London-based venture capital fund managed by GPs Robert Dighero, Malin Posern and Eileen Burbidge
Business overview
| Location | London, United Kingdom |
|---|---|
| Social media | |
| Website | passioncapital.com |
| Sectors | SaaS/PaaS Digital Mixed B2B/B2C |
Business highlights
- Third principal fund from Passion Capital, leaders in pre-seed VC
- Investors in GoCardless, Monzo, Butternut Box, Marshmallow etc
- £45 million fund, Aug 2019 first close and Aug 2020 final closing
- Fund III already invested in 11 companies with 15-19 more to go
Key features
Idea
The campaign has a total allocation of £2.175m, so investments made above this amount will not be processed. The campaign will close in 7 days (2nd April) following a "cooling off" period to allow investors to pay for their investments after which point the first £2.175m of paid up funds will be committed to the round. Funds that fall out of this amount will be distributed back to each investor's investment account.
Introduction
Passion Capital is one of Europe's leading VC funds, established in 2011 to bring founder-friendly venture investing to the UK and Europe. Founded by former entrepreneurs instead of traditional fund managers means that Passion was one of the first operator-led funds in Europe, as well as one of the first to have a female founding GP. Additionally, it was one of the first in London to not be based in Mayfair, but closer to entrepreneurs; reported to be the first in the world to publish and use a plain English language term sheet and not charge its portfolio companies any of its own legal fees; considered the first in Europe to publish fund infographics and to host joint office hours; and one of the first to manage a coworking office space where many of its portfolio companies were also based.
Over the last ten years the team has invested in some of the strongest European founders including those of GoCardless, Ravelin, Tide, Monzo, Lendable, Adzuna, Digital Shadows, Smarkets, Tray.io, Butternut Box, Marshmallow, and more.
Substantial accomplishments to date
April 2011: Passion Capital LP (Fund I) launched.
- £37.5 million, 41 investments across UK and Europe.
- Notable exits include Mendeley (Reed Elsevier), Readmill (Dropbox), Flattr (Ayeo/Adblock Plus), Zesty (Square), Picklive (Sports Millions), CarThrottle (Dennis Publishing).
- Active value drivers include GoCardless, Ravelin, Smarkets, Digital Shadows, Adzuna, Tray.io.
March 2015: Passion Capital FS LP (Monzo SPV) launched.
- £2 million investment into digital challenger bank with most Fund I LPs (other than the BBB) on a no fee, carry-only basis.
- £53 million invested to-date in every company financing round.
May 2015: Passion Capital II LP (Fund II) launched.
- £45 million, 29 investments across UK and Europe.
- Active value drivers include: Marshmallow, Butternut Box, Tide, Spotahome, Nested, Cazana, Tillo, Attio.
January 2019: Passion Capital GC LP (GoCardless SPV) launched.
- Taking up pre-emption rights from Passion Fund I, open to Passion LPs across all funds, no fee, carry-only with 80% carried interest going to Fund I.
August 2019: Passion Capital III LP (Fund III) first closing.
- June 2020: Malin Posern joins as General Partner.
- August 2020: Passion Capital III LP second/final closing.
- £45 million, 11 investments made to date across UK and Europe.
- Investments: Causal, Salv, ChAI, Fronted, CultureAI, Warren.io, Daybridge, Sugar, MindLabs, Fertifa and another TBA, with a further 15-19 to come.
Our vision
We are proud of our track record over the last 10 years and have invested in some of the strongest British fintech companies such as Monzo Bank, Lendable, GoCardless, Marshmallow, and Tide, but also have great investments across all other sectors as well including SME SaaS, ecommerce, etc.
We hope to continue investing in even stronger companies with Fund III and are particularly excited about the breadth, volume and diversity of more experienced and ambitious founders in the ecosystem than when we first started investing in 2011.
