Early Spotify-Backer Northzone Raises Fresh $1 Billion Fund

• Northzone has raised over 1 billion euros (around $1 billion) for a fresh new fund.
• The new fund will be used to back founders at the helm of startups across Europe and the US.
• Northzone will allocate roughly 40% of its new fund to later-stage investments.

Early Spotify investor Northzone has raised over 1 billion euros (around $1 billion) in fresh capital in one of the largest fundraises in Europe since the onset of this year’s economic downturn.

The fundraise – the London-headquartered venture capital firm’s tenth and largest to date – will be used to back founders at the helm of both consumer and enterprise startups across Europe and the US.

Northzone, which has also backed buy now, pay later firm Klarna and HR software startup Personio, will invest in companies at all funding stages from seed through to IPO.

Jeppe Zink, a partner at Northzone, said the company hoped to mark itself as a global VC firm with its new fund, which is why it has been “busy inviting in and finding the right LPs” from markets in regions such as Asia where it is looking to break into.

“We think being able to tell an entrepreneur ‘we got so and so from Malaysia and so and so from Singapore and China and they can help with some contacts and we can build upon that … that’s going to differentiate us,” he said.

Northzone partner Jessica Schultz said the size of the new fund – more than double its $500 million raise in 2019 – reflected the fact that tech, talent, and growth trajectories were “an order of magnitude greater” than they were a decade ago, particularly in Europe.

Northzone’s tenth fund comes as funding to startups globally starts to slow against a backdrop of economic uncertainty driven by rising interest rates, inflation, and an energy crisis in Europe. Funding to European startups dropped by 38% in the second quarter of the year to $23.7 billion according to Crunchbase data.

The slowdown in funding followed a record year in which $643 billion was raised globally by venture-backed companies, according to Crunchbase, leaving startups such as Northzone-backed Klarna to make layoffs and announce down rounds to survive.

For Zink, the short-term risk for high-growth startups has clearly been exacerbated in recent months, but he stressed that the outlook is less bleak when considering the longer-term horizons over which VCs invest.

“It’s not like we’re suddenly below whatever the long-term trend line is, it’s just that we come from this unbelievable high,” he said. 

Zink also said the COVID-19 pandemic served as a “fire drill” for the VC industry, as it forced investors to work through their portfolios with management teams at in anticipation of “a liquidity crisis” that could usher in a tougher funding environment.

“This time around, having done those exercises again, we are luckily in a position where if you were to compare to the market etc, we have very few companies that are in dire fundraising needs,” he said.

Northzone will allocate roughly 40% of its new fund to later-stage investments, according to Zink, as the firm aims to be a “full stack investor” for entrepreneurs seeking to work with firms who will partner with them across the full startup lifecycle.

Zink added that with deal structure on the rise, there was a need to be “very careful with it,” warning that it could hurt founders unless they know “exactly where the business can be calibrated” to address the concerns prompting discussions of tougher terms during deal talks.

“Obviously you can use structure to boost the valuations, for some entrepreneurs to avoid a down round it seems like a wonderful tool – we very much temper against that,” he said.