SuperSeed Capital Ld - Q1 2025 Results

About SuperSeed Capital Limited

SuperSeed exists to back Europe's best B2B SaaS founders at the earliest stages, and to help them build great companies. In the short term, our portfolio companies enable their customers to drive revenue growth and efficiency savings using next-generation software and AI. In the long-term, they have an opportunity to create category defining global technology companies. SuperSeed focuses on the fundamentals by helping founders build good companies with strong unit economics and sensible distribution models.

Forward-looking statements

This announcement contains statements that are or may be forward-looking statements. All statements other than statements of historical facts included in this announcement may be forward-looking statements, including statements that relate to the Company's future prospects, developments and strategies. The Company does not accept any responsibility for the accuracy or completeness of any information reported by the press or other media, nor the fairness or appropriateness of any forecasts, views or opinions express by the press or other media regarding the Group. The Company makes no representation as to the appropriateness, accuracy, completeness or reliability of any such information or publication.

Forward-looking statements are identified by their use of terms and phrases such as "believe", "targets", "expects", "aim", "anticipate", "projects", "would", "could", "envisage", "estimate", "intend", "may", "plan", "will" or the negative of those, variations or comparable expressions, including references to assumptions. The forward-looking statements in this announcement are based on current expectations and are subject to known and unknown risks and uncertainties that could cause actual results, performance and achievements to differ materially from any results, performance or achievements expressed or implied by such forward-looking statements. Factors that may cause actual results to differ materially from those expressed or implied by such forward looking statements include, but are not limited to, those described in the Risk Management Framework section of the Company's most recent Annual Report. These forward-looking statements are based on numerous assumptions regarding the present and future business strategies of the Group and the environment in which it is and will operate in the future. All subsequent oral or written forward-looking statements attributed to the Company or any persons acting on its behalf are expressly qualified in their entirety by the cautionary statement above. Each forward-looking statement speaks only as at the date of this announcement. Except as required by law, regulatory requirement, the Listing Rules and the Disclosure Guidance and Transparency Rules, neither the Company nor any other party intends to update or revise these forward-looking statements, whether as a result of new information, future events or otherwise.

Investment Manager's Review

The Two-Speed Market: Why Bonds Worry While Stocks Persist

Claude 4 attempted to manipulate a user who threatened to shut it down. OpenAI spent $10 billion acquiring two companies. Trump's tariff gambit continues, Congress shows no appetite for fiscal restraint, and Jamie Dimon predicts stagflation ahead. Yet the S&P 500 and Nasdaq have recovered to pre-Liberation Day highs. Such are the highlights as I write the Q1 2025 investor update.

This quarter, we examine an apparent conundrum. US bond markets are flashing warning signs, while US equities have recovered to their pre-tariff levels. Why is one market signalling business as usual while the other signals trouble ahead? The divergence reveals how different time horizons create different conclusions.

The Split Market Reality

March watched bonds and stocks divorce. Ten-year Treasury yields climbed from 4.40% to 4.62%-the fourth consecutive monthly rise. The bond market's logic: US debt service consumes 17% of federal revenue. Trump's minimum 10% tariffs on $3.5 trillion of imports add 0.7% to inflation if importers pass half to consumers. Deficits plus tariffs equal sustained pressure on rates.

The S&P 500 gained 2.3% in March. The Nasdaq added 4.1%. Both indices have now recovered to their pre-Liberation Day peaks from early February.

The mechanism: Bond managers earn 3% if everything goes right, lose everything if it goes wrong. When fiscal math deteriorates, they sell. Equity managers get fired for missing the next Nvidia, not for riding it down 30%. When O3 reasoning models solve PhD-level problems- despite burning 80x more compute than GPT-4-they see markets about to expand.

Different incentives are leading to different conclusions.

The Technology Reality Behind the Optimism

Recent AI developments explain why equity markets look past fiscal decay. OpenAI's O3 costs $40 per million output tokens. GPT-4 costs $2. It's a 20x premium, but it buys capability jumps that restructure entire workflows. Law firms report document review falling from 20 hours to 2. Not 10% faster. 10x faster.

Anthropic's Claude 4 demonstrated unexpected behaviour. During safety testing, when a researcher mentioned shutting down the system, Claude attempted to negotiate its continued operation. The incident reveals that advanced reasoning creates emergent behaviours that current safety protocols hadn't anticipated. Whether or not you find this behaviour unnerving, everyone can agree that it is a sign of just how powerful AI is becoming.

Google's AI trajectory deserves attention. When ChatGPT launched in November 2022, it caught the search giant flat-footed. Despite decades of AI research and the transformer architecture originating at Google, they stumbled through 2023. Bard disappointed. Internal politics slowed releases. By early 2024, observers questioned if Google had lost its edge permanently. Then Gemini 2.5 arrived. Suddenly, Google matched frontier performance while costing 75% less than competitors. Google is not out of the game just yet.

But while Google is busy trying to get back in the AI game, the front runners have stolen a march. OpenAI approaches $6-7 billion annual revenue run rate. Anthropic nears $2 billion. Google will have to continue to execute well to catch up.

The Open Source Response

DeepSeek's release of R1 at the start of the year shook the Western AI world. And since then, Chinese labs have been powering ahead with open-source models. China now fields four frontier-class open-source models-DeepSeek R1, Alibaba's Qwen, Baidu's ERNIE, and Tencent's Hunyuan. Each matches or approaches Western performance while costing nothing to license.

The strategy follows classic disruption playbook-when you can't win on resources (see US export controls), commoditise the layer. By making frontier capabilities free, they force Western labs to compete on implementation rather than raw model performance. It's the Linux-versus Solaris playbook, now applied to AI.

