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<p>SENTIMENT OF SEED INVESTORS IN EUROPE Q2 2018 Foreword Great entrepreneurs dream about creating new sectors, reshaping entire industries and fundamentally disrupting the status quo. Seed stage is the inaugural moment in every startup's lifecycle, and often impacts the trajectory of a company's journey. Investors who make these early bets, in no small part, help to shape the startup's ability to succeed in the years to come. In conducting this research, we specifically set out to capture the sentiment of the Europe-based seed investment ecosystem. It reflects a moment in time (Q3/Q4 2017), and intends to collate insight from a broad base of leading seed investors across the continent - to take the temperature of the community, and help build a picture of the seed landscape. At Mosaic, we typically invest after seed, in a company's Series A round. We work alongside the seed community every day so we hope that taking the pulse of the seed investor ecosystem will provide useful insights for the founder and investor ecosystems alike. We would like to extend our thanks to everyone who made this report possible. First and foremost to all of the respondents. Everyone who participated is either a General Partner of a European seed fund, or serial angel investor. We are always appreciative of your thoughts and feedback, please feel welcome to get in touch at info@mosaicventures.com Simon Levene Cofounder and Partner Introduction 2 Mosaic Ventures | Sentiment of Seed Investors in Europe 2018 Their words Introduction We have seen the quality and quantity of startups on the continent continually increase over the last few years. This trend is bound to continue, as more repeat founders and experienced startup execs take a second or third run at building a business and as the surrounding ecosystem continues to grow in maturity. Pawel Chudzinski Point Nine Capital It is refreshing to see that the majority of seed investors are bullish on the state of the industry in Europe, and are in agreement that the quality and the ambitions of startups on the continent is gradually increasing. Pietro Bezza Connect Ventures The resilience of Europe's technology industry, including seed and venturing investing, has been incredibly impressive over the last few years. Even against an uncertain political backdrop on both sides of the Atlantic, tech hasn't blinked. Saul Klein LocalGlobe It is best to see Europe as one, large collaborative ecosystem, rather than a collection of nations in perpetual competition. With this in mind, it is fantastic to see seed firms increase their presence across the continent, while maintaining a robust presence in the traditional centres of gravity. Alice Bentinck Entrepreneur First 3 Mosaic Ventures | Sentiment of Seed Investors in Europe 2018 Introduction European Seed Investing: an overview We estimate that seed activity in Europe grew >2x in 2013-17, to approximately 30-40% of US seed deal volume. In the same period, median size of seed financings has increased to $1m, (30% smaller than the US median). We count 44 funds have made 6+ seed investments each year between 2015-2017, and >75 firms made 4 or more in that window. Note that this statistic does not include accelerators. The graphic on the right visualises a selection of new seed-focused funds raised since 2012, across the continent. Infographic: New Seed Firm Formation Source: Pitchbook; Mosaic Ventures Analysis Mosaic Ventures | Sentiment of Seed Investors in Europe 2018 43% GBR 11% FRA 11% GER 7% SWE 8% FIN 3% SPN 3% PLN 2% NOR 2% NED 2% BEL 2% AUS 2% CZE Approach & Methodology This is a survey of Europe's leading seed investors In the fall of 2017, Mosaic brought together Europe's leading seed funds and prevalent angel investors at our first "Seed Summit". We took this opportunity to ask the group about the investing landscape, the state of European startups and the broader technology industry. Over the following weeks, sixty investors completed the questionnaire, all of whom focus on seed. 43% are based in the UK, 22% in France or Germany. 44% represent seed firms more than three years old; 25% from a seed firm less than three years old; 15% are independent angels and 12% are from multi-stage venture capital firms active at seed. Infographic: Q. What country are you based in? Source: Mosaic Ventures 5 Mosaic Ventures | Sentiment of Seed Investors in Europe 2018 These are the key findings 1. The quality of seed startups has improved. 2. AI is the hottest investment sector. 3. Over 30% of investors have increased focus on France and the UK. 4. Brexit has had relatively little impact on plans to invest in the UK or elsewhere so far. 5. Investment in B2B is up, whilst B2C is down. 6. Investments in repeat entrepreneurs have become more common. 