EVP is an investor in companies including digital freight forwarder Explorate, workforce management software company Deputy, logistics tech start-up Shippit and customer service start-up Pendula.
When EVP hit its first close of $60 million in August, the fund revealed that despite revenue multiples routinely hitting 20 or 30 times in 2021, the investor had held steady at an average of 8.4 times annual recurring revenue.
On Twitter, this triggered Airwallex co-founder Jack Zhang to say he didn’t think this was venture capital, which was retweeted by Blackbird Ventures partner Niki Scevak.
EVP partner Justin Lipman said the team had laughed about the exchange, and also leaned into it.
“We chuckled about it internally – we’re VCs in every sense of the word,” he said.
“But our B2B software focus does come with some downside protection, versus other parts of the asset class. They have an annuity revenue stream, and they’re infrastructure-like businesses…. the companies we back do have a different profile of risk.”
Mr Lipman said the success of companies such as accounting software disruptor Hnry (which recently raised $35 million) indicated there was still plenty of upside from its investments for investors.
Tech correction
However, the fund is no longer completely immune to the tech correction which has resulted in widespread valuation tumbles across the sector in the last year, having now marked down one investment.
“There was one company in fund two that was significantly exposed to the food and hospitality sector during the COVID-19 downturn and struggled to raise, but then completed a raise at a down round, and we marked it down accordingly,” Mr Leibman said.
“There’s no question there has been a valuation reset… but I think the best Series A stage companies will still be priced on an eight, nine or 10x multiple.
“That’s one thing that’s sometimes missed in the perception of EVP as being more price disciplined and conservative – we’re entirely comfortable paying full prices for the best software companies on the market.”
Previously known as Equity Venture Partners, EVP was founded in 2014 by Les Szekely – the first investor in hotel booking services HotelClub and Siteminder – and Mr Leibman, but did not launch its first $25 million fund until 2016.
EVP focuses on the Series A stage, and does not invest in companies that are still pre-revenue. It also reserves 50 per cent of its funds for follow-on investments.
The new fund will support investments into 15 companies.
The new fund takes its total capital to $270 million in funds under management.
Mr Leibman said $100 million was an adequate fund size for it’s part of the market.
“Our current thinking is that $100 million lets us be true to our underlying thesis of being active investors, with a concentrated portfolio and high conviction in Series A stage B2B software,” he said.
“In order to maintain that investment strategy, our inclination is not to go much beyond $100 million.
“In the early Series A stage, deal volumes remain as healthy as they’ve ever been. We’ve already done three investments from the new fund, and we have another two at term sheet – that’s about as quick as we’ve ever been and reflects a healthy level of deal flow.”