We believe in diversity and inclusion as it's part of our DNA, and we're glad to see the rest of the industry finally appreciating the material benefits to investment decisions as a result of diversity of thought. We hope that diversifying our own LP base and enabling access to a new class of LPs through Seedrs will help push the trend of greater inclusion and access in venture capital and tech more broadly.
Use of proceeds
We plan to make a further 15 or more investments (to end up with a total portfolio of 25-30 companies). We will continue to seek out exceptional founders building potentially category- and world-leading digital propositions in B2C (consumer) and B2B (SME/enterprise) markets.
We are sector-agnostic and believe that over time "digital" will no longer be a distinct sector, and therefore will look across all industries for compelling founders and entrepreneurs to back.
As just a few examples, we would expect to continue to capitalise on our strong fintech deal flow as we believe there is still a very large untapped market for "fintech for other fintechs" or for financial services institutions. We would also continue looking at digital health, and in particular reproductive health, and areas in which there has been historical under-investment. And of course we would continue to look at SME SaaS which has always been a strong area of interest for us.
In short we back great founders.
Key information
Fund information
The parties are as follows:
Passion Capital III LP (the "Fund")
Passion Capital III (GP) LLP (the “General Partner” or "GP")
Passion Capital Investments II LLP (the "Manager")
Passion Capital III (FP) LLP (the "Founder LP")
Limited partners who are investing in the Fund (the "Limited Partners")
LPA
Any Limited Partner must join the Limited Partnership Agreement (the "LPA") in order to participate in the Fund. You will see a Key Terms Summary attached to this Campaign in the Documents section which outlines the key terms of the LPA. The LPA sets out the structure and management of the Fund so please read this summary carefully. A full copy of the LPA will be provided to investors upon closing of the Campaign - please do not share this with anyone else. It will be provided for information purposes only and we will not be in a position to answer any technical questions about it at this stage.
By investing in this campaign, you are investing in the Fund via Seedrs. This means that your partnership interest will be held on your behalf by Seedrs Nominees Limited, a wholly owned subsidiary of Seedrs Limited. Seedrs Nominees Ltd will be a Limited Partner as defined above and will sign up to the LPA by way of a deed of adherence.
Please note that the terms set out below, along with the investment agreement that you will sign when making your Commitment, will take precedence over any terms in the LPA.
High net worth and sophisticated investors only
This Campaign relates to an investment in a limited partnership. It is limited to investors who certify as sophisticated investors or high net worth individuals.
Seedrs is unable to provide tax advice. Tax treatment depends on individual circumstances and is subject to change.
Transfer of LP interest
This investment will be structured as a purchase of the existing limited partnership interests from up to 12 limited partners in the Fund (the “Selling Limited Partners”). See “Why are these Interests in the Fund being sold now?” in the FAQ section for more details on the Selling Limited Partners.
Upon closing of the Campaign and completion of the investment, Seedrs will, after deducting the Upfront Fee explained below, (i) transfer an amount to the Selling Limited Partners for the purchase of their existing LP interests in the Fund equal to the amount already drawn down by the Fund from each Selling Limited Partner; and (ii) hold the remaining funds in escrow to be drawn down by the Fund in accordance with the LPA.
The LP interests are being sold by the Selling Limited Partners at cost value. No premium or interest is being charged for the period since the funds were first committed.
Fees
Investors should be aware of the fees charged by Seedrs to administer their investment and the fees charged by the General Partner to the Limited Partners under the LPA:
Seedrs administration fee - 2.5% of investment
Seedrs will charge you a fee equal to 2.5% on the amount invested which will be automatically deducted from your investment (the “Upfront Fee”). Your total investment less the 2.5% fee will then be invested in the Fund.
GP management fee - 2.25% per annum
The General Partner charges a management fee to Limited Partners, which is calculated as 2.25% per year on the amount Committed by each Limited Partner and which remains managed by the Fund and which is capped for the term of the Fund at 15.5% of the amount Committed to the Fund (see the “GP Profit Share” section of the Key Terms for a further explanation of how this is calculated).
