There’s an Investor Raising Money for Startups That Don’t Sell Out

  • Fund is the fifth for the Luxembourg-based venture firm
  • Past successes include investments in Skype,

Mangrove Capital Partners, the Luxembourg-based venture capital firm, has raised a $170 million fund to invest in European startups. But its outspoken founder has no interest in startups looking for a quick buck.

The fund, which is Mangrove’s fifth since its founding 17 years ago, will invest in early stage companies, said co-founder and Chief Executive Officer Mark Tluszcz in an interview.

Mangrove was one of the first investors in Skype, turning a $2 million investment into a $200 million gain, according to the firm. It was also an early backer of Israeli-based, which helps small businesses manage websites. Mangrove’s initial $8 million investment in was worth $550 million after its initial public offering on Nasdaq in 2013, Mangrove said. Mangrove remains’s biggest shareholder and Tluszcz serves as the company’s chairman.

"Our early success with Skype created a culture of risk-taking in the firm," he said, adding that it has given Mangrove the confidence to encourage entrepreneurs not to sell out too early. He says that in the past, a lack of ambition and pressure from less aggressive venture capital firms has often resulted in European technology founders selling their companies too soon. He says this is one reason Europe has not produced a company to rival U.S. technology giants such as Facebook Inc. and Alphabet Inc., he said.

Mangrove now manages more than $1 billion. With an investment team of 12 with offices in Berlin and Tel Aviv in addition to Luxembourg, the investor has backed a total of 130 start ups.

Tluszcz is known for his sometimes controversial stances. He has been an outspoken critic of many so-called "unicorns" -- private companies valued at more than $1 billion -- saying that these companies were "fake unicorns," having inflated their valuations with financial engineering and accounting gimmicks. Last year, he also warned of a dangerous bubble among financial technology startups, saying that many of these companies would not result in big pay days for investors.

While a number of European venture capital firms have been increasing the size of the funds they raise and have begun putting money into later stage companies, Tluszcz said that Mangrove purposefully chose to keep its overall fund size relatively small.

He said this enabled the firm to stay focused on early-stage investments -- where most funding rounds are less than $10 million -- while still reserving enough money in the fund to enable it to build up a significant stake in successful businesses throughout their growth.

Staying relatively small also allows the fund to potentially rack up bigger percentage gains from its most successful investments. "Rather than becoming a larger fund, we have opted to stay small to maximize the performance of our fund," he said, adding that studies have shown that larger funds tend to result in diminishing returns. "We don’t want to change a recipe that works very well for us."

Mangrove raised the new fund in two months, Tluszcz said, with 90 percent of money coming from investors that had backed previous funds. While he declined to name these investors citing confidentiality agreements, Tluszcz said that they included about 20 pension funds and high-net worth individuals, half of which are located in the U.S., 40 percent in Europe and 10 percent in Asia.

    Before it's here, it's on the Bloomberg Terminal.