Notion hits $300m for its fifth fund, but unimpressed by big rounds in generative AI startups

Image credits: The NotionCapital team

When it first hit the scene about a decade ago, Notion Capital was poised to capitalize on the oft-repeated phrase, software is eating the world. Specifically, it targeted what was then called the enterprise SaaS space. Several years later, and he’s capitalized on that thesis, investing in more than 100 early-stage companies.

It is now entering the next phase, having completed the final close of its new 300 million ($325.6 million) fund, its fifth, which it closed at its cap.

The proof of the pudding is in the eating and the Notions software portfolio has certainly eaten a lot of the world.

He has invested in 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 A+ series investments in total from this fund.

Furthermore, there is a difference, perhaps driven by Brexit. This Notion V fund is denominated in euros and based in Luxembourg, meaning it will have an increasingly pan-European investment focus.

The company also announced three senior promotions. Partner Itxaso del Palacio becomes general partner and Stephanie Opdam and Kamil Mieczakowski will move to Partners.

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

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

But Stephen Chandler, managing partner at Notion Capital, believes the term Entperprise SaaS no longer fits the bill.

He said to me, we really used to use the word SAS exclusively for focus, but, you know, to be honest, our focus was broader than that for a while. SaaS has evolved beyond the application layer into infrastructure, hybrid, cloud, edge computing, all these kinds of things. But also different monetization models. It’s no longer just a case of subscription software. We were seeing people take a share of the payments, have other financial propositions incorporated, markets. All of these things are found within Notion’s wheelhouse. We tend to use the phrase enterprise software now, even though I sometimes think it’s a bit boring.

He added that the strategy remains pretty much the same. We continue to focus on Serie A, where it is our weak point.

He said Notion would also put small checks into pre-seed companies. We will literally go from 50,000 euros to the company. And then we’ll also get into the growth phase opportunities.

Do you see an opportunity with Generative AI?: Where we see the opportunity within our mandate type is more of a vertical play. Particularly when a company has proprietary data that it can exploit. We see some really interesting companies emerge from that. And some threats too I’m sure.

He also criticized investors who had gone big in AI startups when much of the industry wasn’t being demonstrated, and singled out the recent $105 million investment in Mistral: I think there’s been a ton of hype and when I start to see companies making $100 million pre-seed raises I find that a bit concerning, to be honest. You sit and look at the names of people who have invested and you think, well, actually, even if the company really nails it, you’re never going to make any money and that really?

He thinks the horizontal play of generative AI is much more within Big Tech’s purview — I think the big boys are going to be leading the way, and I also think it’s going to commercialize pretty quickly.

Notion will also offer a third Opportunities Fund in 2024, investing additional growth follow-on capital in corporates’ top performing risk assets and other growth stage enterprise 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.