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Firm of The Year Spotlight: Stephen Chandler on Building Notion & Raising an oversubscribed Fund V

From the principles building Notion to the learnings from raising fund V oversubscribed and the decision to clone his dog, this episode is one of our best to date. Don't miss Stephen's notes below ⏬

Andreas Munk Holm✌️

May 07, 2024

Transcript

Celebrating one of the finalists in the Firm of The Year-category at this year’s European VC Awards, this episodes dives deep with Stephen Chandler, Co-founder & Managing Partner of Notion Capital.

With 1.1 bn€ under management and 5 flagship funds under their belt, Notion is one of Europe’s absolute top firms and in this episode, Stephen dives into a level of detail rarely seen discussing everything from the guiding principles building Notion to the process and learnings from raising their latest fund.

I highly encourage you to read Stephen’s notes below and tune in for this episode. I truly think this is one of our best to date.

Notion at glimpse:

Fund Name: Notion Capital
Fund size: €300m (Fund V)
AUM: €1.1bn
HQ Country: UK
Target Stage: Series A focus, but invest across pre-seed to growth
Target Geography: Pan European
Target Sector/Vertical: Business Software & Fintech
Notable Investments: CurrencyCloud, Easol, GoCardless, Mews Systems, Paddle, Upvest, Yulife

Big shout out to our Firm of The Year Sponsor Haynes Boone.

Don’t take it from themselves, take it from one of their long term clients, Joe Schorge:

"Having worked together for many years now, they fully understand the Isomer ethos and process, and we really appreciate the value that this long-term relationship brought to this mandate from start to finish. We look forward to continuing to work with Karma, Ronan, Will and the rest of team.”

Naturally, we’re incredibly excited about having the Haynes Boone team with us as sponsors of the Firm of The Year Awards - yet another testament to their support for the EUVC ecosystem. We strongly encourage you get in touch with Karma and the team for a great experience 🔥

Get in touch

Chapters:

✍️ Show notes

Principles for Building Notion & Learnings from building a franchise

We wanted to build the kind of firm we wish we had as investors when we were entrepreneurs / operators before we set up Notion.
That meant genuine subject-matter-experts with first-hand experience on what it takes to scale a company, and who could really help on the entrepreneurial journey, beyond just cash.
So that meant focusing on what we know and love, B2B SaaS, and trying to add genuine value along the way.
We have various mantras we run the firm by including:
Have fun, make money – no point in one without the other. Friendly and informal but super competitive too.
Challenge everything – no regard for the status quo and think boundaries are there to be broken.
Don’t be a dick – we believe in Karma so we try to ‘play nice’ with everybody. In particular we have real empathy for founders and management teams (as ex founder operators ourselves).
Play the long game – build powerful partnerships and long-term relationships.

Pivotal learnings in venture

Focus is key. People say that in VC you either go big or go niche, and we went niche (albeit a big niche). That means our strategy is very clear on sector, stage and geo which helps with both entrepreneurs and LPs.
Adding value is critical: cash is a commodity for the best companies (even in tougher markets) so you to compete and we do that through a reputation for really supporting founders not just as a sounding board on the board but also through our dedicated Platform team.
For us, Platform is not just about talent and events as others do. We have dedicated people on GTM, Pricing, Product, Market Research etc. Unlike any other early stage fund in Europe.
It’s a team sport and a people business: finding, winning and then supporting post investment is all about people. And running a firm that is a partnership is different from a start-up.

Deep Dive on The Raise of Notion V

Core stats of the raise

We did a first close in 2022 with existing LPs and rolled into mid 2023 for final close.
Target was €250m (+40% on Fund IV) but we were materially oversubscribed, so ended up closing at our hard cap of €300m (+70%)
We had a 96% re-up rate but growth came from new LPs, which included a European state bank, a Middle Eastern SWF and a number of US FOs and Endowments.
Overall we saw the % of money from US, Continental Europe and MENA all increase with UK decreasing as a %.
56 LPs from over 300 engaged and approaching 1,000 total meetings.
Average time was a 3 year relationship for a new LP to come into Fund V
A team effort with two GPs leading (me plus PN) along with our IR person. Support from other partners and senior staff at follow-up stages.

