EQT Growth's bet on maturing European startups

Pan-European firm EQT launched its growth strategy in October. It follows the creation of its venture capital arm EQT Ventures four years ago and will explore opportunities between venture investments and buyouts.

EQT Growth will invest €50-200m per deal, taking either minority or majority stakes in tech or tech-enabled businesses with a relevant scaling potential. It will have a holding period of between five to seven years and will support companies in add-on acquisitions and organic growth, depending on the company.

EQT's in-house artificial intelligence system, Motherbrain, will play a key role in the growth investor's strategy in helping identify trends and sourcing potential investment opportunities, says Carolina Brochado, a partner at EQT Growth: "In the first instance it will help us find amazing companies, but also serve as a service we can lend out to our portfolio companies to help them in their activities also."

The GP declined to comment on whether there is a fund on the road for the new strategy, but said that "it has hit the ground running thanks to the EQT balance sheet" and plans to announce at least one of the deals by the end of the year. 

Launching and doing deals in the year of the pandemic will not be as smooth as in the pre-Covid-19 era, but Brochado remains upbeat: "If anyone is making it work right now, it's us tech investors, and with a lot of free time left as well. I'm sure as a new fund there are going to be growing pains, but EQT has done this before."

Fertile grounds
An increasing number of European companies are getting to the growth stage, and Brochado sees a definite opportunity there. She adds: "If you look at funding rounds in tech companies of over $100m, 90% are done by US or Asian investors, so there's a real gap in European funds investing at the growth stage, and founders being able to be close to their co-investors and being able to leverage a local network."

Europe is no longer the secret it was a decade ago among tech investors, but that is a good thing, says Brochado: "The more capital that goes into the ecosystem at its infancy – or at its adolescence in this case – you're looking at more companies, bigger outcomes, ecosystems evolving, and more talent coming out of these companies when they exit and start their own businesses.

"What we must do is differentiate ourselves and be able to add a lot more than value, so that we stand out as a great option for entrepreneurs."

EQT Growth is hoping to do that by bringing a local touch, Brochado says: "A lot of the time companies have to fly to Silicon Valley, or fly to Asia, to people who are comparing them to their American or Chinese competitors, and perhaps don't have the natural understanding of what it is to be European and to be a company in Europe."

The opportunity itself may be attractive, but Brochado highlights that it certainly helps to be part of an established brand as opposed to a standalone firm launching a new growth fund. "There's an in-house digital team, operators who've come from top tech companies, and a huge network of advisers to companies at a time when they're going through a rapid growth stage," she says. "I think it really takes being a large platform to be able to invest in these resources, a lot of new GPs might not have these."

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