‘High conviction, low volume’: Playfair launches $70 million pre-seed fund for European startups


Early-stage investments inherently carry a higher risk of failure, but these risks may also bring higher rewards – getting in at the ground floor of a startup’s journey gives VCs more bargaining power. This is especially the case with the terribly early pre-seed stage, where companies may hardly have a working product to cheer about. And this is something that the London-based generalist VC firm Playfair capital knows all about it, given its focus on supporting super-young startups that haven’t yet made a big splash in their respective industries.

In its 10-year history, Playfair has invested in about 100 companies, including established unicorns like Stripe and Mapillary, a startup that branched out to Facebook in 2020. Those specific investments came from Playfair’s inaugural fund, which didn’t target any particular “stage” of the company. But Playfair turned into more of a pre-seed company with its second fund announced in 2019, a focus it retains for its new £57m ($70m) third fund, which it is announcing today.

While many early-stage venture capital funds may want to make several dozen investments a year, Playfair has kept things fairly frugal throughout its history by committing to making no more than eight investments a year, while keeping a portion of its capital is reserved for a handful of follow-up funds. investments. The latest fund comes amid a slew of new early-stage European venture capital funds, including Emblem, which announced a new $80 million seed fund last week, while France-based Ovni Capital burst onto the scene last month with a $80 million seed fund. $54 million.


‘High conviction, low volume’

Playfair, in turn, seeks founders “outside the dominant tech hubs,” as well as founders working on projects that may touch more where the main hype and “buzzy-ness” exist. This is perhaps even more important if the stated goal is to invest in only a handful of startups per year – they don’t have the luxury of throwing out a lot of money to increase their chances of finding a winner. “High conviction, low volume” is Playfair’s stated ethos here, and identifying real differentiators is a key part of this.

“I would say probably half of the funding in our portfolio is pre-product, pre-traction,” Playfair managing partner Chris Smith told gotechbusiness.com. “And the other half has some kind of very early traction, maybe an MVP (minimum viable product) or a few POCs (proof-of-concepts). But we tend to invest where there is little traction.”

It wasn’t that long ago that autonomous car technology was all the rage, dominating just about every trade show and tech conference. And there was a specific event several years ago, the EcoMotion mobility event in Israel, according to Smith, that really helps emphasize his investment ethic.

“I went in to look at the 120 or so companies that were exhibiting, about 116 of the companies were doing auto autonomy,” Smith said. “And as an investor, I look at this and think if you write tons of checks a year, you probably just invest in a lot of them and try to find a winner — but we don’t, we only do six to eight [annual investments]. So my opinion was, ‘I don’t want to play in that room’. The only real difference between them was whether they chose LIDAR or computer vision. There just wasn’t enough differentiation.”

However, at the same conference, there were four companies doing something completely different. One of them was Orca AI which was developing a collision avoidance system for ships, and it was this company from a sea of ​​similar startups that Playfair ultimately invested in – both in its 2019 pre-seed funding round, and the subsequent series A round two years later.

“That’s where we like to look,” Smith said. “We like these emerging markets — I call them ‘overlooked and unsexy sectors’. That is what we like to get our teeth into and where I see opportunities.”

A large portion of early stage deals fall apart in the due diligence stage. But if a company doesn’t yet have market traction or even a fully working product, how do VCs determine exactly who’s worth a bet? While one of the oldest investment clichés says something about the importance of “investing in people, not companies,” it may be even more so in the super-early stage. And while past exits and success in the business world can be a useful indicator, there are many things that can ultimately determine whether a founder or founding team is intrinsically investable.

“We look for a few things, including examples of exceptional performance,” Smith said. “And I think the most important thing is that it doesn’t necessarily have to be in the business world, or even the realm where they’re building the business.”

Playfair Capital staff portraits Image credits: Playfair Capital

For example, PlayFair recently reinvested in AeroCloud, a four-year-old SaaS startup from the North West of England that builds airport management software. its seed round some two years earlier. AeroCloud co-founder and CEO George Richardson had been quite successful professional driver since the age of 15but he didn’t really have any direct experience with the aviation industry before founding AeroCloud.

“He didn’t know about airports before he started the business,” Smith said. “But we thought, if anyone can do it on stage Le Mans and being under such tremendous pressure, that’s a great character trait for a founder.

