EQT launched its growth strategy last October and is in the market with its debut fund targeting €2 billion, it disclosed in March.
Affiliate title Private Equity International spoke with Marc Brown, partner and head of EQT Growth, nearly a year after he joined the Scandinavia-based firm.
Brown was previously with Microsoft as its global head of M&A and strategic investments and has over two decades of dealmaking experience. The conversation touched on European growth equity, capital deployment and how fundraising is going, among other topics.
What is keeping you busy?
There’ve been three main trends since the launch in October. One is building the team itself. We’ve added a fair number of people on the team from great backgrounds. We’re up to 15 total now. The team has been the biggest and most important thing because getting that right at the outset is really important.
Second has been fundraising. We’re continuing to move forward on that score.
Third, we’ve made some investments thanks to an allocation from the EQT balance sheet. We’re not only getting those through the investment committee, we are in the market winning deals and looking at a lot of transactions and then working with our portfolio companies in terms of value creation.
How has deployment been since you launched in October?
We don’t have a specific goal in number of deals targeted. We currently have five companies in the portfolio. These are food delivery platform Wolt, which is in about 20 markets around Europe including Israel; Epidemic Sound, a digital rights licensing company focused on music; Mollie, a payments fintech based in the Netherlands; Vinted, a circular economy company selling primarily clothing and accessories that wants to expand into new markets; and Bought by Many, a consumer-directed insurtech focused on pet insurance.
All of the companies are performing very well. In particular we have seen good progress on international expansion, something we’re very well placed to support. For example, since our investment, Vinted has opened a new office in Berlin and expanded its operations into Canada, bringing its total number of markets to 15. Mollie is also rapidly growing its team, having set up a new development center in Lisbon that will be home to more than 100 people by 2023.
Can you tell us more about the fundraising process?
We are continuing to move forward with the fundraise. The target is €2 billion, which will provide us with enough capital to build a portfolio around interesting companies in Europe where we can be an active investor.
We think that we can construct an investment portfolio that will give us an opportunity to generate interesting returns for our LPs. We’ve had good receptivity from both existing EQT LPs and new LPs, and we continue to try to expand our investor base. We’ve had a great chance to talk with them, tell our story and tell our view of European growth investing.
What concerns do you have about the fund, strategy or deployment?
The overall concern that I focus on is building the best team. I think the best team that we can possibly build is going to be a team that does a great job at selecting great companies because of our varied background.
It’s going to be a team that supports them going forward to help them maximize their own value, which obviously flows down to us. That’s my biggest concern: finding the right team to put together to support these companies.
Are too many GPs looking at Europe growth? How is the competitive landscape?
You’re certainly seeing more firms, but I think the European growth opportunity is still very attractive. That’s because over the last three years the number of venture-backed start-ups has exploded. The stage before growth has really exploded as the formation of institutional venture funds – folks who are at that earlier stage – has also increased.
In addition, the receptivity of governments and universities to the notion of supporting young entrepreneurs has grown rapidly. We’ve seen more entrepreneurs stay in Europe to build companies because of that receptivity and because it’s easier to serve companies’ customers from wherever you may be headquartered. It wasn’t just because of covid that people saw the ability to use the cloud as a platform to service customers on a global basis.
All of these things have created a big wave of interesting companies which will be more than enough to support growth investors like ourselves and other firms for several years to come.
It’s a wave that we see supported by the general movement of digitalization and disruption that’s not going to end in the near term. We’re really excited about it. It’s certainly more competitive, but not to the degree that there’s concern that there aren’t enough companies to find and support.
How do you think growth equity will evolve further?
I do think it is its own category, so it doesn’t really need to establish itself in that way. I think as LPs continue to look for risk-adjusted returns they will spend more time in the growth area. I think we provide good value for the risks we take on for our LPs. In particular, that works in Europe, which right now is the best place for risk-adjusted returns in the growth arena.
Does it evolve further? I guess we’ll see. In terms of firm formation, I would look at how venture funds are evolving. They all seem to be growing bigger funds and putting more capital to work.
Governments – as I mentioned before – are supporting the growth equity space from a job creation perspective by backing early-stage companies in their various markets. Add digitalization and transformation on top of that and I think growth equity evolves as those trends evolve.
Marc Brown is a partner at EQT and head of its growth team. He was previously corporate vice-president of corporate development at Microsoft.
This article first appeared in affiliate publication Private Equity International