How did this raise differed from raises pre the tech reset

The market was definitely far tougher but we were more established as a firm with a roster of existing LPs plus a brand and track record, so probably fairly neutral net / net.
LPs were definitely feeling the squeeze on DPI and reducing GP relationships but we managed to navigate that. We only lost one meaningful LP vs Fund IV and that was solely down to liquidity constraints – they have not sold their earlier positions in Notion and remain keen to come into future Notion funds.
HNWIs and FOs were very important for us in our early funds but we have become progressively more institutional with each fund. >80% in Fund V.
There was a lot more scrutiny on valuation marks from LPs given the variability of these.
LPs wanted to understand how the strategy changed in tougher markets. Not that much.

The three things that allowed Notion’s latest raise to be so successful

Consistency / transparency – we always raise every 3-3.5 years consistently every time since we founder the firm - and we did not accelerate this in 2020/21 like others, so LPs knew what was coming and liked that.
Right-sized for venture - we have a separate parallel Growth Opportunities strategy, so we keep the VC fund right-sized and focussed to deliver genuine venture returns, which to us means 4x+ consistently.
Plan ahead and invest the time – whichever way you cut it, it takes a lot of time and effort so expect this, particularly so in venture where LPs want to meet investors not just IR folk. LPs make allocation plans a long time in advance so build the relationship before you are raising and get on their watch list for a specific vintage. DD should then be confirmatory. We had an average relationship with our new LPs of over 3 years. The best conversations are often off cycle when nobody is selling.

Core learnings from the raise

Be careful with your deployment. DPI has been constrained in the last two years for all market participants and we expect 2024 to continue to be tough.
Valuations have reset to 2019 levels and ‘venture tourists’ have left but the best deals remain competitive at Seed and A. Engage early to build relationships.
GenAI is in a hype phase and drives significant premiums. In our view it will have a profound impact but perhaps not as quickly as these valuations anticipate and not all early entrants will be long term winners.
Early growth market more constrained and better value can be found (relative to 20/21).
Revenue growth remains the main value driver but not ‘at any cost’ with margin, efficiency and cash runway all more important than the bull market as people are more cautious about funding risk.
For a 15 years old firm like Notion you need to think about succession planning to make sure there are no ‘glass ceilings’ for rising talent.

Top tips for emerging VCs across Europe who are fundraising

Do you actually need to set up a new firm and is now the right time? There are existing firms like us that would welcome and reward real talent with enough proof points that they could raise a fund.
Be realistic about the process. It takes at least a year to raise a fund in the current market.
Choose your audience. LPs make decisions for different reasons. This should be assessed honestly to understand realistic potential.
Its hard to get institutional support unless the partners have a very clear attributable track record already. FOs/HNWIs take a lot of shoe leather and referrals are key.
In the meantime try to maintain deal ecosystem knowledge and build track record with angel tickets and SPVs / coinvests.

A look at the man behind Notion

Married with 11 year old girl/boy twins. Live in Notting Hill, London.
Ex software banker at UBS so see things through a financial lens, but I love tech and an entrepreneur at heart.
Left banking to address my entrepreneurial itch and did a couple of start-ups with my now partners at Notion. We are best known for MessageLabs, which was a successful Gen 1 SaaS business in the cyber security space.
We became super passionate about the Cloud and SaaS business model as a consequence.
I absolutely loved the start-up journey. Really just the breadth of the roles I played and experience I gained. Made loads of mistakes but learned loads along the way and ultimately drove a very successful outcome.
Stats on MessageLabs: T2D3 to $100m in 5 years. Exited for $700m at $160m ARR. 25k business clients. 11m users. Only raised $25m.
I am biased by my own experience but advise all budding VCs to consider this route.
Philosophically I want to work with people I like and respect and have been lucky enough to do so for many years. I refer you back to the “have fun / make money” point above.
The name Notion (question on LinkedIn). We chose the brand long before Notion the app was founded. There were both professional and personal drivers. On the professional side it’s meaning resonated as “an imperfect conception or idea” reflecting our early-stage philosophy where you can’t wait for perfection, you need to execute on ‘good enough’ and iterate. On the personal side I love the symmetry of the word, to the extent I even have the car registration NOT10N, albeit not on a car at the moment!
Fun fact: I cloned my dog.

