European Fund Briefs, January 2012

Earlybird Plans to Launch New Tech Fund

Founded in 1997 in Hamburg, German, Earlybird Venture Capital was one of the few firms to emerge from Germany’s massive venture capital lump in the following decade and is now one of the country’s most visible early stage players.

It has added 12 companies to its portfolio in the last two years, including social betting service Crowdpark.

About three-quarters of its portfolio is accounted for by Internet and cleantech investments, while the rest are in health care technology.

The firm is investing from its 2007-vintage, €128 million ($166 million) fund that retains some €30 million ($40 million) of dry powder.

In 2012, Earlybird plants to launch a larger-sized fund dedicated solely to technology, plus a smaller healthtech fund.

Talks with investors regarding the new funds have already begun, though euro-zone problems have complicated matters.

“It’s not a catastrophe, but it’s definitely not helpful,” says Hendrik Brandis, co-founder and managing partner of Earlybird. “Some Asian, Arabic and U.S. investors are waiting to see what happens.”

The firm also hopes to launch a separate technology fund for the Italian market and add Milan to its Munich and Hamburg office locations, the latter of which will soon be replaced by a move to Berlin

For 2011, Earlybird reports a deal flow growth of 17% year-on-year, a rise Brandis expects to continue into 2012 as a recessionary climate drives startup activity. However, he is far more impressed by the quality of leads landing on his desk.

“In our previous fund 8% of deals were initiated by repeat entrepreneurs. That figure has jumped to almost 60% in our 2007 fund,” he says.

Furthermore, with the rise of Berlin as a creative hub, the startups are now mostly original ideas, rather than the models copied from Silicon Valley that previously dominated the scene.

That creativity has not gone unnoticed, and Earlybird has seen an influx of competition for later stage deals from U.S.-based VC firms. Brandis says it’s an indication of the quality of Europe’s startups.

Despite a weak IPO scene, Earlybird achieved two profitable sales in 2011: Audio networking developer Bridgeco was sold to semiconductor company SMSC and social gaming platform Scoreloop to BlackBerry manufacturer Research in Motion. Brandis is confident that trade sales will take up any slack in the exit market.

He points to reports that the largest American IT companies are sitting on almost $3 trillion of cash.

“That’s an unbelievable number and a significant part of it is not in the U.S., it’s with their international subsidiaries and would be taxed if repatriated so they may decide to spend it abroad,” he says.

Ingenious Backs Indigenous Media

Late last year, London-based Ingenious Ventures launched its fourth media-focused fund of the year, hoping to grant investors further exposure to one of the few success stories in the British economy.

Ingenious is targeting £20 million ($31 million) for the enterprise investment scheme (EIS) fund, which will invest in across fashion, ecommerce, publishing, marketing, gaming, live entertainment and television.

“Everyone is asking where growth is coming from but this is an opportunity for investors to get involved in a sector of the economy that is internationally recognized and where we punch well above our weight,” Patrick Bradley, CEO of Ingenious Ventures, told VCJ.

Bradley says the firm already has several deals in the pipeline, and is in discussions with companies dealing with live events, sponsored programming and social media interaction.

The Media Opportunities Fund should complete by April 2012 and will invest from £250,000 to £2 million ($3 million) per opportunity from then.

Investments in high-growth companies will comprise about three-quarters of the portfolio, with the remainder in businesses offering more predictable returns.

Special Situations Entice Perusa LPs

After burning through its debut, €155 million ($200 million) fund in less than four years, Munich, Germany-based Perusa Partners has finalized its second fund at €207 million ($277 million), just three months after launch.

Both new and existing institutional investors—mainly pension funds and endowments in Europe, North America and Australia—were attracted to the offbeat strategy of the new fund, which focuses on special situations, such as corporate spin-offs, buy-and-builds and turnarounds.

“Basically, anything that separates us from the cookie-cutter leveraged buyout and needs more management attention than a typical LBO deal would,” says Hanno Schmidt-Gothan, co-founder of Perusa.

“We also like businesses that profit from certain mega-trends, like people living longer, and are somewhat independent on the economic cycle,” he tells VCJ.

Schmidt-Gothan gives the example of Flamingo, a Belgian pet products supplier, which benefits from the growing number of elderly people owning pets.

Flamingo is among the 10 deals Perusa has completed since the launch of its first fund in mid-2008, the last of which was the August 2011 purchase of British explosives disposal company BACTEC for an undisclosed sum.

StormHarbour Rounds off CAPE Fund

As it seeks to double the size of its first renewable energy fund, CréditAgricole Private Equity (CAPE) has hired StormHarbour Securities to complete the international portion of its fundraising for Capenergie II.

Having held an interim close in May at €120.5 million ($162 million), Paris-based CAPE is well on the way to its target of €200 million ($270 million) by June 2012, and has already committed €40 million ($54 million) across five deals from its second fund.

These included a March 2011 investment in Belgian solar panel designer Ikaros Solar.

CAPE’s first renewables fund closed oversubscribed at €109 million ($142 million) in 2007 and is now fully invested in 16 companies.

CAPE did not say whether it would raise that fund’s average investment size of €5 million ($6.8 million) for its latest offering, which aims to combine infrastructure-type risk with growth capital returns.

Oil Fund Strikes Paydirt

Norwegian private equity firm HitecVision has defied the bleak fundraising climate to close a $1.5 billion oil-and-gas-focused fund in just four months.

Investors piled into an oversubscribed fundraising that eventually closed at its hard cap, $250 million above target.

Limited partners in HitecVision VI include: Adams Street Partners, Argentum, ATP Private Equity Partners, Canadian Pension Plan Investment Board, DNB, Goldman Sachs, HarbourVest, The Hillman Co., Indigo, KEVA, KLP, Partners Group and Storebrand.

Most of those were repeat investors, including Norwegian state-backed fund-of-funds Argentum, which was a cornerstone investor in HitecVision’s last fund.

That was also oversubscribed, closing at $800 million in 2008 and thereafter making investments between €30 million and €150 million ($40 million and $195 million).

The latest fund will continue to pursue a growth capital and buyout strategy, though the firm did not state an investment range.

HitecVision tends to purchase Norwegian oil and gas businesses, though its 17-company portfolio also features British and American interests, notably Houston, Texas-based Bassdrill.