR metric does. If we take a fund with a TVPI of 1,25x after 3 years of investing and the fund with the same TVPI level after 5 years of investing — their performance cannot be directly compared.

Therefore, trying to be as precise as possible when looking for TVPI benchmarks, we find it relevant to refer to Pitch Book study dated as of the end of Q1 2021, showing the median TVPI of European VC funds — with vintage year of 2015 — at 1,51x. This number can be treated as the European benchmark for 5-year funds that came into being in 2015, but it also should skyrocket in the next 4–5 years for the same group of funds. Eventually, it is so that they squeeze the most within the final years of their existence. And as eFront noted in the Q3 of 2020, the top 5% of VC funds globally delivered TVPI at 2,75x despite the pandemic. It’s worth observing the coming growth of funds’ results within the next few years then.

Now, taking a look at our 5-years old portfolio of 22 companies in total, there are few key takeaways:

• 3 companies failed and we’re not going to get any return on them,
• 12 companies (which stands for 54,5% of total portfolio and 62,5% of companies we invested more than 12 months ago) closed next rounds collectively increasing their valuations by more than 5 times in total,
• the average capital raised after our funding by a single company is 1,1 mln EUR (5 mln PLN),
• our portfolio companies get the next financing after 15 months since our investment on average,
• later stage investors in our portfolio companies include funds like Manta Ray, RST Ventures For Earth, Movens VC, TDJ Pitango Ventures, Next Road Ventures, Satus Starter and others,
• The TVPI ratio (Total Value to Paid-In) of the fund is 1,69x so far — meaning for every 1 PLN invested by fund’s LPs, based on current investment values they’re projected to get 1.69 PLN in value (in the form of future realized distributions).

While still a relatively big percentage of founders we talk to are afraid having Bridge Alfa fund on board will make it harder to raise next rounds, the case of our portfolio proves that’s not right. If the company is doing good (and ‘good’ in VCs terms means proving it’s value by market traction or tech achievements) there will be investors willing to have a piece of this cake. Because it’s the growth that’s the key to the ‘after-seed’ fundraising success (and the team!, but so much has been said about it). And this is also why it’s so important to choose the right investment partner at the start, the partner that has the ability to actively participate in the company’s value-building, that has the tools to boost this growth! The source of capital seems to be less relevant in these terms.

RISING PORTFOLIO STARS

Taking into consideration the average return on VC fund size, but also the complexities of managing the investment vehicle having the public institution as a main LP, we find our portfolio doing outstanding results being in the middle of its way, so we feel to be on the right track together with founders.

Obviously, there’s a bunch of companies from our portfolio invested more than a year ago that have not raised further capital yet as they’re still on their investment runway. Anyway, considering their successes we’re sure they are just about to make our results even more spectacular:

• ReefFactory that operates in the niche market of smart aquarium devices just noted the 7x YoY revenue growth,
• Salesbook that develops the sales acceleration platform closed the deals with such companies as Orange, OVB, Mercedes-Benz, Energa or Fortum,
• WearTech Solutions that solves the communication problems among retail staff achieved on average 100% quarterly revenue growth through 2021,
• RealEye, which is considered a global pioneer in eye-tracking technology, grew its customer base from 30 to over 300 in the last two years, having such recognized clients as Procter & Gamble, IPSOS, or US National Institute of Health.

We’re excited about what to come yet and we’re sure there’s a lot to be updated pretty soon — not only about the current portfolio, but also about the new companies joining us in the coming months. We still have a few tickets to be invested within the Bridge Alfa fund, so if you’re in the fundraising mode, we’d be happy to talk to you! [We’re available via investments@speedupgroup.com and if you’d like to get to know more about our investment process you can check out our last piece of content HERE!]

And on the top of all that, we’re just about to start the fundraising process for the next investment fund within the SpeedUp Group. The Polish VC ecosystem is still getting its maturity and we see a space on the market for the fund offering higher investment tickets that won’t entail hard lines of bureaucratic demands. This is where we’d like to contribute, already laying the grounds for the fund and starting its active investing in 2022/2023. If you find it a potential opportunity for your capital allocation, please contact one of SpeedUp Group’s partner — Tomasz Czapliński via tomasz.czaplinski@speedupgroup.com