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Tuesday, June 28, 2022

VC's adopt new models: Butterfly Venture closes €13M out of €24M fund

As the investment and startup market is becoming increasingly crowded – differentiating yourself both as a startup and an investment fund is becoming crucial. It is no longer enough to just have the money. Not only because startups want more, but because among all the startup noise – you need to be able to select the best startups while there are more and more hunters for the elusive unicorns.

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This calls for new methods, new algorithms and new approaches for attracting, selecting and helping companies. Today, Butterfly Venture announced the first closing (€13M) of their €24M Fund in order to focus on “Due Diligence” investment in hardware and deep tech space. We sat down with Matti Kanninen (Co-Founder, Partner), Juho Risku (Co-Founder, Partner) and Ville Heikkinen (Partner) to understand what exactly does that mean.

The approach that the fund has is an interesting one. The investments generally follow the same pattern – a small seed/initial investment followed by a due diligence period and then a larger follow-up investment. That allows the fund to look at more startups closely and be very active. According to Juho Risko, they are one of the most active investors in Finland by the number of companies invested. The team estimates that they participate in 15-20% of all deals in Finland.

Once the teams join the Butterfly portfolio – they basically compete based on growth metrics. “We have a milestone investment model. Those that develop fastest, will have most of our money. We do not believe in anything other than business driven milestones as it makes more sense to measure the business,” says Ville Heikkinen. To get to know the startups, the Butterfly team joins each investment in “sales and business development” sprints. Basically a few weeks of heavy focus on sales and business development, followed by a reassessment.

The fund also seems to take a focus that is perhaps not all that common in the VC world – hardware and deep tech. The reason, according to Juho Risko is simple. According to their internal data, hardware and deep tech companies actually perform the best (For instance they have invested in KNL Networks, Optiwatti, Naava, Valossa). Moreover – these types of companies tend to focus on revenue and sales early on and also have protectable IP rights almost right away. Combined – it makes the investment more safe.

“Personally, I would like to invest into a robot that delivers pizzas than an app that lets you order pizzas,” says Matti Kanninen.

The new fund will focus on the same approach and will be joined by two new American Partners out of Capital A Partners (CAP A): Tanya Marvin-Horowitz, based in Stockholm, and David Mendez based in the US. The new fund makes the total capital under management – 40 million euro.

The LP’s for the fund are:  Tekes Venture Capital Ltd, Elo Mutual Pension Insurance Company, Fennia Mutual Insurance Company, Tradeka-invest Ltd, AI- Partners Ltd, LocalTapiola Pohjoinen Mutual Insurance Company and Gerako Ltd.

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