CEE venture ecosystem matures as buyout market stalls

Private equity firms have only completed five buyouts in the CEE region so far in 2019, according to Unquote Data. This is a steep decrease on the 11 deals completed in the same period in 2018 and an even more dramatic drop on the 24 deals inked between January and April 2017.

The general sentiment of market participants presented with this data is that the lull is likely to be a temporary effect as many of the region's GPs focus on raising new funds, having divested mature portfolios over the past couple of years.

Bill Watson of Polish investor Value4Capital told Unquote last month that the region is at something of an inflexion point: "There is a bit of a cycle because there are a number of funds that will not raise again and some new ones are in the process of raising. But the region has strong financial infrastructure and with private equity only having been active for 10-15 years, it remains a region of growth."

This theory is supported by Unquote Data, which shows that the number of exits from buyout investments soared from 11 in 2017 to 20 in 2018. It also explains why secondary buyouts increased in 2018, as international and pan-European players picked off the best assets from country- and region-specific funds that needed to sell to build momentum for the successor vehicles.

A key point to emerge from Unquote's Annual Buyout Review is the collapse of Russia and Turkey in terms of deal volume in 2018, down to one transaction from an average of 9.3 annually between 2012 and 2017. Nevertheless, while the buyout market is in this period of transition, venture funds have been well positioned to grab the headlines.

Since the start of February, Unquote has only reported on 18 developments related to investments or capital raising in CEE and 50% of these have related to venture capital firms or
early-stage investments. For the same period in 2018, 17 of the 21 developments were related to buyouts, fundraising or exit events for private equity firms.

Seizing the opportunity
"You should expect more news from VC firms in the CEE region and in Bulgaria specifically," says Zlatolina Mukova of Neveq Capital Partners. Neveq is a Sofia-based VC fund on its third generation vehicle and expecting to raise €28m by June this year. This raise will be partly supported by the Bulgarian Fund of Funds programme, which was set up by Fund Manager of Financial Instruments in Bulgaria in conjunction with the European Structural Investment Funds. The vehicle is mandated with investing BGN 1bn in the Bulgarian economy and acted as cornerstone investor in Neveq III, replacing the European Investment Fund (EIF), which backed Neveq II.

"The Bulgarian Fund of Funds is investing now and there are many funds being raised," says Mukova. "Some incubators are raising capital and there are many good investment opportunities in technology startups." Eleven Ventures, also based in Sofia, is one example of a former startup incubator that has raised a fund with the support of EIF and is understood to be returning to the fundraising trail this year.

Further west, Czech startup incubator Up21 launched its first institutional vehicle this year, Start21, with a target of €30m. The new fund was set up to invest at the series-A stage in B2B technology companies across Europe. It plans to invest €3-5m with co-investors, although these will be separate to the 17 companies that it had already backed through its incubator programme.

Finally, in the most northern part of the region, the VC ecosystem in the Baltic states has been prolific in generating news stories. Three headlines were related to fundraising, as Lithuania-based investors INVL Asset Management and Practica Ventures raised capital for their latest vehicles, and Estonian firm Karma Ventures indicated its intention to do the same.

Of course, in an asset class such as private equity, which is by its very definition lacking in transparency, no news is not always bad news. However, with just three private-equity-backed buyouts completing in the first quarter, it will take a significant uptick in activity in the coming months for investors to deploy anything close to the €5.9bn invested in 2018. 

• Tweet  
• Facebook  
• LinkedIn  
• Google plus  
• Send to  

• Topics
• Investments
• CEE
• Venture
• Top story