DTCP taps SoftBank as an anchor LP for its next $500-600M fund • ProWellTech

Last week, we got a glimpse of how SoftBank is pulling away from some of its more exuberant investing of the past years, when news broke that it had sold its entire stake in edtech startup Kahoot, at a loss. This week, we’re getting a look at what SoftBank is doing to diversify how it deploys capital with a little less direct risk to itself: DTCP says that SoftBank has taken a major stake in its next fund, part of a $300 million tranche that it has raised to double down on growth rounds in Europe.

For background, DTCP is a fund that started as the venture arm of Germany’s telco Deutsche Telekom but is now run as an independent firm — DT remains an investor, but in a little piece of pivotal rebranding, DTCP now stands for “Digital Transformation Capital Partners”.

Others in this first close include DT, as well as unnamed institutional, pension fund, corporate, and family office investors.

This fund, DTCP’s third, is a mark of how far the European ecosystem has come along when it comes to growth rounds: once it would have been a rarity to raise growth rounds in this region, with the more promising startups founded in Europe decamping to the U.S. to tap investors there if they wanted to scale. These days, it’s more likely they may find that investment closer to home.

This latest fund from DTCP is expected to close in March 2023, and the target is to make it $500 million (or a $600 million hard cap).

Within that, SoftBank, alongside fund founder DT, are the anchors — by far the biggest backers — Thomas Preuss, managing partner at DTCP Growth, said in an interview.

The firm is already investing out of the fund — specifically, it put an additional $15 million into a Series B for conversational AI platform Cognigy.ai, bringing the total raised for that round to $59 million.

More generally, the focus for DTCP will be on cloud-based enterprise software, SaaS, cybersecurity, web3, AI and fintech — all big categories in Europe and Israel, the key regions DTCP will be covering, alongside the U.S.

And notably, while there remain investors, even in the current market, who are focusing on deep tech and other categories that might take a long time to see a return, DTCP is taking a more pragmatic view — something that might have resonated with SoftBank.

The Fund is targeting about 25 equity investments in the range of $20 to $25 million for businesses in early growth or growth stage. “Defensible market positions and technological advantage” is the order of the day, and so is another key requirement: a minimum of $10 million ARR to be considered to be backed.

“We are still in the Stone Age when it comes to deep tech,” Preuss said.

It will be interesting to see how the role of more localized VCs will evolve in the coming years, as partners to the larger global firms that have started to take a bigger interest in investing outside of their home markets. While SoftBank is likely to continue making direct investments, investing in a fund like DTCP helps it source more deal flow, both as an indirect backer and to vet more companies that it might want to pursue directly as well. That’s especially an interesting function given that SoftBank is reportedly downsizing operations in a number of markets, including Europe, reducing the team it might have on the ground to do this itself.

DTCP’s first fund in 2015 and second fund in 2018 totaled $410 and was invested in 32 enterprise software companies across Europe, Israel, USA and Asia, and DTCP notes that 11 of those investments have been acquired or gone public so far. They include Auth0, Fastly, Sagnavio and Guardicore.