
In Profile: DN Capital

Following a successful Q1 in which Shazam broke the $1bn valuation mark and Windeln announced its IPO, Harriet Bailey speaks to London-based DN Capital about its recent successes and the firm's plans for the future
Having met at Harvard Business School, Nenad Marovac and Steve Schlenker founded Digital Networks Global Ventures in June 2000, before rebranding as DN Capital. The initial name was borne out of the firm's focus on e-commerce, marketplaces, mobile applications, enterprise software and digital media.
Launching during the bursting of the dotcom bubble, it comes as no surprise that some of DN's initial investments went sour. Its first capital commitment, to digital encryption company Asita Technologies, was written off in 2006 – around the same time that portfolio company Empower Interactive went into receivership. DN had led the text message network infrastructure company's €8m third round of funding in March that year, which eventually also saw investment from DFJ Esprit and Scottish Equity Partners.
Writing off some investments is common to all venture capital funds and DN is no exception. Having learnt important lessons early on, the VC has solidified its approach to investing – the firm's modus operandi is to invest an initial €250,000-500,000 and build up its position over time, depending on the success of the company. "We have learnt that we prefer investing in early-stage companies or making growth investments where we can be the first institutional investor. Investing in large, later-stage financing rounds does not make sense for us given our fund size and hands-on approach," explains Marovac. Due to this, 75% of the deals DN completes are at the seed stage, but 75% of the capital it invests is in follow-on funding rounds – something Marovac refers to as a "back-the-winner" strategy.
DN was able to return all of its debut fund's commitments to investors, thanks to success stories such as software developer Datanomic. The venture firm first invested around £1m in August 2003, followed by around £2m in a £5m round alongside 3i in March 2005. It then bought out 3i's shareholding in November 2009 to hold a majority stake alongside management, before selling the company in a trade sale to Oracle a year and a half later.
Transatlantic operations
Initially based in London, DN opened a Palo Alto office headed up by Schlenker in 2008. "Everyone is trying to copy and compare themselves to the Silicon Valley ecosystem. The US is still ahead of Europe, particularly when it comes to enterprise software. However, valuations, particularly in series-A and -B rounds, are also a lot steeper there," Marovac argues.
Having a permanent US base appears to have been a shrewd move. "Schlenker's not based there by chance," says Marovac. "Our US presence allows us to gain a competitive advantage in winning deals in Europe, as we can play an active role in helping expand companies globally. It is also crucial when it comes to supporting and facilitating the exit process – our companies are largely sold to US buyers."
DN did not go into the US blind. The VC first established a presence in the region by investing in a number of portfolio companies, one of which was Endeca Technologies. DN took part in the data management company's $15m series-C in June 2004, followed by two further funding rounds. The business was then sold for $1.075bn to Oracle in October 2011 – four months after the sale of Datanomic.
Land of opportunities
Despite operating across two continents, DN still sees its main focus as Europe, with an emphasis on the UK and Germany. Only around 20% of deals will take place in the US, primarily in companies based near the firm's Palo Alto office. "We think European start-ups still have a lot to offer and we are already seeing US venture funds make more investments in growth funding rounds of European companies than previously. We expect that trend to continue," says Marovac.
Earlier this year, Goldman Sachs Merchant Banking Division invested in two Berlin-based DN portfolio companies: Mister Spex and Windeln. DN's third fund, Global Venture Capital III – a €144m vehicle that raised well in excess of its €100m target – is paying particular attention to Europe's rival to Silicon Valley: the Berlin start-up scene dubbed 'Silicon Allee'. "We are very excited by the quality of the teams we are seeing coming out of Berlin," says Marovac. We expect several more $500m-1bn companies to emerge from Germany, solidifying its place as one of the most interesting markets for unicorn-harvesting in Europe."
Other Berlin-based portfolio companies to have received financing from Global Venture Capital III include: Book a Tiger, a home-cleaning platform set up by Delivery Hero founders Nikita Fahrenholz and Claude Ritter; and footwear business Scarosso. The company's series-A took place in May 2013, led by DN, followed up by an $11m series-B in October last year.
Marovac believes Germany has exceptional entrepreneurs and DN tracks those it has either backed before or plans to support in the future. Future plans for DN include opening an office in Berlin and expanding its team in Germany, with stewardship of the VC's operations in the country in the hands of US entrepreneur John Helm.
The team
Nenad Marovac – managing partner & CEO
Prior to setting up DN, Marovac was a partner at Advent International's London office, focused on TMT investments. He also spent two years in Berlin as an adviser to the Treuhandanstalt, privatising assets from the former DDR. He began his career as a financial analyst in the leveraged buyout group of Bankers' Trust in New York.
Steve Schlenker – managing partner
Schlenker previously spent five years at Sun Capital Partners in London, investing in US and European technology companies. He began his career in private equity in 1990, working as an analyst for US-based buyout firm Interlaken Capital.
John Helm – venture partner
Before joining DN as a venture partner and running the firm's German operations, Helm founded two venture capital-backed start-ups in the online real estate space, MyNewPlace and SpringStreet. He was CFO at Marcus & Millichap Real Estate and also held positions at both McKinsey & Co and Coldwell Banker Commercial.
Imran Akram - principal
Having started his career at General Atlantic, Akram has seven years' experience in venture capital and private equity. He was part of the founding team of Fidelity Growth Partners Europe, which invested in companies such as Innogames, GoodData and Wahanda.
Recent successes
DN has rarely been out of the news in 2015, making new investments across Europe and the US while divesting others.
January 2015 – Shazam
DN portfolio company Shazam, the London-based audio recognition app, was valued at more than $1bn. DN first became involved in the company when it backed a $5m series-C round in March 2004, using capital from its second fund. The valuation represents a 1000x increase on DN's initial investment, according to the VC.
March 2015 – Quandoo
DN divested its stake in restaurant reservation service Quandoo to fellow shareholder Recruit Holdings in a deal worth €198.6m. It first invested in early 2014, as the co-lead in an $8m series-B round alongside Holtzbrinck Ventures. The company is active in 145 cities in 13 countries across three continents.
May 2015 – Windeln
Windeln.de, an online shop for baby and children's products, priced its IPO at €18.50 per share on 6 May, giving it a market cap of €470m. The DN-backed company also acquired Prague-based competitor Feedo, expanding its presence in central Europe.
The ones that got away
Deliveroo
According to DN, the price for an investment in London-based food delivery platform Deliveroo was too high. The company has so far raised around $30m over two funding rounds, with US investors Index Ventures and Accel Partners both injecting capital.
Spotify
According to Marovac, DN looked at music-streaming service Spotify when it was a $100m pre-money series-A and chose not to invest. The Stockholm-based company reached a $1bn valuation in 2011 and now trades at 80x the price DN rejected in 2008.
Delivery Hero
The Berlin-based online food delivery platform has raised almost €1bn from investors over eight funding rounds. DN was offered a chance to invest in the company as part of a €12m seed round in 2010, but declined due to the price. Marovac stated the company now trades at 100x the original investment amount.
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