The American Cottonwood Technology Fund (CTF) announced today the establishment of its European headquarters in Enschede, The Netherlands. Together with founding partners University of Twente, PPM Oost, Twente Region and Thales, the VC firm has raised an initial fund of €10 million to invest in early stage startups. CTF expects to add another €20 million to the fund before the end of the year. Ray Quintana, Netherland’s lead General Partner at CTF, said to Startup Juncture that the sweet spot of their investments lies between 2 and 3 million euro’s, but investments can range form as low as 500K to up to 5 million. Quintana says that the 30 million will be the initial funding. “Typically we bring in €15 as follow on funding for every one we invest”, he says. Meaning that the establishment of CTF would translate in an influx of €450 million of startup funding capital.
The decision to locate the European headquarters of the investment fund in Enschede is not a coincidence. Enschede is home to the University of Twente, one of the three technical universities in the Netherlands. The university is world-renowned for its research on nanotechnology, process technology, ICT and biomedical sciences. It hosts in addition close to 900 startups in and around the university’s campus, most of them spin-offs of the university.
CTF’s focus on high-tech startups, as a snapshot of its portfolio including FIBERIO, RESPIRA and INVIEW shows, and the fact that the sweet spot of its investments lies around several millions gives the impression that the fund is more skewed to hardware companies. Quintana says that the fund doesn’t focus on particular industries. “Our funds are competency based funds. This means that for us it’s not important what industry and which space the technology is from as long as it’s very hard to duplicate or imitate.” The latter makes internet startups less likely candidates for CTF, unless such a startup has developed path breaking software to support its business.
The approach of investing at the very early stage of high-tech startups seems to work out well for the fund. Preqin, a private equity fund performance tracking firm, lists Cottonwood as the best performing early stage VC fund in the US in its first (vintage) year of making investments. CTF will make 2 to 3 investments in new companies per year over their initial four year investment period. Started out in 2010, the fund has $300 million in assets under management.
Quintana argues that this hand-on approach is often missing in the venture capital space. “Our approach is to support the startup from the very beginning, every step of the way. This for instance means providing business expertise, finding the right corporate companies as distribution partners or customers and aligning the technology to the market.”
Having seen many startups Quintana says that he has been ‘shocked’ to see how much time startups have to invest in raising capital. The firms hands-on approach therefore also means that it will play an active role in securing additional funding rounds. And as such give startup founders the leeway to focus on building their company.
Photo by Pieter van Marion (creative commons via Flickr)