DN Capital, one of Europe’s most active VCs has launched its latest $350 million (£220 million, €300 million) fund off the back of a pretty standout year when the firm saw four of its portfolio companies hit billion-dollar-plus valuations. DN’s "Fund V" will invest across Europe, the U.K. and the U.S., but with strongly European LPs, DN has garnered a reputation for digging up some of continental Europe’s hottest startups from North, Western, Central and Eastern Europe.
Led by industry veterans Nenad Marovac (based in Europe) and Steve Schlenker (based Stateside), DN led the Series A round in Auto1, which IPO’d on the German Stock Exchange earlier this year at a $10 billion valuation and over 150x their entry price per share.
As Marovac explained: “We spend vast amounts of time with entrepreneurs understanding the market, their team, their product and to get to the heart of what they’re trying to achieve, long before we even talk about money … The launch of our fifth fund gives us further scope to uncover new entrepreneurs with the biggest, brightest global ambitions.”
Schlenker added that he thinks the “full impact of the pandemic on society, work and behaviors is only just being understood. There are tech founders across the globe right now on critical missions to accelerate this recovery and help address the needs, and solve the biggest problems, of the post-COVID world.”
In July 2021 MrSpex, the Germany-born online eyewear retailer, IPO’d at over $1 billion. DN Capital also counts unicorns Remitly, Jobandtalent and GoStudent in its portfolio.
The company, which has a 20-year history, said Fund V was “substantially oversubscribed” and will focus on the fund's main specialities in software, fintech, marketplaces and the consumer internet.
Schlenker said: “Europe has really come into its own now. It is competing very successfully versus the U.S. in terms of returns to investors.”
Were they seeing more U.S. VC in Europe, I asked?
“We've done deals with Sequoia with Lightspeed, with Battery. It seems like the competition is very strong in the UK market, because the Americans come over where they can speak the language first. It's still more of a competitive landscape with the US players in the series B or C stages when you get to France, Germany, etc." said Schlenker.
"That is changing, but it's still mostly them following people like DN in those rounds, whereas at Series-A-level, which is really our sweet spot, they seem to be more combative, specifically in the U.K. market. And we do a disproportionate share of our investments on the continent, as opposed to the U.K.,” said Schlenker.
I put it to Marovac what he thought had attracted LPs back to the fund. “Honestly?” he said, “Performance. We had the auto1 IPO in February which is worth three and a half times Fund III. We just had the Mr Spex IPO last week, which is another one times Fund II. We invested in GoStudent last June, at a $20 million valuation and they just raised money at $1.4 billion.”
Before some of those events he said fundraising for the fund was going “OK” but it wasn't going “gangbusters.” “I think since those things happened — and I guess also maybe a difference in investors' perceptions or mentality in Q1 this year. But Q1, Q2, Q3 last year were tough. They weren't easy for fundraising. But it really came about, maybe, due to changes in the market and then also the performance of the funds. They are now going into our Fund III with a 3x, already,” he pointed out.
Marovac also outlined how the fund had quickly moved to support its portfolio last year when the pandemic hit: “The first thing we did when the pandemic hit was go through the portfolio and triage, making sure every company was funded for at least till the end of December 2021. Then we said we want to invest in companies that are, firstly, COVID resistant, in the short to medium term, and, secondly, companies that are going to benefit from this digital transformation since COVID accelerated things that were happening already.”
He points to the example of UiPath and software automation — the most valuable company to ever come out of Europe: “Digital payments: no one wants to touch cash anymore. And also just different forms of fintech for digital inclusion. Remitly is probably our key example there, which does remittances for people to send money back home to emerging markets.”
Certainly, with this new $350 million fund, it’s clear DN Capital is poised to power though the rest of 2021 and well into the next few years of Europe’s startup growth.