7. Investments in female entrepreneurs have also become more common, with over 30% of investors making more investments in female CEOs or cofounders. 8. Over 30% of investors say it is becoming easier to raise funds from both existing and new LPs, with 50% saying the overall climate has remained unchanged. Introduction 6 Mosaic Ventures | Sentiment of Seed Investors in Europe 2018 Full Results SECTION 1 What seed investors think about startups What seed investors think about Brexit What seed investors think about their own funds 7 Mosaic Ventures | Sentiment of Seed Investors in Europe 2018 The quality of startups has improved 60% of investors say the quality of startups has improved in the last 12 months. One third say it is unchanged and only a small minority say it has deteriorated. What seed investors think about startups Much better Somewhat better About the same Somewhat worse 13% 47% 6% 34% Source: Mosaic Ventures Q. As an investor, how would you rate quality of companies: better, worse or the same? (last 12 months vs. 24 months before that) Survey compiled by Julian Missel of Vivi Research and Mosaic Ventures 8 Mosaic Ventures | Sentiment of Seed Investors in Europe 2018 The pathway from seed to Series A has improved Follow-on funding appears to be robust. Half of investors say their portfolio's ability to raise series A or seed extension has improved in the last 12 months. Fewer than one in ten say that it has got harder. Q. How, if at all, has the ability of your portfolio to raise Series A (or a seed extension) changed? (last 12 months) What seed investors think about startups 52% 9% 39% Somewhat better About the same Somewhat worse Source: Mosaic Ventures 9 Mosaic Ventures | Sentiment of Seed Investors in Europe 2018 An increase in seed investments made in repeat entrepreneurs While a third of investors say that they have made more investments in repeat entrepreneurs over the last year, two thirds say that there has been no change. What seed investors think about startups Q. How, if at all, have your investments in repeat entrepreneurs changed? (last 12 months vs. 12 months before that) 33% 67% More investments No dierence Fewer investments Source: Mosaic Ventures 10 Mosaic Ventures | Sentiment of Seed Investors in Europe 2018 An improving picture for female entrepreneurs There is still much improvement needed, however 32% of all investors say that they have made more investments in female CEOs or cofounders over the last 12 months compared to the previous year. Only a small minority say that such investments have declined. Q. How, if at all, have your investments in female CEOs or cofounders changed? (last 12 months vs. 12 months before that) What seed investors think about startups 32% 64% 4% More investments No dierence Fewer investments Source: Mosaic Ventures 11 Mosaic Ventures | Sentiment of Seed Investors in Europe 2018 What's hot? AI is the hottest seed investment sector Seven in ten investors are excited about the AI sector, while over three fifths are enthusiastic about SaaS and Marketplaces. Over half regard Digital Health and Fintech as exciting. However, investors are largely indifferent to E-commerce and IoT. Q. As an investor, what sectors are you currently most excited about? What seed investors think about startups 70% AI-based applications 64% SaaS 61% Marketplaces 54% Digital Health 52% Fintech 33% Cybersecurity 30% Software infrastructure 30% Consumer services 26% Crypto 23% VR / AR 23% Analytics 15% IoT 13% E-commerce 6% Other Source: Mosaic Ventures 12 Mosaic Ventures | Sentiment of Seed Investors in Europe 2018 What's not? E-commerce the sector that investors are most likely to shun Over three fifths of investors are disinterested in E-commerce or actively avoid it. A sizeable minority say the same of VR / AR and IoT, while virtually no investors would shun AI or SaaS opportunities. Crypto divides opinion, with 24% avoiding the sector and 26% excited about it. Q. What sectors do you actively avoid or have no interest in as an investor? What seed investors think about startups 61% E-commerce 30% VR/AR 24% IoT 24% Crypto 17% Cybersecurity 15% Consumer services 13% Digital health 11% Other 11% Software infrastructure 11% Analytics 11% Fintech 9% Marketplaces 4% SaaS 2% AI-based applications Source: Mosaic Ventures 13 Mosaic Ventures | Sentiment of Seed Investors in Europe 2018 A rise in B2B investments, a fall in B2C investments Half of investors say they have invested more in B2B in the last 12 months compared to the previous year. Fewer than one in seven say the same of B2C. Half claim that they have invested less in B2C companies in this period. Q. Compared to the previous year, have you invested more or less in...? (a) B2B businesses (b) B2C businesses? (last 12 months) What seed investors think about startups More investments No dierence Fewer investments MORE INVESTMENT B2B 41% 10% 49% 49% 15% 36% LESS