Obviously, there are many other factors that go into the due diligence process, including rigorous industry research to determine the scope of a problem the startup claims to solve. But some sort of successful track record, in pretty much everything, is a useful barometer in the early investment phase.

“If you can play a musical instrument at an incredible level, or [if you’re] a professional driver, or golfer or whatever it is — I think that’s a pretty useful predictor of future performance,” Smith said. “But it’s [investing due diligence] a combination of spending a lot of time with the founders and understanding what drives them. Then go very deep to support the thesis.”


A lot has happened in the world between 2019 and 2023, with a global pandemic and major economic downturn intersecting Playfair’s second and third funds. In the broader sphere of Big Tech, startups and venture capital, we’ve seen major layoffs, falling valuations and delayed IPOs, but in the early world that Playfair lives in, it was a slightly different experience.

“At pre-seed where we invest, we’re pretty isolated from what’s happening in the IPO markets, or what’s happening with growth funds,” Smith said.

That is impossible to say Nothing has changed. The third fund is more than twice the size of the second fund, matching the size of the checks it now has to write for companies. creeping up to the £1 million mark. So what caused that change? A combination of factors, as you would expect, including the simple fact that there is more capital around and the economic conditions that everyone is facing right now.

“In 2021 there was a crazy spike, now it’s stabilized again – but the rounds are still significantly higher than in 2018-2019,” Smith said. “We are actually very lucky in the UK to have the SEIS And REQUIREMENT schemes (tax-efficient schemes for investors) because they brought in a lot of angel capital, and then also capital from funds that take advantage of the tax breaks — there’s really just more money in circulation. I actually think inflation played a role as well. So while in some ways the costs of building a startup have fallen, such as access to certain tools, at the same time salaries have skyrocketed. So startup founders in 2018-2019 may have paid themselves £30-40,000 [annually], you see founders being paid maybe £60-70,000 now. So founders need more to live comfortably while building their business.”

This naturally follows through the hiring and building of teams, which now also expect more money to counteract the rise in the cost of living across society. Perhaps add to that a growing understanding that a fledgling company might need a bit more runway to succeed, and all this could help explain growing check sizes in the early stages of launch.

“I think Europe may have learned a few lessons from the US, namely that there is no point in putting very small amounts of money into companies, giving them very short runways, putting undue pressure on them and then watching them fail .” said Smith. “You want to give companies enough money so that they have 18 to 24 months, time to turn around, time to figure things out. That increases the chance of success.”


While Playfair is not unique in the early stage investment battle, it has a sole limited partner (LP) in the form of founder Federico Pirzio Biroli who provides all the capital and who initially ran it as both managing partner and LP. Smith replaced Federico for the second fund and Federico has since moved to Kenya where he now has a more passive role in terms of day-to-day involvement. And having a single entity providing the capital greatly simplifies things from an investment and management perspective.

“It gives us a lot of benefits – it means I don’t spend 40-50% of my time fundraising, and I can spend my time working with our founders,” Smith said. “And I think it’s also just a huge vote of confidence.”

This “mote of confidence,” Smith said, stems from the fact that Playfair has already repaid the entire initial fund in cash, aided in part by several exits. This number is also likely to receive a significant boost as Stripe gears up for a massive IPO — Playfair invested in the fintech giant during its Series C round in 2014 before narrowing its focus to pre-seed. And for his second fund, Smith said they hit somewhere in the region of 95th percentile for it TVPI (total value versus paid capital).

According to Deal Room Dataabout 19% of seed-stage companies grow a Series A within 36 months. In contrast, Playfair says that 75% of its investments in Fund 2 have now also generated a Series A investment, and by 2022 alone, its portfolio companies will have raised $570 million in follow-up financing from various venture capital funds.

“Success for our founders is basically the same as success for us, which is to take them from pre-seed to a successful Series A round,” said Smith.

And while Playfair typically passes the lead investor’s baton to another VC firm for subsequent rounds, it will often again lead in the starting round, as well as participate in Series A rounds and very occasionally later. In part, this is about showing confidence as well as providing capital, which is crucial as a startup gears up to enter the market.

“I think that’s really important because if your existing pre-seed investor doesn’t want to lead your seed, that can be a pretty tough time to go to market when you might not have that many points of evidence to try and get another outside investor,” Smith added.