There aren’t many growth funds in Europe, but one of them now has fresh capital to invest in enterprise companies: German investment management firm DTCP held the final close of its third growth fund and an initial closing of its new early-stage fund, Incharge Capital, a joint venture with Porsche focusing on mobility startups, at a total amount of $450 million.
While DTCP is now independent and an acronym for “Digital Transformation Capital Partners,” the DT in DTCP once stood for Deutsche Telecom, which is once again DTCP Growth’s anchor investor.
Despite these ties, DTCP had to settle on raising a smaller growth fund than it intended to following its first close in 2022. At the time, its target was $500 million, with a $600 million hard cap, and the expectation to be done in March 2023. “We went through a very complicated market environment for fundraising,” DTCP Growth managing partner Thomas Preuß told TechCrunch.
“We’re now at $330 million plus-ish, which is a very good size, to invest in this vintage. We already made four investments which are developing very well,” Preuß added. The four companies in question are Anecdotes, Cognigy, Cohere and Quantum Systems, which share a focus on AI and on automation.
Notably, SoftBank is DTCP Growth’s second largest investor, confirming the Japanese group’s long-term ties to the German telco, but also its ongoing fund of funds strategy after it slowed down on direct investments.
Considering SoftBank’s taste for large checks, it makes sense that it would back a fund that goes beyond the seed 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, in stages ranging from Series B to late-stage funding rounds, where capital has been scarce.
Others have been working on addressing the ongoing lack of growth equity in Europe. For instance, private investment bank Lazard partnered 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, “because we have [had] very strong relationships with all relevant players from the very beginning of the ecosystem,” Preuß said. Having a strong track record doesn’t hurt, either. Out of the 33 enterprise software companies backed by its previous growth funds in Europe, Israel and the U.S., one has gone public, and 13 have been acquired.
M&A in mind
The most notable recent deal out of DTCP’s portfolio might be LeanIX’s acquisition by SAP for approximately €1.2 billion; but for the firm, M&As are much more a process than a one-off. “We have an M&A playbook that we [use to] prepare our companies to get acquired by strategics or private equity buyers,” Preuß said.
The process actually starts way earlier: DTCP invests in market segments that it defines as highly acquisitive. This is part of an investment strategy that is both thesis-driven — with a focus on cloud-based enterprise software — and data-driven.
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 along their whole journey, DTCP Flightpath. “We call it the upside down investment approach,” Preuß said.
Still, DTCP has lots of companies on its radar, often too early to be investable by its growth fund, which inspired its decision to add an early-stage fund. How much it will have to adapt its approach for early-stage dealmaking 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.