INVESTMENT B2C Source: Mosaic Ventures 14 Mosaic Ventures | Sentiment of Seed Investors in Europe 2018 UK investment incentives (SEIS / EIS) do not affect the decision-making process of seed investors Three quarters of investors say that if a UK company has raised EIS and SEIS investment it has no impact on their decision making, while a small proportion say it will increase or decrease their likelihood of investment. Q. If a UK company has raised EIS and SEIS investment, what impact does this have on your decision making? What seed investors think about startups Source: Mosaic Ventures 14% Increases likelihood of investment No di erence Decreases likelihood of investment 11% for 75%, SEIS / EIS has no impact on investment decision 15 Mosaic Ventures | Sentiment of Seed Investors in Europe 2018 Full Results What seed investors think about startups SECTION 2 What seed investors think about Brexit What seed investors think about their own funds 16 Mosaic Ventures | Sentiment of Seed Investors in Europe 2018 A quarter of investors are less likely to invest in UK companies following Brexit For the majority of investors, Brexit has little impact on plans to invest in the UK or elsewhere. However, around a quarter say that it has made them less likely to invest in UK companies. Q. How, if at all, has Brexit impacted on your likelihood to invest in UK Companies? What seed investors think about Brexit Source: Mosaic Ventures due to Brexit, 23% of investors are less likely to invest in UK 75% 2% Increases likelihood of investment No dierence Decreases likelihood of investment 17 Mosaic Ventures | Sentiment of Seed Investors in Europe 2018 One in seven investors more likely to invest in non-UK companies following Brexit 14% of investors say that Brexit made them more likely to invest in non-UK businesses, with 5% saying they are less likely to invest in non-UK companies as a result. Q. How, if at all, has Brexit impacted on your likelihood to invest in non-UK Companies? What seed investors think about Brexit Source: Mosaic Ventures Increases likelihood of investment No di erence Decreases likelihood of investment 5% 82% due to Brexit, 14% of investors are more likely to invest in non-UK companies 18 Mosaic Ventures | Sentiment of Seed Investors in Europe 2018 Brexit is making portfolio recruitment harder, for 41% of respondents Compared with the European average, a greater proportion of UK-based investors reported Brexit had negatively impacted the ability of their portfolio companies to recruit. Q. How, if at all, has Brexit impacted your UK portfolio's ability to recruit? What seed investors think about Brexit Source: Mosaic Ventures 41% 59% Increases ability to recruit No dierence Decreases ability to recruit 19 Mosaic Ventures | Sentiment of Seed Investors in Europe 2018 Full Results What seed investors think about startups What seed investors think about Brexit SECTION 3 What seed investors think about their own funds 20 Mosaic Ventures | Sentiment of Seed Investors in Europe 2018 A third of seed investors believe it's getting easier to raise funds Around a third say it is getting easier to raise funds from both existing and new LPs. Further, only around one in six investors say that it has become more challenging to raise funds from existing LPs, while around a quarter say this of new LPs. Q. Has it become more or less challenging to raise funds from (a) Existing LPs (b) New LPs? What seed investors think about their own funds Source: Mosaic Ventures 16% 50% 34% 23% 45% (b) ease of raising funds from new LPs (a) ease of raising funds from existing LPs Easier raising funds No dierence Harder raising funds 32% 21 Mosaic Ventures | Sentiment of Seed Investors in Europe 2018 32% France UK Nordics DACH 31% 15% 14% 12% 5% 3% 24% Spain Israel CEE None of the above Seed investors are putting more resources in the UK and France Around a third of investors have increased resources in France and the UK compared with the previous year. Around one in seven say they have increased resources in Nordics and DACH. Q. In which geographies, if any, have you increased resources? (last 12 months vs. 12 months before that) What seed investors think about their own fundraising Source: Mosaic Ventures 22 Mosaic Ventures | Sentiment of Seed Investors in Europe 2018 A few final words 23 Mosaic Ventures | Sentiment of Seed Investors in Europe 2018 On the data Investors were invited to participate in this research study. Responses were collected through interviews held over the period Q3Q4 2017. The questionnaire was developed by Mosaic Ventures in conjunction with independent research agency Vivi Research. Vivi also managed data collection and analysis. All data are unweighted. A few final words 24 Mosaic Ventures | Sentiment of Seed Investors in Europe 2018 Grafton House, 2-3 Golden Square, London, W1F 9HR info@mosaicventures.com </p>
