New $60 million venture capital fund Moonfire targets Europe’s youngest startups

Although most European businesses are struggling to emerge from carnage the coronavirus pandemic has caused, the continent’s tech ecosystem has been booming as never before.

In the first quarter of 2021, more European startups became “unicorns”—achieving a $1 billion valuation or more—than in all of last year, which was already a banner 12 months for the continent’s tech scene, according to tech investment site Crunchbase. Meanwhile, European tech companies reaped about $20 billion in exits—either through a stock offerings or through being acquired—a figure higher than that of the entirety of the prior 12 months, according to PitchBook, which tracks venture capital, private equity, and M&A.

“Europe has been behind for a long time, but we’ve been growing faster than both the U.S. and China for many years now,” Mattias Ljungman, a London-based venture capitalist, tells Fortune. “I think the ecosystem is poised for fresh growth.”

That’s why Ljungman, who was previously a partner at London-based venture capital firm Atomico, says he decided to start his own venture capital fund aimed at Europe’s youngest tech startups.

His new firm, called Moonfire Ventures, announced on Thursday that it closed its first $60 million fund. The investment pool is aimed at providing seed funding—the first institutional investments that a startup receives, often before it has built a complete product and started to find customers—for fast-growing tech companies.

Among those backing Ljungman’s new fund are Cendana, a U.S.-based fund of funds that specializes in seed-stage venture, as well as the Utah School & Institutional Trust Funds Office (SITFO), which manages money for the benefit of Utah’s schools. Ljungman says he has had support from a number of other successful European entrepreneurs, including his old boss Niklas Zennström, the billionaire Skype founder who runs Atomico.

Ljungman says that while he was at Atomico, he saw a gap developing in the European market for seed investments. Atomico initially specialized in Series A investment rounds, which are usually made once a company has built a product and has at least some paying customers. But over time, the average size of those Series A rounds has gotten progressively larger and more competitive. Venture capital funds from the U.S. and Asia have become active in backing European startups, helping to drive up the size and valuation of these early-stage investments.

But these non-European firms won’t usually invest in a company as immature as those Moonfire is targeting. Ljungman says that while there are about 900 funds that do seed-round financing in the U.S., there are less than half that number in Europe, even though the returns from successful seed investments are often many times greater than those from later funding rounds.

Ljungman says he hopes to build a portfolio of about 30 companies, investing about $1 million to $1.5 million in each, although he will consider investing less than that amount in some circumstances. He’s already started, putting money into some half-dozen companies, according to Moonfire’s website. These include Humaans, a London human resources software startup, and Electric Noir, a London video games studio that is building narrative games that are more like films than traditional Xbox fare.

Joining him at Moonfire as partners are Mike Arpaia, a computer scientist who has worked as a product manager at Etsy, Facebook, and Workday, and Candice Lo, who helped build out Uber in Europe and China and has been an investor for other European venture capital funds.

Ljungman says he will take a data-driven approach to investing that will include building a large social graph of connections between different entrepreneurs and companies, and trying to apply machine learning to help figure out which investments have the highest likelihood of success.

He says this has become increasingly important since the pandemic, as more and more financing deals are now being completed faster than ever before, with all meetings conducted by videoconferencing software. Ljungman says he raised all the money for his fund and completed most of the initial portfolio investments through Zoom calls.

“If we stick to this gut-feel, shaking hands, relationship way of doing things you are not going to be able to work in what is actually a completely new environment,” he says.

He says much of the data is used to rule out deals that obviously won’t work, while the final decision on what to put money into is still made by humans. But he compares the data analytics Moonfire is developing to “putting on a bionic suit.” He also says building analytics platforms and using machine learning to help guide investment decisions, something that many venture capital firms now say they are doing, is akin to the transformation that the hedge fund industry went through a decade ago, as it moved away from human-driven investing to investments determined much more by algorithms.

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