The Art of Growth-Stage Investments in Today’s Market

Today’s macro landscape is a compelling case for investing in growth-stage businesses

Companies are staying Private longer than ever. Over the last two decades, the average age of software firms at IPO has risen from 8 to 12 years. All while, median funding levels surged by approximately 2.5 times and mean market capitalisation at the time of listing swelled by nearly fivefold. 

We, at Northzone, therefore, are big believers in being the best partners to founders right from seed to IPO.

Northzone’s full-stack approach to Growth investing

Northzone’s nearly 30-year investment legacy has forged a unique, self-reinforcing flywheel of discovery, insight, and access. By combining early-stage investment expertise with a disciplined growth mindset, we’ve developed a distinctive approach that enables us to identify generational growth companies early and back them with high conviction and a well-prepared perspective.

1. Insight: Our approach to assessing companies is rooted in open-mindedness, merging our early-stage founder and market-picking DNA with rigorous Growth business fundamentals. This helps us uncover market opportunities others might overlook, and pursue thesis with differentiated insights, ultimating generating true alpha. 
2. Access: Having supported some of Europe’s most iconic companies—such as Spotify, Klarna, Personio, Trustpilot, and others—Northzone has built a stellar reputation among founders and investors alike. This allows us to connect with exceptional founders early. Often, we engage years ahead of formal partnerships, assisting with key hires and leveraging our deep global network to connect founders with early customers for their businesses.
3. Discovery: Over three decades, Northzone has honed a proprietary process and global reach that enables us to discover promising companies and entrepreneurs at the very start of their journey. At the growth stage, we complement this with a data-driven approach, leveraging over 20 external signals to track business momentum and initiate conversations ahead of critical inflection points.

What we define as a true Growth stage company

We believe there are three key tenets that define a company ready to transition from early to growth stage: (1) proven product-market fit, (2) a repeatable go-to-market (GTM) strategy, and (3) a viable business model. While some companies raise growth rounds before achieving these milestones, we find that growth capital is most impactful when these foundational elements are in place.

1. Proven Product-Market Fit (PMF): The cornerstone of readiness is a clear and quantifiable product-market fit, evidenced by customers’ deep affinity for the product. This is typically reflected in high customer retention rates, anecdotal love for product and an exceptional Net Promoter Score (NPS).
2. Repeatable, Scalable Go-To-Market Strategy (GTM): A company’s GTM engine should be finely tuned, capable of scaling efficiently with additional funding. Companies demonstrating this readiness often possess diverse and deeply developed paid and unpaid acquisition channels, complemented by a growing share of organic inbound interest from customers and word-of-mouth referrals. 
3. Viable Business Model (Unit Economics): The business model must demonstrate a clear path to profitability with strong unit economics that scale with growth. Companies in this stage typically achieve a balance between customer acquisition costs and lifetime value, supported by robust gross margins and operational efficiency.

What are the common ingredients amongst true Outliers

Whilst the conditions laid out above are necessary for a growth foundation, however,  they alone are insufficient to create generational business and over time, we’ve distilled the additional characteristics that really set standout companies apart – these are the qualities we believe are crucial beyond the solid fundamentals needed to create category-leading businesses.

1. Product IP: Outlier companies often have a product-first focus, anchored by strong intellectual property or unique technology that’s difficult to replicate. They start by tackling complex, hard-to-solve, very specific problems, spending years refining a solution that’s not only excellent but also unparalleled.
2. High mission criticality to customers: The most resilient companies offer products that are indispensable – essential to the customer’s day-to-day operations or, in some cases, to their entire business model. These aren’t “nice-to-have” features but core functionalities that customers rely on.
3. Platform potential: True category leaders don’t just thrive locally – they scale across geographies, positioning themselves as global platforms. These companies continually extend their impact by creating integrated solutions that drive value across markets, positioning themselves not as isolated products but as operating systems that offer multiple avenues of value to customers.
4. Ecosystem control: A distinctive characteristic of category leaders is their “ecosystem control” – an ability to shape the broader landscape, including suppliers, regulators, and other stakeholders. These companies influence not just their customers but entire industries, building relationships and frameworks that reinforce their centrality.
5. Enduring defensibility: Finally, defensibility is paramount. We don’t just look for companies with structural moats but those with compounding advantages – often through network effects or data monopolies – that grow stronger with scale. These moats must deepen over time, creating resilience and reinforcing the company’s dominance within its category.

Ultimately, our focus is on companies with the ambition to define and lead their markets, setting the stage for generational outcomes that compound value over decades. 

The art of making growth investments

We’ve spoken extensively about our investment strategy, but the how behind our approach is rooted in three guiding principles – each designed to forge high-conviction partnerships that stand the test of time.

Building conviction over time: We’re deliberate in our process, avoiding the high-speed auction frenzy that often defines venture capital. We take a measured approach, typically spanning ten to twelve months from the initial meeting to a signed term sheet. This allows us to conduct rigorous research, both primary and secondary, to build a well-rounded investment thesis. We also take this time to cultivate deep connections with founders, introducing them to Northzone’s network to build mutual trust. 

Differentiated, non-consensus insights: We pride ourselves on bringing unique perspectives to the table. Rather than following market consensus, we focus on developing contrarian insights, drawing on deep sector knowledge and first-principles thinking. On average, we dedicate over 1,000 hours to research and conduct more than 125 primary interviews before making  an investment.

Relationship-driven, tailored deals: Our commitment to relationship-building extends beyond due diligence. We like to have a working relationship with management well before investment. We work closely with founders to structure deals that align with both parties’ goals, steering clear of widely circulated opportunities in favour of bespoke partnerships.