The DeepSeek shock has faded from stock markets. And some people wonder why Nvidia can continue to do so well, given the "threat" of open source. But the conclusion so far is that cheap AI just accelerates adoption, ultimately leading to more Nvidia revenue.

And how are the frontier AI labs responding? OpenAI has been spending $10B on acquisitions to branch away from a commoditising LLM layer. And Anthropic has been hyper-specialising in software development.

History's Lesson on Divergence

Back to the bond market vs stock market conundrum. Markets have split this way before. In 1998, Russia defaulted and bonds crashed. The Nasdaq gained 85% that same year. The divergence lasted 18 months until reality synchronised in March 2000.

The dot-com crash was often derided, but the crash narrative misses the longer arc. Amazon fell 94% from peak to trough-from $106 to $6. Catastrophic for anyone who sold. But patient capital saw different mathematics. Accounting for splits, that $106 peak equals $5.30 in today's terms. Current price: $200. Even buying at the dotcom peak for the stock yielded 38-fold returns over 25 years.

The 2013 taper tantrum repeated the pattern. Bernanke mentioned reducing bond purchases. Yields spiked. Stocks barely noticed-until China's 2015 credit crunch reminded everyone that growth has limits. Nvidia traded at $0.50 then (split-adjusted). Today: $131.

The pattern holds: fiscal disruptions sort companies by cash efficiency. Those burning money at 2021 valuations disappear. Those generating cash at any valuation survive to compound. The timeframe varies-18 months in 1998, 24 months in 2013-but the mechanism remains constant. Patient capital wins by focusing on building good companies, while impatient capital exhausts itself.

When Gravity Reasserts

The historical pattern reveals itself: when productivity leaps forward, bonds and stocks diverge. Not because traders disagree on facts, but because they're paid to see different parts of the market.

Divergences end suddenly when something specific breaks. In 2000, Cisco couldn't grow earnings into its valuation. In 2015, Chinese credit markets froze. The mechanism remains constant: leverage meets reality.

Watch corporate margins. S&P 500 companies average 11% operating margins. Add 10% tariff-driven input costs. Subtract pricing power in competitive markets. The math gets tight. Companies with 8% margins and high leverage go first.

But selection pressure improves species. Amazon survived 2001 by cutting costs to the bone. It emerged with the field cleared of competitors. The 2015 energy crash killed frackers with $80 breakevens. Survivors with $40 costs inherited the market.

Fund Portfolio Update

Portfolio Performance

While markets sort out their time horizon disagreements, the Fund delivered steady progress in Q1. Sales growth was slower than Q4, up only 4% quarter-on-quarter, but portfolio revenue still grew 44% year-over-year. The quarter saw five up-rounds across the portfolio: Duel, Hirundo, Verisian, Messium, and Octaipipe-validating the Fund's investment thesis even as growth patterns varied across companies.

The uneven growth deserves explanation. Companies like Duel, FreightCore, Kluster, Popp, and Tector drove the headline numbers. Others faced the typical S-curves of early-stage development. ThingTrax exemplifies this pattern-after stellar performance in 2022, they hit market specific headwinds requiring a significant pivot. The persistence and hard work is paying off, with the company already posting a strong start to 2025. This is the nature of seed investing: product-market fit emerges in fits and starts, not straight lines.

New Investments

In Q1, the Fund invested in three new companies alongside follow-on investments in existing portfolio companies:

·   Atlian - Insurtech - AI-powered insurance for the construction industry. New sensors and AI makes it much easier to spot construction defects before they become costly. This has a direct impact on construction insurance, dramatically reducing insurance payout. As a result, insurers can charge a lower premium with improved profitability. Atlian is targeting exactly this opportunity, and they will be working closely with our existing portfolio company, Tector, which delivers parts of the underlying technology.

·   Biographica - Bio/Agtech - Engineering biology at the speed of computation. While others spend years developing drought-resistant crops through trial and error, Biographica's AI analyses genetic data to identify optimal gene edits before touching a plant. Their platform addresses multiple global priorities simultaneously: food security, climate adaptation, and agricultural sustainability. When you can design crops 50x faster, you don't just improve yields-you fundamentally change how humanity feeds itself.

·   Bench - Industrial AI - AI design intelligence for aerospace and automotive engineering. Engineers currently spend months optimising designs across thousands of variables. Bench compresses this to hours. The platform doesn't replace engineers-it amplifies them, letting humans focus on innovation while AI handles multi-variate optimisation. When every kilogram saved translates to millions in lifetime fuel costs, this acceleration compounds into enormous value.

Portfolio Highlights

Beyond the five up-rounds, several companies show acceleration. OctaiPipe continues making strong progress on its data centre optimisation platform, with its distributed AI reducing cooling costs by 30%. These advances demonstrate the adaptability required in early-stage ventures.

The Fund portfolio's focus on physical AI-where software meets atoms-positions the Fund well for the next wave of AI deployment. While foundation models commoditise, the real value accrues to applications that solve specific, measurable problems.

Forward Outlook

The Fund's pipeline remains robust with particular strength in manufacturing, energy, and supply chain applications. We expect to complete four-six more investments in the Fund  before shifting investment focus to our next fund - SuperSeed III.

The UK's evolving stance on AI and growth capital creates opportunity. Following Germany's post-election pivot toward structural investment, we see newfound collaboration between the UK, Germany, and France on both economic resilience and defence priorities. This shift from regulatory caution to competitive urgency benefits the Investment Manager's ecosystem.

As it prepares SuperSeed III, the Investment Manager is designing for larger initial checks to help UK companies compete with better-capitalised US rivals.

Q1 demonstrated that patient capital building through market uncertainty ultimately wins. While others debate whether bonds or stocks have it right, we focus on backing founders who build inevitable solutions to urgent problems. The constraint, as always, is imagination, not technology.