Carry Fee
Limited Partners in the Fund are subject to a 20% carry fee on profits on investment, beyond the hurdle. Seedrs will charge a further 2.5% carry fee on top of the GP’s carry fee.
This will be charged at the point that funds are distributed from the Fund to the Limited Partners, so that any distributions from the fund are applied as follows:
i) Investor Preferred Return: First, to the Investors (including Seedrs as a Limited Partner) until they each receive back their Investor Preferred Return (this is described in the “Distributions” section of the Key Terms, and is equivalent to 1x their initial investment plus an 8% IRR);
ii) GP Carry Catch Up: Next, to the Founder Partner until it has received an amount equal to 20% of the Investor Preferred Return;
iii) Thereafter, any further funds will be distributed by the Fund: 20% to the Founder Partner; 80% to Investors, including Seedrs as Limited Partner;
iv) Seedrs Carry. Seedrs will deduct the Seedrs carry fee of 2.5% from funds received under limb 3, before distributing funds to the underlying investors as follows:
a) First, to Seedrs until Seedrs receives an amount equal to 2.5% of the Investor Preferred Return which is applicable to Seedrs as a Limited Partner;
b) Thereafter, funds will be distributed to give effect to the split of: 20% Founder Partner, 2.5% Seedrs, 77.5% to the Seedrs underlying investors.
Distribution timings
Seedrs will endeavour to distribute any cash distributed from the Fund to Investors as soon as practical after receiving such funds, provided the funds are not subject to any further drawdown or clawback by the Fund. If any funds remain subject to drawdown or clawback by the Fund, the cash will be held in Seedrs escrow account until such obligation has expired.
In particular, investors should note:
i) if the cash distributed is considered “Re-Investment Cash” (see “Re-investment” section under the Key Terms), then Seedrs will retain it;
ii) on cash distributions, Seedrs will retain any portion which remains the subject of the “Investor Giveback” provisions (see Key Terms for reference). This means that an amount of up to 25% of an investor’s original investment in the Fund could be retained by Seedrs for up to 2 years from the date of a distribution/termination of the Fund.
The Fund will have a maximum term of 10 years from the Initial Closing Date (August 2019), provided that it may be extended beyond the maximum term, at the discretion of the Manager, by a maximum of two one year extensions. Any such extension must be approved by the GP and Investors representing at least 50% of the total Commitments to the Fund.
Reporting
Seedrs will post the Fund’s quarterly reports on the post-investment page within 60 days of each quarter end. Due to the confidential and commercially sensitive nature of this information, Passion will only be required to produce abbreviated versions of quarterly reports for Seedrs investors.
FAQ
Why is there a cap of £100,000 on investments?
- We are eager to make this opportunity available to as many eligible investors as possible. Given the interest, we have capped investor allocations. Once all investors who have expressed interest have had the chance to invest, we will remove the cap and allow further investment for any remaining allocation.
Why are these interests in the Fund being sold now?
At the time of the first closing of the Fund, in order to get to a tidy fund size and because a few interested investors needed more time to complete the paperwork to formalise their commitments, as is quite common, a couple of the existing fund LPs along with Robert and Eileen “covered” or invested a bit more as a “warehoused” investment, ie, as a placeholder.
That total warehoused amount was £1.045 million of which £695k has been transferred to other new LPs since, leaving a remaining £350k which the partners thought would be of interest to qualified investors through the Seedrs platform.
As we have seen the level of interest grow in the build up to launching the campaign some of our existing LPs have agreed to sell a portion of their existing commitments at cost (no markup) to “make room” for including as many Seedrs investors as possible. Depending on the final amount of interest in the campaign, we hope to be able to increase Seedrs allocation further.
Are Seedrs investors getting the same terms as other limited partners in the Fund?
