There aren’t many growth funds in Europe, but one of them now has new capital to invest in businesses: a German investment management company DTCP conducted the final close of the third growth fund and the initial close of its new seed stage fund; Capital impositiona joint venture with Porsche that focuses on mobility startups, totaling $450 million.
While DTCP is now independent and an acronym for ‘Digital Transformation Capital Partners’, the DT in DTCP once stood for Deutsche Telekom, which is again DTCP Growth’s lead investor.
Despite these ties, DTCP had to settle for raising 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 the expected to be in March 2023. “We’ve been through a very complicated market environment for fundraising,” DTCP Growth managing director Thomas Preuß told TechCrunch.
“We are now at $330 million, which is a very good size, to invest in this vintage. We have already made four investments that are developing very well,” added Preuß. The four companies in question are Anecdotes, Cognigy, Cohere and Quantum Systemswhich share a focus on artificial intelligence and automation.
Notably, SoftBank is DTCP Growth’s second largest investor, confirming that the Japanese group long-term ties to the German telco, as well as the continued funds of funds strategy following the slowdown in direct investment.
Given SoftBank’s taste for big checks, it makes sense to back a fund that goes beyond the early-stage and early-stage investments that tend to dominate the European market. DTCP Growth intends to make investments in the range of $20 million to $25 million, at stages ranging from Series B to late-stage funding rounds, where capital has been scarce.
Others are working to address the continuing lack of growth equity in Europe. For example, the private investment bank Lazard collaborating with French VC firm Elaia Capital to launch a growth fund. But this comes a full decade after DTCP launched its first growth fund, followed by a second vintage in 2018.
This put DTCP at an advantage, ’cause we have [had] very strong relationships with all relevant players from the very beginning of the ecosystem,” said Preuß. Having a strong track record doesn’t hurt either. Of the 36 enterprise software companies supported of its previous growth funds in Europe, Israel and the US, one went public and 13 were acquired.
M&A on the mind
The most notable recent deal from DTCP’s portfolio may be SAP’s acquisition of LeanIX for approximately 1.2 billion euros; but for the company, M&A is much more of a process than a one-off. “We have a book of mergers and acquisitions that we have [use to] we are preparing our companies to be acquired by strategic buyers or private equity buyers,” said Preuß.
The process actually starts much earlier: DTCP invests in segments of the market that it defines as highly profitable. This is part of an investment strategy based on both thesis — with an emphasis on cloud-based business software — and data.
While it has offices in Hamburg, Frankfurt, London, Luxembourg, San Francisco and Tel Aviv, DTCP’s investment process doesn’t start with meeting entrepreneurs. Instead, it evaluates companies and their KPIs with the same in-house software it uses throughout their journey, DTCP Flightpath. “We call it the upside investment approach,” Preuß said.
However, DTCP has many companies on its radar, often too early to be investors from its growth fund, which inspired its decision to add a seed-stage fund. How much it will have to adjust its approach to early stage deals will be interesting to see. More details will be announced soon, but Preuß told TechCrunch that the fund size is $125 million and that it is based in Berlin.
This article has been updated to correct the total number of DTCP investments made.
