Finalising an envelope, defining a framework, scrutinising the market with precision. Six years later, Alain Rodermann assures us that the Digital Tech Fund has been invaluable. (Photo: Maison Moderne/Archives)

Finalising an envelope, defining a framework, scrutinising the market with precision. Six years later, Alain Rodermann assures us that the Digital Tech Fund has been invaluable. (Photo: Maison Moderne/Archives)

Created in 2016 to add a “local VC” component to the Luxembourg start-up ecosystem, the Digital Tech Fund will reach the end of its first season just before July. Season 2 is already on the horizon, and the partners of Expon Capital, who manage the €20m of this PPP, are very satisfied.

“We are happy because we did not expect it to go so well,” says Alain Rodermann partner of Expon Capital. The company was been chosen in 2016 by Etienne Schneider, then minister of the economy, to manage a €20m portfolio. The latter had been contributed by the state, the Société nationale de crédit et d'investissement, the University of Luxembourg and six partners (SES, Arendt and Medernach, Post, Proximus, BIL and High Capital) and divided into two funds (Vintage 1 and Vintage 2).

The work of a venture capitalist is not always well understood and this vocation is not easy: the fund is supposed to provide seed capital to start-ups already based in Luxembourg or in the process of setting up in Luxembourg, which are already active and less than seven years old.

Out of 1,242 opportunities identified since 2016, 437 files from 400 start-ups were studied by the VCs, 91 retained their attention, 33 went through and 11 finally benefited from seed or series A funds for €14.2m.

The local VC, almost the most important

This made up €9.1m, but the strategy was directly adapted according to principles well known to venture capitalists. In addition to the seed money--that which investors give to the start-up when it has exhausted its own funds and is growing--they have 'reserved' a series A for those they have selected to avoid finding themselves destitute when they need to go faster. Whatever one may say, the VC world is very closed in Luxembourg. “If a start-up does not manage to convince a local VC, no outside VC will look at the start-up in question,” says the other partner involved, Jérôme Wittamer.

This is what happened, for example, with one of the most promising projects, Salonkee and its booking solution for hair salons, beauty salons and other spas. Like Thibaut Britz and Christophe Folschette (Talkwalkers), the DTF participated in the first round of €1m at the beginning of 2019, and then in last summer's €6.2 million series A, joined by a myriad of German, Belgian and Dutch investors, as well as Atoz's partner, Olivier Remacle.

There are several ways to "look at" the Digital Tech Fund. With €9m, the DTF alone represents 9% of seed investments in Luxembourg, or 40% with those who have joined the fund (€18m more). “This has allowed us to put Luxembourg on the map,” argues Wittamer: “In seven deals, we are not alone but with other foreign investors.”

Failures, like in any fund

These start-ups recruited 52 full-time equivalents at the time of the investment, including 28 developers, and have reached 90 (of which 54 developers) today. When asked one by one about their development prospects, they indicated that they would eventually employ around 250 people. At the other end of the chain, they have attracted clients such as L'Oréal, Carrefour, Renault, National Geographic, Cisco, ArcelorMittal, Tesla and Lafarge Holcim.

But it is important to remember that venture capitalism is not an exact science and that events can happen to projects that on paper may appear like deserving attention and investment.

This was the case with Nektria, DTF's first investment in 2017. "It was a failure," Wittamer admits. €500,000 went to the parent company in Barcelona. After having counted at most one employee in Luxembourg in 2017 and 2018, the start-up specialising in the last mile of a delivery seems rather ready to disappear from the local landscape. Despite seducing two supermarket groups in Spain, it will probably never go much further.

One can also wonder, for example, about the real interest in supporting Finarta, a platform that brings together art galleries so that wealthy clients can make purchases and sales in complete discretion, given its impressive round of financing. Claude Kremer (founder and partner of Arendt) and David Arendt (ex-CEO of Freeport) had also joined in on this. The pandemic and its lockdowns do not seem to have boosted interest in the platform, which only registered ten new art galleries in 2021, in addition to its previous 280, which, according to the start-up's CEO, still represented 20% of the world's artworks.

100% of local start-ups surveyed

One might wonder about the German iTravel, whose impact on the Luxembourg economy is almost none, apart from the lawyers called upon to register the two companies that have been registered here in turn. Especially in a context of limited travel due to covid's extended holiday period.

For the others, Wizata (industrial technology), Passbolt (password management service), Nexten.io (developer recruitment platform), Next Gate Tech (automation fintech for investment funds), Accélex (data consolidation and reporting solution for investors and funds) or Hydrosat (satellite data analysis in water management), we will have to wait and see if they tick the boxes for success for the DTF.

While entrepreneurs regularly criticise the small number of tickets via this route, the two men defended themselves, saying they have crossed almost 100% of Luxembourg start-ups and have put in place a rigorous analysis framework that did not exist. With 11 companies in the portfolio out of 1,242 opportunities, Expon invested in twice as many projects as the Forbes benchmark (0.88% of opportunities, compared to 0.35% for the average seed fund according to Forbes).

As the term ends in June and they finalise the last two or three deals, they are preparing a Vintage 3 for July and a Vintage 4 for later. They hardly hide the fact that Luxembourg will have to be bolder and increase the amount of funding available: start-ups in Berlin and Paris have received twice as much seed funding on an equivalent basis: €2.53m in Germany per start-up and in Paris, compared to 1.4 in Luxembourg.

This is essential to an ecosystem that is already well endowed with incubation and acceleration spaces and not yet sufficiently endowed with graduate entrepreneurial profiles. Even if there are 70 projects in the incubator of the University of Luxembourg, which could one day soon become promising start-ups.

[Note to the reader: if you were counting, there are some start-ups missing from the list, whose deals are not yet finalised. And until they are finalised, they are not, even though Expon, on behalf of DTF, will be in the round].

This story was first published in French on . It has been translated and edited for Delano.