There aren’t many growth funds in Europe, but one now has fresh capital to take a position in firms: a German investment management firm DCCP conducted the final close of a third growth fund and the preliminary close of a recent early-stage fund, Topping up capitalthree way partnership with Porsche focusing on mobility startups, with a total value of $450 million.
While DTCP is now an independent enterprise, short for “Digital Transformation Capital Partners,” the DT in DTCP used to face for Deutsche Telecom, which is once again a major investor in DTCP Growth.
Despite these connections, DTCP had to determine to boost a smaller growth fund than it intended after its first close in 2022. At the time, its goal was $500 million, with a hard cap of $600 million, and it was expected to be met in March 2023. “We have gone through a very complex market environment in terms of fundraising,” DTCP Growth managing partner Thomas Preuß told TechCrunch.
“We currently have over $330 million, which is a very good amount to invest in this vintage. We have already completed four investments that are developing very well,” added Preuß. The 4 firms in query are Anecdotes, IntelligentConsistent and Quantum systemsthat focus on artificial intelligence and automation.
It is price noting that SoftBank is the second largest investor in DTCP Growth, confirming the position of the Japanese group long-term bonds to the German telecommunications company, but also to its fund of funds strategy following the slowdown in direct investment.
Given SoftBank’s penchant for big checks, it makes sense to support the fund beyond the seed and early-stage investments that typically dominate the European market. DTCP Growth intends to make investments ranging from $20 million to $25 million, in stages ranging from Series B to late-stage capital-constrained financing rounds.
Others are working to deal with the persistent lack of development capital in Europe. For example, the private investment bank Lazard cooperated with French VC firm Elaia Capital to launch a growth fund. However, this comes a full decade after DTCP launched its first growth fund, followed by its second vintage in 2018.
This gave DCCP the advantage, “because yes [had] very strong relationships with all relevant players from the very beginning of the ecosystem,” said Preuß. Having a good track record doesn’t hurt either. Of 36 enterprise software firms supported through its previous growth funds in Europe, Israel and the US, one went public and 13 were acquired.
With mergers and acquisitions in mind
The most vital recent transaction inside the DTCP portfolio could also be the acquisition of LeanIX by SAP roughly EUR 1.2 billion; However, for the company, M&A is more of a process than a one-time event. “We have a ready-made M&A playbook [use to] prepare our companies for takeover by strategic or private equity investors,” said Preuß.
This process actually starts much earlier: DCCP invests in market segments that it identifies as highly captured. This is a part of an investment strategy that is based on each thesis – with particular emphasis on cloud-based enterprise software – and data.
Although it has offices in Hamburg, Frankfurt, London, Luxembourg, San Francisco and Tel Aviv, DTCP’s investment process does not start with meetings with entrepreneurs. Instead, it evaluates firms and their KPIs using the same in-house software it uses throughout its journey, DTCP Flightpath. “We call this the upside-down investment approach,” Preuß said.
Still, DTCP has many firms on its radar, often too early for a growth fund to take a position in them, which inspired the decision so as to add an early-stage fund. It can be interesting to see the extent to which he’ll have to regulate his approach to early-stage dealmaking. More details can be announced soon, but Preuß told TechCrunch that the fund size is $125 million and is based in Berlin.