While consumer Internet start-ups get lots of buzz, companies that capitalize on Europe’s engineering skills often reach much greater valuations. Think CSR, a $4 billion semiconductor company at the time Skype sold for $3 billion. That is one of the reasons why DFJ Esprit agreed to acquire 3i’s European portfolio, which includes Icera, a chip company founded by serial entrepreneur Stan Boland.
“What many people don’t realize is that in 2005 when Skype was grabbing all of the headlines with its $3 billion exit CSR (Cambridge Silicon Radio) was a $4 billion company,” says Simon Cook, DFJ Esprit’s CEO, who was amongst the hundreds of investors who gathered in Berlin last week for the annual VC Forum organized by the European Private Equity & Venture Capital Assocation. That is why DFJ Esprit remains hot on semiconductors. Cook points out that Apple’s iPhone uses components from several European companies, including CSR and Wolfson Microelectronics, and that Europe’s strong expertise in engineering and emphasis on efficiency gives it strengths in a number of other areas where core technology, rather than services, is key, including medical devices. To find out more about why DFJ Esprit is hot on Europe click on the video below.
Founded in 2006, DFJ Esprit is a cross-stage venture capital firm that invests in European technology, media and telecom companies. Its high profile investments include Cambridge Silicon Radio, Alphamosaic (sold to Broadcom in 2004 for $123 million)[, Lovefilm and GreenPeak Semiconductors. Its current portfolio of companies of over 60 companies have a combined turnover of about $1 billion. On September 13 it announced the formation of two new funds totaling $495 million; DFJ Esprit III, a new venture capital fund focused on Europe and Encore Ventures I, a secondary vehicle which has agreed to acquire 3’s European venture portfolio.
DFJ Esprit III is a new primary venture capital fund with a target of $215 million, will focus on early and later stage technology companies in Europe . A first close with $100 million has been achieved with commitments from European institutional and public sector limited partners such as the European Investment Fund, Finnish Industry Investors, Parters Group, JP Morgan, LGT Group and Harbourvest.
Encore Ventures, the new secondary division of DFJ Esprit, has acquired a number of VC firms. It started as Cazenove Private Equity, became independent as Esprit, acquired the Prelude portfolio managed out of Cambridge, did the DFJ link-up and now, the 3i deal.
“This actually makes DFJ Esprit a great candidate for direct secondaries where you need muscle as well as active management skills,” says Jean-Michel Deligny, head of Go4 Ventures, a London-based consultancy that provides services to start-ups such as capital raising, M&A and strategic advisory. A number of VCs are stuck with long-term held positions in companies which have been slown down by the Internet bubble explosition and the recent financial meltdown and need to get out with nowhere to go, he says. “We need to purge the European VC system of these dead horse positions – where existing VCs are just not able to support what are viable but now financially stranded companies.”