Notion hits €300M for its fifth fund, but is unimpressed by big rounds into Generative AI startups

When it first appeared on the scene around ten years ago, Notion Capital was poised to take advantage of the oft-repeated phrase, “Software is eating the world.” In particular, it was aiming at what was then called the enterprise SaaS space. Several years on, and it’s capitalised on that thesis, investing in in more than 100 early-stage companies.

It’s now entering its next phase, having completed the final close of its new €300 million ($325.6m) fund, its fifth, which closed at its ‘hard cap’.

The proof of the pudding is in the eating, and Notion’s software portfolio has certainly been ‘eating’ a lot of the world.

It’s invested into CurrencyCloud, GoCardless, Paddle and Yulife in the UK, HeyJobs and Upvest in Germany, Mews in the Czech Republic, Cobee in Spain, TestGorilla in the Netherlands, Unbabel in Portugal and Workable in Greece.

Fund Five has also already invested in Bound, DataOps, M3ter and Resistant AI, and the VC fund expects to make around 20 core Series A+ investments in total from this fund.

Plus, there’s a difference, perhaps driven by Brexit. This “Notion V” fund is Euro denominated and Luxembourg-based, meaning it will have an increasingly pan-European focus for investments.
 
The firm also announced three senior promotions. Partner Itxaso del Palacio becomes General Partner and Stephanie Opdam and Kamil Mieczakowski will move to Partner.

Del Palacio joined Notion in 2018 from M12 (Microsoft Ventures) where she was an Investment Partner, and since joining has led investments in Bound, Cledara, Cobee and Yulife, amongst others.

Opdam and Mieczakowski also joined in 2018 and have led investments in DataOps and Resistant AI.

But Stephen Chandler, Managing Partner at Notion Capital, believes the phrase “Entperprise SaaS” is no longer fit for purpose.

He told me: “We used to really use the word SAS exclusively for the focus, but, you know, to be honest, our focus for a while has been broader than that. SaaS has evolved beyond the application layer into infrastructure, hybrid, cloud, edge computing, all of those kinds of things. But also different monetization models. It’s no longer just a case of subscription software. We’re seeing people taking a share of payments, having other embedded finance propositions, marketplaces. All of those things sit within the Notion wheelhouse. We tend to use the phrase ‘business software’ now, even though sometimes I think that’s a bit boring.”

He added that “the strategy remains very much the same. We continue to focus at Series A, where our sweet spot is.”

He said Notion will also put small checks into pre-seed companies “We will literally go as low as 50,000 euros into company. And then we will also come in on growth stage opportunities.”

Does he see an opportunity with Generative AI?: “Where we see the opportunity within our kind of remit is more a verticalized play. In particular, where a company has proprietary data that it can leverage. We see some really interesting companies emerging from that. And also some threats I’m sure as well.”

He also criticised investors who had gone big into AI startups when so much of the sector is unproven, and singled out the recent $105 million investment into Mistral: “I think there’s been a tonne of hype and when I start seeing companies doing $100 million pre-seed raises I find it a little concerning, to be honest. You sit and look at the names of the people that have invested and you think, well, actually, even if the company really nails it, you’re never gonna make any money and that really?”

He thinks the “horizontal play” of Generative AI is much more the purview of Big Tech: “I think it’s going to be the big guys that lead and I also think it’s going to commoditize quite quickly.”

Notion will also offer a third Opportunities Fund in 2024, putting additional growth follow-on capital into the firm’s best performing venture assets and other growth stage business software companies in Europe.

Investors in the new fund include Cortes Capital LLC, KfW Capital, and TNO. Returning LPs included: British Patient Capital, Novo Holdings and RSJ.