European Fund News, May 2012

Sunstone Finalizes Life Science, Tech Funds

Spun out of a government growth fund in 2007, Sunstone Capital’s early portfolio was rooted in Denmark.

However, the firm has adopted a pan-European focus for its latest technology and life science funds.

These recently closed initially at €85 million and €89 million ($111 million and $116 million) and will invest across the Nordic region, as well as Central and Eastern Europe.

“We have much better deal-sourcing potential in those areas than in the U.K. or France, where there are many local VC players,” says Jimmy Nielsen, Sunstone’s managing partner for technology ventures.

The partner has earmarked 2012 as exit season for his firm’s portfolio, with two or three trade sales likely before the end of the year. After spending much of 2011 on the fundraising trail, Sunstone also expects to complete more deals this year, about five each in its two focus sectors.

For its technology portfolio, Sunstone favors capital efficient startups, such as Internet-based services, rather than hardware and cleantech companies, and is particularly interested in business services that exploit intuitive features of consumer-orientated applications.

An example is, a presentation software developer that’s an alternative to PowerPoint slideshows. After investing in the Hungarian company in 2009, Sunstone directed Prezi into the United States, where it now has 10 million users and annual sales of $20 million.

Silicon Valley-based Accel Partners has joined Sunstone as an investor with Prezi board representation, although the Danish firm prefers to be the sole institutional investor in early stage technology rounds. Sunstone usually takes minority stakes of about 30% and invests from seed stage up to €4 million ($5.2 million) in later rounds.

Several Sunstone companies have similarly relocated across the Atlantic Ocean, and the United States remains a key region for growth. If a European startup can count several venture-backed competitors in America, then Nielsen reckons it probably won’t make it as a global company.

Therefore Sunstone works hard to ensure its technology businesses grow quickly in the U.S. market, which sustains growth and offers the likeliest exit opportunity.

“If it’s a seed deal, the team is often asked to move to the U.S., so even if it started as a European deal it ends up being funded as a U.S. company,” he says.

Earlybird in Long Flight to Fourth Fund

More than a year after launch, Berlin-based Earlybird Venture Capital is halfway to a targeted $200 million fourth fund.

Final close is planned for October 2012 and the fund will pursue about eight technology deals a year, mainly in German-speaking countries and with one eye on Berlin, a European hub for Internet startups.

Earlybird reports raising the fund from institutional and family offices in Europe, the United States, the Middle East and Asia.

“These days even new LPs typically want to stand back and watch a full fund cycle before committing and we have found that we are invariably fundraising even between funds,” Jason Whitmire, general partner at Earlybird, told VCJ.

Earlybird’s previous fund closed at €130 million ($169 million) in 2007 and backed life science and technology businesses.

The new fund will only target the technology and Internet sectors, with a separate health fund planned this year.

DFJ Composes Angel Overture

European technology and life sciences investor DFJ Esprit is seeking up to 50 influential business angels this year for a new type of co-investment fund.

Capital raised will be subject to enterprise investment scheme (EIS) tax relief and will join DFJ’s institutional money—on a non-dilutive basis—in VC deals.

The fund builds on several ad hoc EIS joint investments that the firm has already completed, including a £2 million ($3.2 million) second-round funding of mobile advertising business StrikeAd in January.

According to DFJ, prospective investors are considering commitments of between £50,000 and £100,000 ($80,000 to $159,000).

“There has been very strong interest already and in time we aim to reach a run rate of £10 million 9$16 million) or more per annum,” Richard Marsh, the DFJ partner who will manage the angel fund, told VCJ.

Money will be invested from seed stage upwards in British companies and European businesses with a significant U.K. presence.

London-based DFJ has $1.1 billion of institutional funds under management and has made 17 exits in the last two years.

MMC Revs up Second Sidecar Fund

London-based MMC Ventures is making a fresh pitch to young investors with its second Growth Generation Fund.

In 2010, the first iteration of the fee-free fund attracted 65 young individuals with £2,500 to £10,000 ($4,000 to $16,000) to invest.

“The objective isn’t to raise significant capital, but rather to engage bright young people with venture capital,” Rory Sterling, an investment manager at MMC, told VCJ.

For its part, MMC benefits from the networking opportunities afforded by its investor base of young professionals, many of whom work in corporate finance, private equity and recruitment.

“We hope they will become evangelists for MMC” Sterling says.

Like its predecessor, the second Growth Growth Generation Fund will invest in four companies that qualify for enterprise investment scheme (EIS) tax relief.

The fund should close in June and will then co-invest alongside MMC mainstream funds in the subsequent four EIS deals the firm completes.

The previous fund is now fully committed to consumer Internet businesses AlexandAlexa and LoveHomeSwap, plus one digital media and one health care company.

Third Orlando Fund Blooms

Germany’s Mittelst has once again tempted an array of institutional investors to a special situations fund from Munich-based Orlando Management.

Endowments, foundations, insurance companies and sovereign wealth funds from Europe, the United States and the Middle East contributed to an oversubscribed €231 million ($300 million) final close of the firm’s third fund.

Orlando will seek businesses with revenues of up to €500 million ($650 million) that are underperforming due to factors such as unproductive capital expenditure, poor cost control or gridlock between management.

Special Situation Venture Partners III will continue the strategy and scope of Orlando’s previous fund, which closed in 2006 at €255 million ($330 million).

Subsequent deals included the 2008 management buyout of shipbuilder FSG and the 2010 purchase of furniture manufacturer Martin Staud.

European Support for British Cancer Research

The European Investment Fund (EIF) and British charity Cancer Research UK (CRUK) have launched a joint initiative to accelerate cancer drug development.

The two bodies are behind a £25 million ($40 million) first close of the CRT Pioneer Fund, with Cancer Research Technology—the commercial arm of CRUK—investing on behalf of the charity.

The fund seeks to address a gap in early stage life sciences funding and ensure that drugs are financed from discovery through to phase II clinical trials.

In recent years, many private investors have been unwilling to back nascent biotech businesses, meaning that potential treatments have often failed to progress from academic research to clinical testing.

“The CRT Pioneer Fund will be capital efficient and primarily follow a licensing model rather than creating companies,” Richard Pelly, head of the EIF, said in a statement.

Fund manager Sixth Element Capital was tapped to oversee investment and commercialisation of projects, though profit will be ploughed back into cancer research.

At least two-thirds of the fund, which the EIF and CRT could increase to £50 million ($80 million), will support the work of CRUK scientists.

Compiled by Alex Derber