Euroventures scans CEE for tech-based B2B targets, plans new EUR 100m fund

The Budapest-based sponsor defines itself as early growth investor as opposed to the typical private equity or venture capital funds, Tanczos said, adding that its investment case is not financial engineering, but a business’s underlying growth.

Euroventures is differentiated from the other funds in the region by its more than 50 exits, of which five have been IPOs; "We have done one listing in the UK, one in Vienna, one in Warsaw and two in the US", Tanczos said.

The investor, which launched operations shortly after the collapse of Hungary's Communist regime in 1989, is one of the longest established independent private equity firms in CEE.

Its latest fund, Euroventures V, is focused on high growth, technology-based businesses across the region. The firm's active portfolio features Logiscool, a global franchise network providing coding and digital education for children, enterprise software development company DataArt and AI-powered e-commerce search optimisation service Prefixbox, among others.

Euroventures is in the planning stages for its sixth fund, Tanczos said. The fund has a very strong focus on technology and as this market is now growing, the size of the funding rounds is increasing as well, so the business believes it should raise a larger fund than the fifth, closer to EUR 100m, he said.

The new fund will probably be open to new investors as well as Euroventures' regular ones from past funds, and the company "will have to do some marketing", he said, adding that the official part of the fundraising process is likely to start in the second half of 2024.

Euroventures has advised or is advising five investment programmes totalling more than EUR 180m. Past investors in its funds have mainly been international institutional investors, including the European Investment Fund and the EBRD, according to its website.

Investment strategy
Euroventures is interested in revenue-generative, technology-based B2B businesses selling products and services internationally, Tanczos said. The fund's average ticket size is between EUR 1m and EUR 5m, but could go as high as EUR 8m, he said.

The sponsor is control-agnostic and does not like to buy a majority stake in a business since the partners prefer to leave the responsibility of management with the majority owner.

While Euroventures is focused on Central and Eastern Europe, Russia is not a target area, and the firm avoids Poland as it does not see much sense competing with the local buyout vehicles, he said.

The important markets for Euroventures are Hungary, Bulgaria, Romania, Serbia, Croatia, Slovakia and the Czech Republic, he said.

The fund has no problem investing alone if the investment case does not require more than EUR 5m-EUR 8m, but if it sees that the investment case requires more money for a company to break even or become sustainable, Euroventures would co-invest with another sponsor.

Euroventures sources targets both internally and with the help of outside advisers, Tanczos said.

According to internal calculations, more than 90% of Euroventures’ investments that yielded more than 3x return came from people the business already knew at the time of the investment, which were introduced to its management either by former CEOs of its portfolio companies or by co-investors, he said.

Technological edge
Over the past three years, Euroventures has built a portfolio of eight companies for its latest fund in a process largely driven by market opportunity that is based on technology, Tanczos said.

People in the CEE region are still undervalued on the market in terms of labour cost, he said, adding that their education also provides them with an advantage of being more effective with fewer resources at hand.

If a software engineer educated in Silicon Valley is working on an interesting opportunity, this person immediately gets access to tens of millions of dollars in funding, he said. "In CEE, if you are talented and you have a great idea - you might get a couple of million."

Therefore, in this region, an entrepreneur tries to be more efficient, smarter and has to be very competitive, he said.

This kind of technological edge is what drives Euroventures' investment thesis – "We try to find these teams across the region, and we usually get to them through the network we've developed over the past 30 years", he said.

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