BackingMinds believes success can be found in venture’s blind spots

The Swedish firm has invested in 15 companies – two of which have had exits – that are led by women or immigrants or are located outside the Stockholm area.

Sweden’s BackingMinds, which recently raised €50 million for its second fund to back European entrepreneurs often overlooked by traditional venture capital firms, is already eyeing a larger amount for its third fund.

Venture Capital Journal spoke with Sara Resvik, chief executive and partner at the firm. She said its investment thesis emerged from a realization by founding GPs Susanne Najafi and Sara Wimmercranz that there is a great opportunity to invest only in companies whose founders are outside traditional venture networks. Those founders typically include women and/or immigrants, and they are often older than most founders or have started businesses in smaller cities, Resvik said.

Najafi and Wimmercranz “very quickly started to see there’s also a very interesting business arbitrage because the hyped up valuations that you see in the small networks you see within the capital areas, with entrepreneurs that have gone to the right schools, etcetera, weren’t there,” said Resvik.

That means BackingMinds can enter deals on more favorable terms, which in theory will translate to higher returns.

The biases against founders who lack the typical entrepreneurial pedigree cause many investors to overlook “companies that don’t have the perfect pitch or the right terminology,” Resvik noted. “When you take time to try to see behind that and to try to understand what they really are building, that is where the arbitrage is.”

Investors in BackingMind’s newest fund are primarily high net worth individuals, including the founders of private equity firms EQT and Nordic Capital, Supercell CEO Ilkka Paananen, Spotify co-founder Martin Lorentzon and the Persson family, which owns retailer H&M.

BackingMinds is already looking ahead toward its third fund, for which it is targeting roughly €100 million, double the size of Fund II. The GPs expect to start fundraising late next year, Resvik said.

Key investments

Fund II will make initial investments between €500,000 and €3 million in European companies (except for those in the UK). Since launching in 2016, BackingMinds has invested in 15 companies – two of which have had exits – that are led by women or immigrants or are located outside the Stockholm area.

Among the venture firm’s investments are BrainStimulation, a precision diagnostics firm that the GPs discovered in an accelerator in Umio in northern Sweden, fashion supply chain tech provider TrusTrace and construction tech start-up Combify.

TrusTrace’s founders immigrated to Stockholm as IT professionals from different parts of India. One of them was called back to India and alerted by his family to the purple color of the river and groundwater caused by chemical pollution from textile manufacturing plants upstream from his family’s organic farm.

TrusTrace builds blockchain systems for big retailers such as Nike, Adidas and Uniqlo that enables them to trace where cotton and other raw materials they use are coming from and then pressure their producers to adopt the same supply chain tracing system.

When CEO Shameek Ghosh and his co-founders first came to Sweden, they had no network and nobody wanted to invest in them, Resvik said. BackingMinds’ GPs met them in 2017 and last year helped them raise €7 million in their Series A round.

Alaa Alshawa, CEO and co-founder of Combify, is an architect who escaped his native Syria by boat to Greece and then walked across Europe to Sweden. After arriving in a small city in northern Sweden, he talked his way into an architecture firm as an intern where he learned of data sets that can be used to win construction projects more easily, Resvik said.

He and his co-founder, who emigrated from Dubai, created a more lightweight and less costly competitor to big proptech players. Since its launch in January 2022, Combify has landed 80 of the largest property owners as customers and is looking at expanding into Germany, which uses similar government-curated data sets that provide early intelligence for construction and sub-contracting deals.

Some of BackingMinds’ GPs and principals come from similar backgrounds as the founders they invest in. A Bosnian immigrant recently joined the firm as a principal in Copenhagen. Co-founder Najafi was born in Sweden, but her family hails from Iran.

With offices in Stockholm and Copenhagen and an active network of LPs and advisors on the ground in Finland, BackingMinds is also looking at lots of start-ups in the Baltics and may even hire a team member there in the future, said Resvik.