Berlin Boosts Funds to Find Next Zalando

BERLIN, Germany — Berlin has already surpassed London as Europe's top venture capital destination. A pair of VC firms are poised to extend the lead.

The city eclipsed London last year, with €3.1 billion pumped ($3.39 billion) into German startups, about five times as much as in 2013. About 70 percent of that total went to companies in Berlin, home of Europe’s biggest startup factory, Rocket Internet SE.

Now, two VC firms there, founded by alumni of Rocket and its most successful spin-out, Zalando SE, Europe's largest online fashion retailer, are raising significant new funds designed to make them kingmakers in their own right.

Project A Ventures, whose partners include former Rocket executives Florian Heinemann, Uwe Horstmann and Christian Weiss, plans to announce next month it’s closed a new fund of at least €120 million, making it one of the four biggest VCs in Germany.

The firm, founded in 2012, targets e-commerce and business software investments and employs about 100 specialists in data analysis, online marketing and other areas to help startups get off the ground. The approach helps Project A get a slice of deals even if bigger funds are in the mix, Heinemann said.

"If you have the chance as an entrepreneur in Berlin to get money from Accel Partners or Sequoia Capital versus Project A, you’ll always choose Sequoia or Accel," Heinemann said. "But we co-invest because we have this operational capability. That’s a pretty nice position."

Cherry Ventures, whose founders include former executives at Zalando and CityDeal, which Rocket sold to Groupon Inc. in 2010, is close to finalising a second fund that would significantly expand its investment firepower, managing partner Filip Dames said. It declined to disclose the total it’s raised.

Project A’s current investments include Catawiki, an auction site for collectible items such as stamps and coins; and subscription wine club Wine in Black. Cherry has bet on startups that include used car marketplace Auto1 Group and long-distance European bus service FlixBus.

Cherry Ventures and Project A’s funds would vault them into the select club of Berlin’s largest investors, alongside Earlybird Venture Capital, which has shored up its ranks after key partners left to form BlueYard Capital, a group that raised $120 million this year. Earlybird said Tuesday it’s merging with Berlin’s Heilemann Ventures and announced a new €150 million fund.

Rocket Internet Chief Executive Officer Oliver Samwer and his brother Marc's Global Founders Capital in January raised a round of $420 million to invest in tech startups across early and later rounds. And Accel Partners this month said it's raised a $500 million fund to invest in European and Israeli startups.

Valley Model

Project A and Cherry both focus on early-stage investments and say they’re trying to build a founder-friendly culture and model themselves on Silicon Valley VCs, emphasising financial and decision-making control for entrepreneurs.

Berlin "is becoming this startup hub that’s becoming more independent of the Rocket ecosystem," said Cherry’s Dames. "It’s a new generation of VCs which is emerging in Berlin. It’s not exclusively an execution-heavy business model like the sweet spot of Rocket."

Project A is taking a page from the playbooks of Andreessen Horowitz or GV (formerly Google Ventures) in the US, which employ large staffs to help startups with everything from PR and marketing to development and design. (Bloomberg LP is an investor in Andreessen Horowitz). Half of Project A’s specialists work in IT, helping portfolio companies with analysing data and online marketing.

Google and Facebook send teams monthly to visit Project A and meet with its portfolio companies.

"That’s something a single portfolio company can’t afford," said Heinemann, who met Oliver Samwer in 1995 at Germany’s private WHU business school, then worked at Rocket from 2007 to 2011, including helping get Zalando off the ground.

By Aaron Ricadela; editor: Nate Lanxon and Molly Schuetz.