Highland all set with European growth fund

Boston-based Highland Capital Partners has invested in Europe for more than a decade. But until recently, it has only ventured into the continent with allocations from its U.S.-focused funds.

Now, a dedicated €250 million ($340 million) European Tech Growth Fund will allow the firm to more than double the capital it had previously deployed from Highland’s flagship vehicles.

“Before this fund, we’d put about $200 million to work in Europe and Israel and realized $100 million of that at a significant multiple, so this was a natural step to take advantage of more opportunities and to build our team,” said Highland Partner Fergal Mullen, who has added four partners to a European operation he previously ran solo.

Based in Geneva, London and Dublin, Mullen’s team will continue Highland’s traditional strategy in Europe, which has been to invest from €10 million to €20 million in growth-stage deals, and mainly in Internet-enabled businesses, such as e-commerce and software-as-a-service.

That is a narrower focus than Highland’s U.S. operation, which has an earlier-stage bias and to which Highland Europe forwards any “exceptional” deal flow that falls outside its purview.

That said, for a technology-oriented investor with a U.S. base, Mullen is ambivalent about pushing his European portfolio into the U.S. market, although internationalization of some kind is an important theme for the firm.

Mullen stresses that Europe’s leading markets, such as Germany and the United Kingdom, have enough fuel to power “huge” companies, and that Europe’s lack of a homogenous market need not be the drag on e-commerce that many claim.

“There are some additional hurdles – regulatory, payment processing and the extra overheads to cope with multiple geographies – but they make European companies focus early on internationalization, which means they are better prepared to go to places like Latin America, Asia and sometimes the U.S.,” he said.

Highland’s most successful European investment to date has been Vistaprint, a marketing products supplier that went public in 2005 and is now worth $1.3 billion.

Thus, expectations are high for the European fund, which has made nine investments combined in the United Kingdom, France, Germany and Ireland since its first close in late 2012.

Those put the fund already halfway through its investment cycle by final close, a reflection of a troubled fundraising climate that saw Mullen on the road for two-and-a-half years.

“We launched in November 2011 when Europe was toxic. On top of that were all the usual concerns about venture capital’s poor performance here, so Europe was off limits for American investors,” he said,

Eventually, though, Highland assembled an enviable LP base for the fund, including top European family offices, university endowments, foundations, pension funds, Enterprise Ireland, and the European Investment Fund.