- Seedrs, on behalf of investors via the Seedrs platform, will hold LP interests in the same way as other limited partners in the fund and will be subject to the same terms. There are a few key ways in which Seedrs investors will have differing terms:
The fees to be applied by Seedrs for administering this investment (as set out in the Key Information). Other limited partners are not subject to these fees, although investors through other limited partners may be subject to other costs;
If funds are distributed from the Fund to Seedrs, Seedrs may need to retain all or a portion of those funds for a period of time before passing the funds on to investors (see the Distribution Timings section in the Key Information). This is because Seedrs may be required to transfer these amounts back to the Fund at some point. This could delay the final distribution made to Seedrs investors versus other limited partners.
On the other hand, the other limited partners have had their funds committed to the fund for a period of 19 months and have already transferred approximately 30% of their commitments to the Fund over those last 19 months. Seedrs investors have the benefit of purchasing an existing LP interest, with no mark-up or interest being charged, 19 months and 11 investments on from the first drawdown from the limited partners.
Other limited partners will receive a full report on the performance of the Fund on a quarterly basis. Due to the large number of Seedrs investors and practical limitations of maintaining confidentiality, however, quarterly updates will be provided to Seedrs in a redacted format and will not include information which the Fund believes to be commercially sensitive.
Why has Passion Capital decided to fill this allocation this way?
- We had noticed a trend largely from the US of expanding the definition of qualifying investors, increasing the limit as to how much could be crowdfunded and also solo GPs raising funds with new structures -- which enabled fund investors (LPs) to have greater flexibility in terms of their commitment amounts (bringing minimums and barriers to entry way down) and for how long (whether on a quarterly basis or otherwise, but moving away from the classic 10 year commitments and drawdown schedules).
At the same time, as has been the case for a while, we see angel investors, including former founders or operators from within the ecosystem, investing into a number of startups because of their love of the ecosystem, interest to maintain exposure to the sector, and to support other founders. However, we think an alternative option could be for them to invest in an indexed fund or a portfolio (suite) of startups -- or into a fund developing a portfolio.
Overall, we saw all of these factors democratising access to venture funds and breaking down barriers to what was historically out of reach for everyday investors. With new platforms, structures and approaches, we felt this was all immensely positive and not only wanted to take part in it, but wanted to see if we could help push the trend even further. Our remaining warehoused allocation seemed to be an ideal opportunity to experiment and try this out. We’re overwhelmed and truly invigorated by the positive response.
What is the GP commitment amount(s) and is any of that being sold now?
- As noted in the summary of terms, the GPs (at time of first closing being Robert Dighero and Eileen Burbidge) committed £1.25 million between them. None of that is affected nor decreased by this campaign or sale/transfer of interests. The allocation on offer through this campaign is completely separate from and outside of the £1.25 million which remains committed.
Is EIS relief available through the Fund if the Fund invests in EIS-eligible companies?
- No, the fund is not an EIS fund. Underlying investors in the Seedrs Nominee are responsible for their own tax advice on gains or losses.
Who are the other investors (LPs) in the fund?
- There are 61 investors in the fund at present including the cornerstone (and largest) investor, the British Patient Capital unit of British Business Bank. Other investors include Siam Commercial Bank, family offices from Europe, the UK and southeast Asia as well as High Net Worth Individuals (“HNWI”) and also some Passion Capital founders.
Are any of them selling now?
- After the initial interest came through and once we realised how much demand there might be, we asked some of our HNWI LPs whether they might be interested in transferring some/all of their Fund Commitments in order to free up allocation. Some have chosen to do that in order to free up liquidity post COVID-19 or simply due to a change in circumstance from when they first committed.
Do I have to pay my full commitment to Seedrs now or can I transfer funds as the Fund draws down from Seedrs?
- Seedrs requires investors to pay for their full commitment now. We have endeavoured to make the Fund available at a low minimum entry price of £[100], but this does mean we are unable to facilitate draw downs over the life of the fund. Funds will be held in Seedrs escrow account and transferred to the Fund in accordance with the drawdown procedure. You will receive no interest on funds held in our escrow account.
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