Düsseldorf EQT wants to take advantage of the decline in valuations of well-known start-ups such as Klarna and Instacart. According to Dominik Stein, partner at the growth fund EQT Growth, now is exactly the right time to get involved: “There are still deals and they are on better terms for investors.“
Some competitors are no longer so active. This means that there is much less money in the market compared to the past two years.
Recent figures support Stein’s assessment. According to data provider Crunchbase, as little venture capital flowed into start-ups in August as it did two years ago. According to Stein, this has a positive effect on the position of investors towards start-ups and the terms of the contract. “The companies continue to be good, the underlying trends such as digitization are right,” he also explains the investor interest in EQT’s investment strategy.
In recent years, the few European investors who were able to participate in large financing rounds met with well-known competitors from the USA and Asia in the negotiations with start-ups.
Among others, the Japanese technology investor Softbank – involved in GetYourGuide or Coachhub – and Tiger Global from London with investments such as in the Berlin software company Contentful dominated the headlines. According to EQT calculations, European investors only participated in around 30 percent of all growth rounds in Europe last year.
EQT invests two billion euros in start-ups
The Swedes want to change that and get more involved. “We see the opportunity to build a strong European growth fund,” says Stein.
To this end, the Swedes, so far known mainly for their private equity business, have closed their first growth fund and have a total assets under management of 2.2 billion euros – more than the two billion euros originally targeted. The capital will be used by EQT for a total of around 20 investments in European start-ups and will provide between 50 and 200 million euros each.
“We are looking for companies that generate sales, are market leaders in their segment, already have many customers and a good management team,” says Stein, looking at the areas of enterprise, consumer Internet, healthcare and air conditioning technology. However, the scramble for these companies, which hope to make high profits on the sale of the stake, is great.
Nevertheless, Stein is convinced that he will be able to join the right start-ups “as an active partner”: “There are many European founders who appreciate the cultural proximity with European investors. This ensures trust.“ In addition, EQT takes a lot of time for the start-ups and helps with knowledge to enter the market in other European countries.
No sales planned
The small portfolio accumulated over the past one and a half years includes the Dutch payment service provider Mollie and the second-hand provider Vinted. Mr Stein said Mollie had helped in the search for the head of Germany. The stake in the Finnish food delivery service Wolt, which passed into the hands of the US industry leader DoorDash, has already been sold.
Now Stein does not expect any further sales so quickly. That would be a bad time at the moment: “This year is characterized by falling valuations and a focus on profitability. The Ukrainian crisis and the impending recession are further exacerbating this.” Nevertheless, Stein is not worried: “We don’t want to sell anything at the moment, we want to get in.“
