Venture capital firms find good startup targets in Europe

New York

KLAUS HOMMELS has invested in some of Europe's most successful startups. That includes Spotify, the music-streaming service, and Klarna, a Swedish online payments company valued at more than US$2 billion. He has also backed several American tech giants like Facebook and Airbnb, the vacation rental site. Now, the German venture capitalist is doubling down on Europe's tech sector.

Mr Hommels' venture capital firm, Lakestar, is due to announce a new fund worth 350 million euros (S$555 million), one of the largest European fundraisings so far this year. It is more than double his previous fund, raised in 2013, whose portfolio of startups includes Harry's, the US online shaving company, and Algomi, a London-based social network for bond trading.

Mr Hommels, 48, who lives in Zurich, plans to spend most of the new money on European startups, but also a few American fledging tech companies looking to fast-track their global ambitions. He said that as more industries like automotive and energy embrace new tech trends, he would look at early-stage companies transforming how people - and traditional companies - lead their daily lives.

"Technology has become integral to how we live," said Mr Hommels, who also invested in King Digital, the maker of Candy Crush, but sold his stake before the company went public, missing out on roughly US$1 billion. "We won't be afraid to back startups with high valuations if we can accelerate their growth."

The fundraising by Mr Hommels is perhaps the strongest evidence yet that investors have rekindled their interest in European venture capital. Just like in Silicon Valley, where companies like the ride-hailing service Uber have attracted eye-popping valuations, venture capitalists, private equity firms and other investors are now flooding into Europe.

In part, that is because of companies like King Digital; Mojang, the Swedish gaming company behind Minecraft that Microsoft bought for US$2.5 billion; and Zalando, the German e-commerce giant. They have become successful Internet businesses, offering sizeable returns to early investors.

There are now 131 so-called unicorns, or startups valued at more than US$1 billion, according to data provider CB Insights, including European ones like Deliveroo, a food delivery company that recently raised US$70 million.

In the second quarter of this year, European venture capital firms raised a combined two billion euros, or 63 per cent more than the same period last year, according to the data provider Dow Jones Venture Source.

While those figures are still dwarfed by the US$12.9 billion that US venture funds raised in the second quarter of 2015, Europe is fast approaching the funding highs of the dotcom era, according to industry figures. That has raised concerns, however, that Europe is mimicking some of the excesses - including sky-high valuations and bidding wars for top talent - now widespread across the West Coast that has many fretting that the industry is entering another investment bubble.

For Mr Hommels, fears of a European tech bubble are not causing him sleepless nights. Unlike the dotcom era, he says, when technology was isolated to a small group of entrepreneurs, the use of smartphones, cloud computing and other trends have now spread across the general public.

Many of the latest generation of European entrepreneurs also are more savvy than earlier ones, he said. And, Mr Hommels added, any potential downturn in the region's tech sector may flush out venture firms that are just jumping into the tech sector as the latest investment fad. NYT