Cavalry Ventures holds EUR 100m first close for third fund

The firm “did not have the most amazing timing” in starting its latest fundraise in January 2022, according to Ritter. In spite of this, it has already secured commitments amounting to the total size of both of its previous flagship funds.

Provided that it secures its EUR 160m target, the VC’s third fund will be double the size of its 2019-vintage predecessor, which held a EUR 80m final close in 2020. This fund was around four times the size of its EUR 22m debut fund.

The firm considers its latest fund to be a “right-sizing” of its strategy to reflect the increasing size of seed and early-stage rounds, according to Ritter.

In spite of the challenging market environment, Ritter believes that now is a good time to invest in seed and early-stage businesses. “You need to have conviction to start a company now – the financing environment is tough, and the economic environment is likely to be tough for some time,” Ritter said. “It will be harder to sell software to businesses and to build a product, but if you manage to do it, you might have a better product than a company that was started one or two years ago when funding was easier to come by, with a higher conviction as a team. Now you really have to want it – so now is the perfect time to invest.”

Investors
The European Investment Fund (EIF) is the fund’s largest LP, Ritter said. The remainder of the LP base is made up of family offices and around 100 private individuals, including startup founders who have made successful exits from their own businesses.

Cavalry Ventures could add two to three additional institutional investors for its final close, Ritter said, amounting to around EUR 30m-EUR 40m. The balance will be made up of further entrepreneurs, he said.

Investments
Cavalry Ventures III will continue the strategy of its predecessor funds, backing seed and early-stage European software companies.

Around 40% of the fund will be deployed for initial investments, with the remainder left for follow-ons, Ritter said. The average first equity ticket from the VC’s predecessor fund was EUR 1.3m, Ritter said, but expects this to fall at around EUR 2m for the new fund.

The vehicle expects to make 30-35 deals over its three-year investment period, he said. The VC makes 12 investments per year, with each of its partners restricting themselves to just two deals each during this period. This selectivity ensures that the firm “sets a high bar internally”, Ritter said.

The fund has made two deals to date, one of which is in Ireland and one of which is in the UK, but Ritter did not disclose further details. The VC often develops deal opportunities in these markets via introductions through the founders there that it has already backed, Ritter said, meaning that it can engage in bilateral, off-market discussions.

Cavalry has invested in more than 50 companies, in areas including machine learning and AI, cloud and B2C concepts. “We want to invest in companies with a good level of depth when it comes to their technical product,” Ritter said. “We are happy with technical complexity – even if it takes two years to build a very differentiated product.”

The firm is also taking note of the increasing prevalence of sustainable business practices, Ritter said. “We don’t consider ourselves to be an impact investor, but we invest in businesses that we consider to be on the path forward, moving society in the right direction. For example, and for this reason, we have never invested in a buy-now-pay-later consumer business.”

Having been founded in 2016, the firm is still an early stage in terms of portfolio exits, Ritter said. It made its first Fund II exit in 2021, selling its stake in Germany-based application software startup Planetly via a trade sale.

People
Cavalry Ventures – Rouven Dresselhaus, Claude Ritter, Stefan Walter (managing partners).

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