Advice to young people in the industry

Get operating experience in a start-up first and try everything to learn what you enjoy and are good at. You learn so much from the breadth of responsibilities in a small high-growth company and can apply those skills in funding, picking, winning and supporting companies in VC. Founders value first-hand operating experience and it teaches you real empathy for their situation too.
Founders value first-hand operating experience
It teaches you real empathy for their situation too.
Once in a start-up begin to spend time in the VC community at events and meet ups
Build relationships with junior and mid-level staff as they tend to source most candidates.
Angel invest (if you have the means)

Most counterintuitive learning

David: What’s the most counterintuitive thing you’ve learned in venture?

GUEST: 1) Unless you act consciously to avoid it, you will spend more time on your biggest failures than successes in VC. Be disciplined. 2) LPs don’t just invest based on performance – it is so so much more than this.

Your prep notes:

Challenged situations suck time. Startup journeys are not all ‘upwards and to the right’ so you need to support your founders but you also need to be open and honest with those who fall off the venture track and disciplined with your time. The thing that suffers is meeting new founders as discretionary time but that is your lifeblood as a VC.
LPs have multiple reasons for investing or not investing. It’s not just performance / track record. It includes: personal relationships built, strategic asset allocation, pipeline for direct co-invest growth investing, FOMO etc etc.
Institutional LPs are not always more loyal than FOs. In particular Corporates are not.

🎓 Upcoming Academy Sessions

Fund Modelling in VC: Assumptions Sheet Construction

🌍 Virtual | 📅 Thursday, May 16 | 🕰️ 11:00 AM - 1:00 PM CET | € 200

Get your ticket

This advanced fund modelling session focuses on creating an assumptions sheet for a VC fund model. We'll explore three key areas (Core Assumptions, Asset Development, and Equity Valuation Dynamics) to demonstrate their impact on fund performance.

You'll receive an assumption sheet template one week prior, and the session will focus on examining how assumptions affect fund performance, tailored to the information you provide upon registration.

👋 Upcoming in-person events we’re hosting

There’s nothing we like better than getting Europe’s best and brightest together with good food, drinks, and conversations that go truly deep.

RSuperVenture Sideevent on Realizing DPI | 5th of June | 🌍 Berlin, Germany | Join waitlist.

European VC Awards | 4th of June | 🌍 Berlin, Germany | Get tickets.

📅 Upcoming virtual events

From time to time, a podcast is just not enough. Check out our roundtables and live events below.

🏆 Firesides with the winners of the European VC Awards

Fireside with the Newcomer of the Year Winner | 13/6, 12-1:30 PM | Register here. Hundreds of new VC funds come to market every year. But only ONE will win Newcomer of The Year. This is your chance to meet the winner firsthand.

Fireside chat with the Winner of the Hall of Fame | 25/6, 12-1 PM | Register here.
Hear firsthand from a true giant upon whose shoulders the European tech ecosystem stands tall.

🗓️ The VC Conferences You Can’t Miss

There are some events that just have to be on the calendar. Here’s our list, hit us up if you’re going, we’d love to meet!

0100 Conference CEE 2024 | 📆 14 - 16 May | 🌍 Prague, Czech Republic

Iceland Innovation Week | 📆 15 - 16 May | Reykjavik, Iceland

EBAN Congress Tallinn 2024 | 📆 20-22 May | 🌍 Tallinn, Estonia

SuperVenture | 📆 4 - 6 June | 🌍 Berlin, Germany

Nordic LP Forum & TechBBQ | 📆 September | 🌍 Copenhagen, Denmark

North Star & GITEX Global | 📆 14 - 18 Oct | 🌍 Dubai, UAE

GITEX Europe 2025 | 📆 23 - 25 May 2025 | 🌍 Berlin, Germany

Trying to get in front of European VCs and LPs? The 2024 EUVC Media Kit is out - check it out here, and let’s talk. 💌

🎓 Upcoming Academy Sessions

🌍 Virtual | 📅 Thursday, May 16 | 🕰️ 11:00 AM - 1:00 PM CET

An advanced session on creating a VC fund model assumptions sheet, focusing on defining Core Assumptions, Asset Development, and Equity Valuation Dynamics. Attendants will receive a template and work with this based on their own fund and learn how adjusting assumptions influence fund performance.

Get your ticket