About SuperSeed Capital
Limited
SuperSeed exists to back Europe's
best B2B SaaS founders at the earliest stages, and to help them
build great companies. In the short term, our portfolio companies
enable their customers to drive revenue growth and efficiency
savings using next-generation software and AI. In the long-term,
they have an opportunity to create category defining global
technology companies. SuperSeed focuses on the fundamentals by
helping founders build good companies with strong unit economics
and sensible distribution models.
Forward-looking
statements
This announcement contains
statements that are or may be forward-looking statements. All
statements other than statements of historical facts included in
this announcement may be forward-looking statements, including
statements that relate to the Company's future prospects,
developments and strategies. The Company does not accept any
responsibility for the accuracy or completeness of any information
reported by the press or other media, nor the fairness or
appropriateness of any forecasts, views or opinions express by the
press or other media regarding the Group. The Company makes no
representation as to the appropriateness, accuracy, completeness or
reliability of any such information or publication.
Forward-looking statements are
identified by their use of terms and phrases such as "believe",
"targets", "expects", "aim", "anticipate", "projects", "would",
"could", "envisage", "estimate", "intend", "may", "plan", "will" or
the negative of those, variations or comparable expressions,
including references to assumptions. The forward-looking statements
in this announcement are based on current expectations and are
subject to known and unknown risks and uncertainties that could
cause actual results, performance and achievements to differ
materially from any results, performance or achievements expressed
or implied by such forward-looking statements. Factors that may
cause actual results to differ materially from those expressed or
implied by such forward looking statements include, but are not
limited to, those described in the Risk Management Framework
section of the Company's most recent Annual Report. These
forward-looking statements are based on numerous assumptions
regarding the present and future business strategies of the Group
and the environment in which it is and will operate in the future.
All subsequent oral or written forward-looking statements
attributed to the Company or any persons acting on its behalf are
expressly qualified in their entirety by the cautionary statement
above. Each forward-looking statement speaks only as at the date of
this announcement. Except as required by law, regulatory
requirement, the Listing Rules and the Disclosure Guidance and
Transparency Rules, neither the Company nor any other party intends
to update or revise these forward-looking statements, whether as a
result of new information, future events or otherwise.
Investment Manager's
Review
A busy
summer
It's been a super hectic July. Both
on the political and the investing front. We are sometimes given
flak for putting too much focus on the US, but - as the US goes, so
goes the world. Especially in technology (which we will aim to
rectify in the long term, but for now, we need to cover what
matters).
A new face-off in the US
election
At the start of the year, I wrote
that it was likely that Trump would win the 2024 election. Trump
was ahead in the swing states, and Biden had weak approval ratings.
The biggest threat to Trump seemed not Biden, but the US courts.
The US Supreme Court essentially refused to interfere in the
election, and so by June, Trump was all but assured to win. The
smart money started lining up behind Trump (including many people
who previously denounced him).
Then came the June 27th debate
between Biden and Trump, and it became clear to everyone that Biden
would not be able to win anything (let alone govern for another
four years). What followed was several weeks of painful
soul-searching for the Democrats. By July 21st, Biden announced
that he was stepping back from the race, endorsing Vice President
Kamala Harris to be the new candidate in his place.
Some people on the Democratic side
had hoped for a new primary to help the party find the strongest
candidate. Some folks thought Ms Harris would be a weak candidate
in her own right. Others pointed out that Democrats always lose
after a "coronation" (Gore in 2000, Clinton in 2016).
But then the pundits got surprised
again. Kamala Harris has raised $200m in a week to fuel her
campaign. Importantly, the Democratic ticket bounced back to the
point where it is now neck-and-neck with Trump in the swing
states.
At this point, Prediction markets
give Kamala Harris a small edge. But the campaign is far from over
yet, and we look forward to their first presidential debate in
September.
US Economy - Still Powering
Ahead?
US GDP grew 2.8% in Q2, well above
market expectations.
At the same time, inflation
continued to gradually ease, with core inflation numbers now down
to 3.4% (3% for headline inflation). Markets now expect two-three
rate cuts before the end of 2024. At the same time, it looks like
US consumer spending is starting to slow down.
Many US corporates had relatively
weak earnings announcements in July, and the outlook for H2 is that
growth may have peaked. If growth slows just slightly and it
enables the US to firmly get inflation under control, that's not a
bad thing. This should pave the way for more interest rate cuts,
and then we can start a new cycle without first going through a
painful recession.
Then again, markets currently put
35% odds on a US recession before the end of 2024, so we are not
out of the woods yet.
US Stock Markets Take a
Breather
US stock markets peaked on July
10th, and they've since taken a breather, with Nvidia losing nearly
$1trn of market cap. In a short span of time, we've gone from "AI
will change everything overnight" to "the technology isn't ready
yet, and we'll never recover invested capital".
