Belgium-based A Capital has launched a PE fund that will seek to raise up to €1 billion ($1.3 billion) from Chinese and global investors seeking exposure to European technology firms.
A Capital Technology Fund will make growth capital and venture investments in tech companies with the potential to sell their products into mainland China.
It will receive an undisclosed amount of investment from ChinaEquity Group, a Beijing-based mainland private equity firm focused on the tech sector in Greater China.
The new fund will invest in European tech companies in the areas of environmental protection, transport and logistics, medical and diagnostic technology, and automation. They would have revenues of less than $100 million and target China as their main market.
“Europe is a fragmented market, which makes it very difficult for a tech company in a low-growth environment to survive," says André Loesekrug-Petri, managing partner of A Capital, based in Brussels, with offices in Beijing and Hong Kong. “We think China can provide the scale, which is badly needed."
The fund, which will take minority investments, targets an internal rate of return of above 30%, aiming to get back between 3x and 5x on its original investment. Trade sales are expected to be the main exit route.
An RMB-denominated co-investment vehicle – with a target of Rmb3 billion to Rmb5 billion – will be set up to raise money from large Chinese limited partners that cannot commit to a foreign-currency fund, Loesekrug-Petri tells AsianInvestor. The vehicle will invest in Chinese subsidiaries of the European portfollio companies of the main tech fund.
The technology fund is A Capital's second strategy. In 2012 it launched the China Outbound Fund, which has as its cornerstone investors China Investment Corporation (CIC) and fellow sovereign entity Belgian Federal Holding Investment Company.
The China Outbound Fund, which takes minority stakes in mid-sized European businesses that want to expand into emerging markets, has invested in French resort owner Club Med, Danish audio firm Bang & Olufsen and a German hospitality company that Loesekrug-Petri declined to name.
The strategy has so far raised about €200 million, near its soft target of €250 million. It has set a hard cap at €500 million.
CIC and Belgian Federal Holding Investment have the option of allocating to the technology fund, but have not yet made commitments, says Loesekrug-Petri.
The tech fund will seek to raise capital mainly from corporations, sovereign funds and family offices based in Europe and China.
Since the onset of the Eurozone crisis, technology and research grants by European governments have fallen, particularly in the area of cleantech. While the region has been gradually recovering, “European firms need to find new markets, including China”, says Loesekrug-Petri.
Yet while large, well-capitalised European corporations have the resources to expand to the mainland “most technology companies are smaller," he says, "so it’s much more difficult for them to survive in the Chinese market".