Stockholm's EQT Growth closes $2.2B to fund scaling European startups like Vinted, Mambu and Epidemic Sound
The days of European startups relocating to the U.S. if they want to grow (and raise money to do so) have been receding in the rearview mirror for a while now, so much so that even in these leaner times -- where all fundraising and tech bets are tightening up -- we're still seeing some significant money and optimism getting channeled into later-stage businesses. In the latest development, EQT -- the private equity and venture firm based out of Stockholm -- is announcing that it has closed a €2.2 billion ($2.2 billion) fund for EQT Growth, which it will be using for investing in European and Israeli founders and startups in areas like enterprise, consumer, health and climate tech, with typical rounds ranging between €50 million and €200 million.
EQT partner Carolina Brochado said in an interview that the fund was first opened in 2021 and that the company has made seven investments out of it already since then. Over two-thirds of that capital is still available. (The full size of the fund is €2.4 billion, including commitments from EQT employees and the EQT Network; the latter are not fee-generating.)
This is the first fund EQT Growth has raised specifically for tech investments, Brochado added, and it stands as one of the biggest first-time growth funds in Europe to date.
These are notable details not just because of the current, constricted investment climate, but because Europe has actually been a minority player in the growth-funding story in this region. Investments in European startups stood at $20 billion in 2017 and ballooned to more than $100 billion by 2021 -- with bigger, later-stage rounds accounting for a bulk of that increase. But within that European investors accounted for just 30% of growth round funds by value. (Those figures, incidentally, come from Atomico, Brochado's previous home and also a stalwart of European-based funding for home-grown startups.)
Looking at some of the biggest names in growth funding and their activities in Europe, there indeed does seem to be a vacuum in the market at the moment, providing interesting opportunities for those willing to step up.
SoftBank and its mighty Vision Fund made a big play in Europe several years ago, out of offices in London, but it's also seen a number of bum bets among them, and this year the bad news has compounded, with the firm reporting huge losses, leading to downsizing and restructuring to shore up investor confidence. Another firm, Tiger Global, saw the value of its flagship fund fall 50%, and its long-term bets fund by nearly 64%, in the first half of this year. Both firms are still active in Europe, but focusing more on smaller, earlier stage rounds.
(It's not only a "go big or go home" story though: just last week, Thoma Bravo announced an expanded presence in Europe with a new office in London. The firm last year disclosed it was raising its own $3 billion debut growth fund, which has yet to be closed.)
The fact that money is not flowing quite as freely as it did previously raises some interesting questions about how people will regard the capital that is there for the investing. EQT has previously made it clear that it's not working with those tied to Russia but has been relatively quiet beyond that.
With the funding being announced today, Brochado would not be drawn out on details regarding EQT's limited partners in this €2.2 billion fund except to say that it's coming from "institutional LPs, very large pension funds, sovereign wealth funds and family offices" generally from Europe, Asia, North America and the Middle East. Sovereign wealth funds may well be playing a big part here: they have more generally been proving to be strong forces in offsetting current declines, betting when the market is low, with the Saudi state fund recently investing some $7 billion in U.S. stocks; and Norway's sovereign wealth fund, currently the biggest in the world, also still looking bullish.)
There was a time, before the current downturn, when talk focused on whether startups should be more selective about the origins of the funding on its cap table. With capital less easy to come by today, the ship may have sailed for that kind of scrutiny (at least for now). Or ideally firms are themselves scrutinizing sources more than before. Brochado said that startups have asked questions about these details and they are disclosed in those cases, but that the answers have never killed a deal.
In terms of what categories are attracting interest for investing, the name of the game continues to be opportunities for potentially realizing huge scale. Some of the investments that have already been made out of the fund include the music catalogue giant Epidemic Sound, embedded finance juggernaut Mambu and second-hand goods platform Vinted, all working on building tech for services that are arguably more "recession-proof" than some others that might focus more on consumers or enterprises buying nice-to-have rather than must-have goods and services. On its side, EQT uses a proprietary AI-based investment platform called Motherbrain to help evaluate potential deals.
Brochado noted that the fact that some investors are rationalizing or downsizing their investments means that EQT has the opportunity to do some secondary purchases, but by and large it's coming into deals as a primary investor. The fact that the IPO market very much remains closed for the moment gives a company like EQT a foot in the door for providing finance to companies that might have otherwise looked at that kind of exit, either to position themselves as consolidators, or simply to keep scaling on their own steam, at a time when money is harder to come by, and thus needing to be treated more carefully than before.
"I think the way that we're trying to help entrepreneurs, who are sometimes younger than 35, is to guide them through the cycle. To navigate through, for example, what the cost of capital means when there is a recession coming. How do you take advantage of it? It can be a great position to have a ton of cash on the balance sheet."