At moments such as these, it can be
helpful to revisit the good old hype cycle. We have repeatedly said
that "yes, there is an AI bubble" and "yes, AI will change the
world", and the two can be true at the same time. In July, we
probably came off the "Peak of Inflated Expectations", and it's
likely that we have a bit of Disillusionment ahead. But we still
see plenty of productivity ahead for the economy and
stocks.
What's Happening with
SaaS?
From 2014 to 2022, SaaS companies
were highly favoured due to their reliable recurring revenues and
substantial growth rates. However, by 2024, the median revenue
growth of SaaS companies in the EMCLOUD index dropped below 20%.
Revenue multiples are now below 6x, a stark contrast to companies
like Nvidia trading at ~25x revenue.
Over the past 12-18 months,
corporates have shifted all new tech spend towards AI. This has
boosted revenue growth of companies like OpenAI, and slowed revenue
growth of more traditional SaaS companies.
As we've seen in July, there is a
sense that this "headlong rush" into the first wave of AI has
started to come to a close. There isn't enough ROI in deploying
generic models from OpenAI, and there is still a lot of
customisation work required to make AI work at scale and in
production in corporate settings.
The future of AI model enhancement
lies in leveraging private, proprietary data within enterprises.
This data can differentiate AI models and significantly enhance
their capabilities in automating and optimising business
operations. This also lends itself well to SaaS applications -
often the core repositories of corporate data.
As both incumbent and challenger
SaaS vendors start offering AI models based on proprietary data,
enterprise customers will start seeing increased ROI from
off-the-shelf SaaS platforms. The companies that manage to make
this transition will benefit from attractive growth rates. Some of
these are already public companies. Others are still being built
from the ground up. Those are the start-ups we invest
in.
What Happened in Venture
Capital in Q2?
PitchBook recently issued an update
on US and European venture capital activity in Q2. The numbers were
up across the board. US deal value was up 46% from Q1 (to $56bn)
and European deal values up 27% to €16bn. Even when factoring in
the $6bn Elon raised for x.ai, it looks promising.
Look under the covers:
· Big jump in round
sizes: The median European seed
round increased 40% to €2m ($2.15m). That's a huge jump, and one
that's closely tied to AI, meaning that it will be volatile in
future quarters.
· European rounds are still
smaller: Although the jump is big,
this is still behind the median US seed deal which was
$3.1m.
· And Europe still trades at a
discount: Even bigger was the
valuation gap. PitchBook estimates $12.4m pre-money for the median
round in the US, vs. $5.5m for the median seed round in Europe.
That's a 56% gap.
· Bigger rounds and (slightly)
fewer deals: Pitchbook reported an
18% drop in deal count (so - fewer, larger rounds). However, it
often takes a while before rounds are announced. PB estimates that
a total of 2,478 rounds were done in Europe in Q2. That would only
be a 4% decline on Q1. In other words, about the same number of
much bigger rounds.
Overall, the trend is positive.
We've covered the political and economic uncertainty above, but
there is a sense that things are heading in the right direction for
venture.
Fund progress in
Q2 2024
New
Investments:
SuperSeed II closed one new
investment in early Q2, and is otherwise building pipeline for
investments later in the year.
Tector (formerly
Woodsense)
The global construction industry
wastes billions annually due to moisture damage, with approximately
half attributed to water ingress alone. This not only impacts the
bottom line of construction projects, but also undermines the
structural integrity and longevity of buildings. Tector's SaaS
platform monitors and detects moisture ingress in buildings by
leveraging IoT sensors and AI-driven anomaly detection algorithms.
Woodsense's platform eliminates risk, reduces cost, and provides
quality assurance which is valuable for various stakeholders
participating in the industry (architects, contractors, financiers,
and insurers). Although still a young company, the business has
strong product/market fit, with more than 100 customers already
using the platform to manage construction risk.
Portfolio
Revenue:
Portfolio revenue grew 58%
annualised growth mark in Q2. Portfolio companies are generally
forecasting sales growth to continue at a similar pace.
Valuations
Duel is now close to completing the
new investment round, as discussed last quarter (49% uplift over
the last round), and Popp has also been offered terms for a new
investment round (47% up from the last round). Other than that,
there have been no changes to valuations in Q2.
Outlook for the remainder of
2024
With strong deal-flow and positive
market sentiment, our strategy for the year remains unchanged: back
the best founders that use (AI-powered) software to change how
business is done. While the rate of investments in Q2 was below
expectations, we expect to make up for that in the remainder of
2024 and thus complete another 4-6 investments on this strategy for
the remainder of the year.