DTCP holds first close on USD 300m for new growth fund

Launched in March 2022, Growth Equity III Fund has received commitments from new and existing investors including Deutsche Telekom, SoftBank Group International and institutional, pension, corporate, and family office investors, according to a statement.

DTCP plans to continue to raise significant capital for the fund, with a second and final close expected throughout 2023, a source familiar with the situation said.

While fundraising in 2022 has been slightly more difficult compared to recent years, the valuation reset seen this year across tech firms nonetheless creates a unique opportunity for growth investors.

“The overheated nature of the market of last two to three years is now being corrected,” the source said. “We expect this to be a great vintage, because actively investing in category leaders in a difficult market environment has historically proven to be a very lucrative way of deploying capital,” the source added.

Raising now and having a first closing in this environment is thus a “powerful statement” that DTCP is ready to make the most of this situation, the source continued.

Founded in 2015, DTCP initially operated under the name Deutsche Telekom Capital Partners, with German telecoms operator Deutsche Telekom serving as the fund’s only LP in its first vehicle, Growth Equity I. It has a team of 60 professionals and operates the largest team of enterprise software investment specialists in Europe, the source said.

DTCP’s predecessor vehicle, Growth Equity II Fund, held a final close on USD 350m in 2019.

Investors
DTCP is aiming to further diversify its LP base with its latest fund, with Softbank International and other investors already onboard alongside anchor investor Deutsche Telekom, the source said. The firm is looking to bring in new partners to optimize LP returns, including institutional capital, pension funds and family offices, the source said.

The sponsor is open to international investors, and the LP base from its previous fund was already very international, the source said. Still, the fund sees a lot of demand from European investors due in part to its strategy of deploying roughly 70% of its capital in Europe, the source added.

Investment
Fund III is expected to follow a similar investment strategy from previous vehicles, focusing on “category leaders” in enterprise and business-to-business (B2B) software segments such as AI and cybersecurity in Europe, the US and Israel, the source said.

The vehicle has already closed its first deal, investing USD 15m in Cognigy.ai, a German conversational AI and automation platform, as part of its Series B fundraise, according to the statement.

It expects to start more actively deploying capital before the end of the year and could make one or two more investments in 2022, the source said.

In total, the new fund is expected to make around 20 to 25 investments in growth stage and early growth stage companies, with equity ticket sizes slightly bigger than its previous funds at around USD 20m to USD 25m, the source said.

It typically completes around five to six investments per year and could complete another one or two in 2022 with the new vehicle, the source said.

The majority of DTCP’s investments are in firms raising a Series B, C, or D, although it occasionally participates in later fundraises prior to companies beginning an IPO preparation process, the source said.

Target companies should have at least EUR 10m in annual recurring revenue (ARR) and have a proven product-market fit and show high growth, the source said.

DTCP is seeing signals that a number of leading companies in markets it is active in are preparing to come back to market in 2023, creating “great” investment opportunities” from Q4 2022 onwards, the source said. Segments of particular interest could include cybersecurity, artificial intelligence, SaaS-based companies as well as firms in cloud or data infrastructure, the source said.

Its predecessor growth equity funds GE I and GE II have invested approximately USD 410m into 32 enterprise software companies across Europe, Israel, USA and Asia, according to the press release.

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