There aren't many growth funds in Europe, but one of them now has new capital to invest in larger companies. German investment management firm DTCP has held the final close of its third growth fund and the initial close of Incharge Capital, a new early-stage fund in a joint venture with Porsche focused on mobility startups, for a total of $450 million.
DTCP is now independent and is an acronym for “Digital Transformation Capital Partners,” but the DT in DTCP once stood for Deutsche Telecom, which is once again an anchor investor in DTCP Growth.
Despite those connections, DTCP was forced to settle for raising a smaller growth fund than originally planned after its first close in 2022. Its target at the time was $500 million, with a hard cap of $600 million, and it was scheduled to close in March 2023. “We’ve experienced a very mixed market environment in terms of fundraising,” Thomas Preuss, managing partner at DTCP Growth, told TechCrunch.
“Right now we have a little over $330 million in funding, which is a very good size to invest in this age group. We've already made four investments that are progressing very well,” Preuss added. The four companies in question are Anecdotes, Cognigy, Cohere and Quantum Systems, all focused on AI and automation.
Notably, SoftBank is DTCP Growth's second-largest investor, confirming the Japanese group's long-term relationship with the German telecommunications company as well as the continuation of its fund-of-funds strategy after slowing down its direct investments.
Given SoftBank's penchant for big funding, it makes sense for it to back a fund that goes beyond the seed and early-stage investments that dominate the European market. DTCP Growth plans to invest in the $20 million to $25 million range, from Series B to later-stage funding rounds where capital is scarce.
Some firms are trying to address the continuing shortage of growth equity in Europe – private investment bank Lazard, for example, has launched a growth fund in partnership with French venture capital firm Elais Capital – but this comes a decade after DTCP launched its first growth fund and its second in 2018.
This gave DTCP an advantage. [had] “Since the beginning of the ecosystem, we've built very strong relationships with all the relevant companies,” Preuss said. A strong track record doesn't hurt, either: Of the 36 enterprise software companies backed by the growth fund to date in Europe, Israel and the U.S., one has gone public and 13 have been acquired.
With M&A in mind
The most notable recent deal in DTCP’s portfolio may be the acquisition of LeanIX by SAP for around €1.2 billion, but for the company, M&A is not a one-off but a process. [use to] “We need to prepare our company for acquisition by strategic or private equity investors,” Preuss said.
The process actually started much earlier: DTCP invests in market segments it sees as having high acquisition potential, as part of a theory- and data-driven investment strategy focused on cloud-based enterprise software.
DTCP has offices in Hamburg, Frankfurt, London, Luxembourg, San Francisco, and Tel Aviv, but its investment process doesn't start with a meeting with an entrepreneur. Instead, it evaluates companies and their KPIs using the same in-house software it uses throughout the investment process, DTCP Flightpath. “We call this an upside-down investment approach,” Preuß says.
Still, DTCP is looking at a number of companies, many of which are too early to invest in with a growth fund, which led to the decision to add an early-stage fund. It will be interesting to see how much it will have to adapt its approach for early-stage deals. More details are expected soon, but Preuß told TechCrunch the fund is $125 million in size and will be based in Berlin.
This article has been updated to correct the total number of investments made by DTCP.