The investment space between venture capital and classic private equity buyouts is hotting up, attracting foreign and domestic market entrants with exciting strategies
In the DACH region, the large series B, C and D deals have historically been dominated by global funds. However, we are seeing increasing market expansion from domestic and other European funds looking to build their footprint in DACH and make the most of investment opportunities in growth capital.
From evolving old economy businesses into new digital formats, to taking advantage of scalable tech-enabled companies, funds are employing numerous strategies to build value in the increasingly attractive investment space that sits between venture capital and classic buyouts.
PER recently invited six active European players in the growth capital market to an online breakfast event to tell us more about why funds are looking to this sector to invest and how they are attracting some of the best talent. All of the funds that took part in this discussion have a base in the DACH region and view this as an attractive long-term market for growth investing.
Whatever the strategy, innovation is at the heart of the growth capital model. For Jean-Marie Hofbauer of Pinova, this means breathing new life into established businesses through digital transformation and automation. According to Jean-Marie, investing in solid, sometimes old-school, business models to bring them up to date can be just as fruitful as a revolutionary new product in a market.
Just like Jean-Marie, Dominik Alvermann and Elisabeth von Lichem from Acton Capital look for growth potential in existing ventures. They invest capital and, importantly, sector-specific expertise to grow companies with intrinsic scalability. Dominik and Elisabeth’s team draw on their experience in key sectors, dividing up potential investments to target specific areas to scale. Repeated exposure deep into subsectors gives the firm a benchmark of which models have the most potential.
James Hook of LeadX also prizes sector-specific expertise. He explained how hiring team members from different sectors and leveraging the enormous network and reach of the firm’s parent, Metro Group, helps them act quickly when moving a deal towards completion. He added that the team’s diverse skill set helps to navigate highly fragmented deal sourcing in the growth market.
Oakley’s key differentiator is its focus on entrepreneurs, who, Lovis von Andrian explained, are not always the people to take a growing business through to exit or IPO. Asked how this affects the valuation of a company, Lovis said Oakley spends a huge amount of time on the ground making sure they understand what the entrepreneur wants from the investment. This, he said, is key to predicting the potential progression of the business and ensuring that investors and founders are aligned.
The DACH market offers fertile ground for modernisation and scale-ups. It’s also a key area for tech innovation, which growth funds are keen to capitalise on. Verdane is a long-established Nordic firm and a relatively recent entrant to the German market. They make both single company and portfolio growth investments in technology-enabled companies. Maroje Guertl views Verdane’s Berlin base and its team’s local expertise as essential to building brand-recognition in this maturing market.
An understanding of the market is essential to growth investors, who are well positioned to move quickly in response to shifting trends. As a firm that is very much focussed on online consumer businesses, NuCom has been careful to monitor changing customer behaviour during the coronavirus crisis. They have reported that there is an increased propensity to save cash, together with enjoying habits and hobbies which can be done inside. There have been some fascinating examples of companies adapting their core product or service for the current health crisis. This is particularly noticeable in the cosmetic and retail industry.
While their strategies differed, what all of our speakers shared was a deep passion for making growth investments and their enthusiasm was infectious.
As trusted recruiters for the industry, we are keeping a close eye on growth capital investment in the DACH region and we’re expecting to see even more exciting recruitment opportunities emerge in this space. If a career in growth capital sounds appealing, please get in contact with us. Many of our clients are looking for the brightest and best who align entrepreneurial thinking with strong technical and analytical skills.