Fly Ventures holds final close for second fund on €53m

The Berlin-based venture capital firm also announced the promotions to partner of Marie Wennergren, Felix Wolf and David Malinge. Matt Wichrowski joined the firm as a partner in April 2020.

Fly Ventures' first fund held a final close in December 2017 on €35m. The fund is now around 70-75% deployed. Its portfolio companies include procurement automation software developer Genlots, and Wayve, an end-to-end machine-learning software platform for the development of autonomous driving.

Asked about how the coronavirus pandemic has affected the GP's Fund I portfolio, Gabriel Matuschka, partner at Fly Ventures, told Unquote: "A large part of Fund I was seed investments, with companies often at zero revenues. It's much easier to model a zero-revenue case if you already had zero revenues, rather than a company with €10m revenues going down by 50% and the burn shooting up. In enterprise, with two-year contracts, it also takes longer for business to stop."

Nevertheless, the firm has been monitoring the market to understand how a coming recession might affect its existing portfolio companies and potential investments. "Initially we thought that the way the companies we invest in would be affected by the crisis could be seen on an industry level, but it is function-specific," Matuschka said. "For example, for a company that invests in procurement automation, the question would be how open people will be in experimenting in procurement enterprise software. Corporates have come up against so many issues, such as being understocked or coming into supply chain difficulties, and now people are excited about buying software services that can be a solution to a problem that they face right now. The question is who sees this function as part of their game plan to come out of a recession."

Schnittker Möllmann Partners advised on the fundraise for Fly Ventures' first and second funds. The new fund is domiciled in Germany and follows standard market terms and conditions.

Investors
"Two new large institutional LPs make up the majority of the increase in volume from Fund I to II, and the rest was from existing, or adjacent to existing, LPs," Matuschka told Unquote. The European Investment Fund committed to the GP's first fund and the second fund's LP base has been bolstered by Axa Venture Partners and KfW. Fly Ventures initially approached its new institutional investors in Q4 2019.

Investments
The fund will have an investment period of four years and plans to close two deals in Q2 2020. The firm will aim to make two or three investments per quarter for the foreseeable future. "In some areas, sometimes waiting and having more knowledge about a situation is better," said Matuschka. "We are looking at the client organisations that our portfolio companies are selling into, and this info trickles down over three to five months. In Q4, we will see the effects of what has really truly stopped, and which departments have total freezes."

"We will be finding the same kind of companies but trying to put in more cash initially than in the first fund. We go up to €1.3m, then over the course of the fund we can put in up to a maximum of €3m over multiple rounds," Matuschka explained. "Commitments per company are capped at 5% of the total fund size." Half of the vehicle will be held back for follow-on rounds.

Fly Ventures' first fund wrote equity cheques of €400,000-900,000 and made 28 investments in total. The firm plans to make the same number of investments from the second vehicle.

The "deeptech" and enterprise market has not slowed down in terms of investment opportunities, Matuschka said, although the firm will exercise caution when making investments. "We have not seen a massive deviation in the number of interesting opportunities in the market. People, including us, are obviously extra careful about a number of things. We do enterprise and deeptech, where going to market can take a bit longer, so often we look into having companies funded for 20-24 months. That has always been part of what we do. They rarely have fast six-month progress from seed to series-A."

"We'll be taking extra care in how long it will take to show client traction in selling to enterprise," Matuschka added. "Right now and in the first months of the fund, we will be especially open to making investments in companies with a deeper more technical challenge, which avoids progress having to be blocked by the company being busy with other things. The fear is not primarily around lockdown, but what the recession will do for the client's universe.

"We might see companies stopping a planned €35m roll-out with SAP, for example; that has a huge effect on costs for a large corporate," Matuschka said. "There have been cases where smaller companies that offer a 10th of an SAP monolith roll-out product are purchased in such a time; they do one specific thing for €100,000 a year, which can be budgeted on a sub-department level. We have this strongly in mind and want to double down here."

People
Fly Ventures – Gabriel Matuschka (partner).

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

• Topics
• Venture
• DACH
• Technology
• Germany
• Exclusive