GP Profile: Lakestar

Click here for a full data profile of Lakestar on Unquote Data, including comprehensive fundraising and investment history

Earlier this year, Unquote reported that Lakestar had launched a double fundraise targeting €800m. The new strategy would be split into two Guernsey-registered vehicles: Lakestar III with a target of €250m for early-stage investments and Lakestar Growth I with a target of €550m to be invested in larger rounds. Lakestar declined to comment on any aspect of the fundraise.

"I love Europe and think that it’s great," says founder Klaus Hommels. "However, we are behind on some regulatory issues. In venture capital we need to get our act together and raise bigger funds that can invest in bigger tickets."

Lakestar was set up with the goal of supporting European startups to compete on a global level and has had some big successes. Yet Hommels is not satisfied: "We have not made as much progress catching up with the US as I would have wished, primarily because the capital base that you have in the US is not present in Europe. We don’t have the scale of US endowments or pension funds and the family offices in Europe are more about preservation of wealth."

Hommels does not think this lack of investment is warranted and points to the EIF’s returns on a wide selection of strategies as proof of this. "The EIF has a broad investment remit and they have achieved double-digit IRRs, so that shows you the asset class is doing well," he says. "However, most market participants still have the idea that venture is a risky asset class because of one or two poor experiences."

Fund name	Vintage	Target	Amount raised	Status
Lakestar I	2013	€135m	€135m	Closed
Lakestar II	2015	€350m	€350m	Closed
Lakestar III	2018	€250m	n/d	Open
Lakestar Growth I	2018	€550m	n/d	Open

source: Unquote Data

Move on up
Lakestar itself has had its share of success, listing Spotify, Skype and Facebook amongst its early investments. "Fund size for me is the pre-requisite to play the game you want to play," says Hommels. "Performance is a function of which companies you have been in." Lakestar I held a final close on €135m in December 2013 and is expected to generate a return of 3.5x. Lakestar II hit its €350m target in August 2015 and has invested in technology businesses at a range of different stages, from an early-stage investment in German social network Nebenan.de to a sizeable investment in the later-stage rounds for challenger bank Revolut.

"It’s true that we have done more early-stage investments in the past," Hommels explains. "But it’s a function of having smaller ticket sizes to invest, so it’s been difficult to queue up for the later stage investments and also there just aren’t that many later-stage deals in Europe. Having said that, we have started doing some larger rounds. We put a lot into Opendoor and a decent cheque into Revolut. We keep on trying to engineer situations where we can invest more and we will team up with co-investors for tickets up to €150m."

Most of Lakestar’s investment activity, especially in the early days, was in Europe and the firm has a strong presence in Zurich, Berlin and London. This is a conscious choice by Hommels who says: "My hypothesis is that the place where you have the HQ is where jobs get created. For example, the case of Amazon in Germany, it kills more jobs than it creates but Zalando or Rocket Internet end up creating more."

However, the firm has additional offices in New York and Hong Kong and has invested in expansion into Europe as well as out of it, says Hommels: "We have actually made a pretty superb name and brand for US and Asian companies that want to come to Europe. Welend in Asia is one example of that."

Dialectic of enlightenment
Nevertheless, future expansion plans are firmly rooted in Europe. "I would like to open an office in France," says Hommels. "The businesses there are different, with a diverse typology of companies being created." The VC will also look more seriously at businesses that utilise blockchain technology in future, a segment where Europe and particularly Switzerland has taken an early lead.

"Through our work with Crypto Valley Association there is an opportunity, and Switzerland is very advanced in that environment," he explains. "A lot of companies are coming to Switzerland and 60-70% of the code has been written there," he continues, referring to a strategic partnership signed between Lakestar and the association in May this year.

In the future we will make sure we have the capability to invest in ICOs because the opportunity is compelling" - Klaus Hommels, Lakestar

If Hommels is hopeful that governments will take the right steps to support this growing ecosystem, it is not an optimism based on experience: "We do not have an active industry policy in Europe. Russia did it and they have their own businesses. China did it and they have their own businesses. You need support from legislation to protect your own companies and if you are not strong you will lose them."

There is optimism, however: "With Blockchain we have a chance to educate governments and regulators." To this end, Lakestar has already invested in cryptocurrency support systems Shapeshift and Blockchain through traditional funding rounds. The difficulty is that many of these companies prefer to raise funds using an initial coin offering (ICO), which will require further legal and technical innovation.

"Our second fund could not legally invest in ICOs," says Hommels. "But to be honest we have yet to find one that we would have invested in anyway. In the future we will make sure we have the capability to invest in ICOs because the opportunity is compelling, so maybe it will be necessary to do it."

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