GP Profile: Mangrove Capital

Mark Tluszcz founded Mangrove Capital in 2000 with co-founders Gerard Lopez and Hans-Jürgen Schmitz. The idea was simple: "We sat down in 2000 after the first 'internet moment' at the end of the 90s and decided we had to get into the internet in some fashion. So very naively we said lets start a new investment firm."

But before the firm was even up and running things started to go wrong in the US. "Then the internet bubble burst while we were raising our first fund," Tluszcz says, referring to the first Mangrove Capital vehicles, which they were then referring to as the New Tech Venture Capital Fund. "But luckily we were in Europe where it hadn't really hit the fan yet. That gave us six more months to get our fund closed and start making investments, which we did."

The vehicle held a €51.4m close against a €60m target and began making investments. "We were young and naïve and just thought let's convince some people to give us a shot," Tluszcz explains. "We did have a lot of confidence and that transferred across to the companies we backed." The most famous of these early investments was a participation in a €1.9m seed round for a VOIP software developer then known as Skyper.

"Serendipity also played a part," says Tluszcz. "We eventually got to meet Skype and realised very quickly that they were one of the very few European companies to build a world class product, so we had to do it. Having said that, we definitely didn't realise how big they would become." Mangrove's total investment in Skype was around $2m, which was realised at approximately 100x when the company was acquired by eBay at a $2.6bn valuation in September 2005.

Building on success
The success of Skype gave Mangrove more credibility, both with LPs and with its portfolio companies. It allowed the VC firm to raise €120m for New Tech Venture Capital Fund II and deploy larger equity tickets. Website builder Wix was the beneficiary of this as Mangrove injected $8m over several rounds, which would not have been possible earlier in the VC firm's evolution.

This afforded Tluszcz more sway with portfolio companies. "Prior to selling Wix we got an offer for $400m," he explains. "I jumped on a plane to Tel Aviv and told them not to sell. By this time I had already had a big success with Skype and had the confidence to say: 'This will be a multi-billion dollar company. Don't sell it.'

"The guys at Wix said: 'OK; we'll go with you on this one, but we have two conditions.' The conditions were that I had to stay on the board as long as they wanted, and if they ever wanted me to be chair, I had to accept. I agreed." In 2013 they took the company public and in 2015 the chairperson approached Tluszcz to take him up on his offer.

Tluszcz jokes that he never expected to be taken up on the agreement, but made good on his word and is still a shareholder in the company after others have exited. "You really shouldn't sell your best companies ever, even if you take them public," he says. "We took Wix public at $16 per share. A lot of people sold at $20, but we're still involved at $85."

Mangrove backs around 30 companies from each fund and hopes to find one in the Skype / Wix category every time. "Fund after fund, 50% of companies fail, so you have around 15 left to drive your success," says Tluzscz. "Of those 15 you end up with five great ones and hopefully one extraordinary one."

However, even after demonstrating its ability to generate strong returns, Mangrove has opted against raising a larger fund. When asked about the possibility of doing so in the future Tluszcz says: "I can say emphatically no because we have been tempted. There is a sweet spot, and with anything bigger than €250m you get diminishing returns." This is why funds III-V have remained at around that volume.

"Our view is that entrepreneurs should always make more money than us," says Tluszcz, when asked to summarise the firm's culture. "We are part of the journey; not the journey. We should make sure that our entrepreneurs want to hang with us. Part of that is our behaviour and part of that is having a track record of great returns."

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

• Topics
• GPs
• Technology
• Top story
• In Profile
• Venture