VC Profile: DN Capital set to deploy in buoyant European VC market

DN Capital specialises in seed to Series B investments, focusing on software, fintech, consumer internet and marketplaces. The GP backs companies facilitating digital transformation. Since its foundation by Steve Schlenker and Nenad Marovac in 2000, the firm has backed several unicorns, including Auto1, which went public in February 2021 at a EUR 7.9bn market capitalisation, as reported.

The VC has steadily increased the size of its funds since inception. Its latest vehicle, DN Capital Global Venture Capital V, held a final close in July 2021 above target, following a first close in June 2020, as reported.

Although the digital nature of DN Capital's investments meant that the firm's portfolio did not face many of the operational challenges encountered by traditional sponsor-backed companies during the pandemic, DN Capital nevertheless took stock to protect its companies when the severity of the crisis became clear. "When Covid first hit, we spent the first two months on the portfolio, working with our management teams to develop models and business plans to have them fully funded until 31 December 2021," Marovac says. "We wanted to create a plan for them to survive until 2021 with the cash around the table – we believed that it would have been difficult for them to fundraise in this environment if they were not in a strong position."

The crisis did not leave the portfolio unscathed, but many companies have made a strong recovery, Marovac says. "We did lose one or two companies that needed funding and that were struggling already, but most of the portfolio fared quite well, all things considered," says Marovac. "In Q1 2020, we marked down the portfolio by 15%; in Q2 it was level, and in Q3 2020 to Q1 2021 we marked it up as many companies were getting tailwinds from Covid. Some of our companies performed extremely well in these unusual times."

Such companies include Austria-headquartered online tutoring platform GoStudent, which DN Capital first backed in April 2020 via a EUR 8.3m funding round; the company raised a EUR 205m round in June 2021 at a EUR 1.4bn valuation.

We are super excited about what we are seeing right now and have already deployed one third of our new fund. We shall be back in the market for Fund VI in 2023" – Nenad Marovac, DN Capital

A proven formula
DN Capital now plans to take advantage of the opportunities presented by the pandemic, Marovac says. "Once we did this initial triage, we decided that we wanted to invest in areas that were somewhat Covid-resistant – so not travel or entertainment, unless they had a very clear virtual element. Areas that we like are software automation, digital payments, e-commerce, logistics, digital communications and digital health.

"We are super excited about what we are seeing right now and have already deployed one third of our new fund," says Marovac. "We shall be back in the market for Fund VI in 2023."

The GP's long-standing reputation plays into how the firm sources deals, Marovac says. "We have a proven gameplan on how we select companies and how we add value. We operate on a sector-team basis and review all deals getting done in the market by sector each week. We also do market mapping on areas that we find interesting – for example, mapping out all the edtech companies in Europe and proactively going after them." The firm's reputation also means that it generates opportunities from CEOs, entrepreneurs and angel investors with whom DN Capital has previously worked with, Marovac adds.

"In a normal non-Covid world, we would also speak at quite a few events per month – we now do this virtually," Marovac says. "We also get a lot of inbound interest – in a Covid environment, it has been very beneficial to have a brand name that has been around for 20 years."

The firm's team has also continued to develop during the pandemic, with the strengthening and broadening of the firm's European presence also on the cards. "We hired some great new people and made some recent promotions – Ian Marsh was promoted to partner, and Guy Ward Thomas and Teemu Mattila are now principals," says Marovac. "We are also looking to bring in one more partner to the firm, and we will continue to add resources in our Berlin office, and will probably put more resources in the Nordic region."

Capital will not be enough anymore: people need to renew their game to compete" – Nenad Marovac, DN Capital

European ambitions
"We have been very successful in the Nordic countries previously – per capita, they punch well above their weight, and they have proven that they are an amazing region in terms of creating great companies," says Marovac. The GP's current portfolio companies in the Nordic region include mobile gaming platform FuturePlay, which the GP first backed in 2016, as well as process automation software Leapwork, which has been part of the GP's portfolio since 2019.

"We will also do more in Spain," Marovac adds. The GP first backed Spain-headquartered temporary staffing platform Jobandtalent in 2018 and the company has seen significant growth during the pandemic, fuelled by the need to hire and manage temporary workforces across sectors including retail and consumer. Its latest funding round saw the company valued at more than EUR 1bn. "This could be a big IPO in the next couple of years, since it's one of the top providers of workers for digital logistics," says Marovac.

Following a year that saw VC activity peak in Europe, DN Capital is positive about its investment prospects. "The opportunities outweigh the challenges as a whole," says Marovac. "The number of unicorns in Europe has gone up tremendously over the past 15 years and this is important for venture returns. Without the big outcomes, the venture model does not work, but Europe is doing really well now with exits such as Spotify, Adyen, Auto1, etc."

The appeal of the European market is increasingly acknowledged on a global scale, Marovac says, meaning that there is no shortage of capital and competition is high. "It's exciting to see the amount of new global category winners coming out of Europe – they have attracted capital from a lot of places, but capital will not be enough anymore: people need to renew their game to compete. That is both the challenge and the excitement in the market, and it could be globally significant."

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