Fund focus: Eurazeo's climate thesis resonates with LPs

As difficult fundraising conditions force many GPs to adjust their targets downwards, France-based Eurazeo has closed its latest smart city fund on EUR 400m (USD 445m), more than 2.5x larger than the number on the original private placement memorandum. Support from an assortment of corporate LPs and an investment thesis that coincides with various topical concerns were key.

"We've seen an acceleration in sectors around the themes of decarbonisation, energy transition, and new digital services following COVID. Additionally, we've seen much larger funds being raised in the market to address the growing need in climate tech," said Julien Mialaret, operating partner at Eurazeo who focuses on early and growth-stage investments in China and ASEAN.

"As a result, we decided to increase the size of Fund II to better position ourselves to embrace the growing opportunity."

A first close of EUR 80m came in early 2021, backed by five Asian groups – including Thai real estate developer Sansiri – and European investors like EDF, Total Energy, Stellantis, and Duisport. The target was increased ahead of a EUR 250m second close in January 2022.

While most existing investors re-upped, the uptick in fund size was largely driven by increased support from sovereign and Asian LPs. The five sovereign wealth funds and development finance institutions – up from only one in Fund I – include the European Investment Fund, Bpifrance, Polish Development Fund, Monaco government-controlled FRC, and Korea Venture Investment Corporation.

"Most of our sovereign investors not only seek financial returns, they also want to advance the climate tech and decarbonisation agenda in their own territories," said Mialaret.

There are nine Asian LPs, compared to two in Fund I. In addition to Sansiri, the fund won support from Banpu and Siam Cement Group of Thailand. Singapore is also well represented through Momentum Venture Capital, a unit of public transport operator SMRT, electricity and gas distributor SP Group, and IMC Pan Asia Alliance Group, the parent of private equity firm Heritas Capital.

Mialaret attributes Asian participation to a combination of financial returns and strategic value-add. For example, through its participation in Fund I, SP gained an introduction to German start-up Mobility House. A direct investment followed and SP was able to leverage Mobility House's smart charging and vehicle-to-grid technology in the development of Singapore's renewable energy programme.

Eurazeo sought to realise similar synergies when taking France-based property technology player WeMaintain to Asia in 2021. It saw an opening for the company's elevator maintenance software offering – which use artificial intelligence and data analytics to provide real-time monitoring and predictive maintenance alerts – because there was no equivalent service in Asia.

"In presenting the market opportunity, we highlighted that the most verticalized cities in the world are in Asia," said Mialaret. "We then helped them enter Singapore, making connections that led to the hiring of a local general manager and a commercial lead as well as the recruitment of a first batch of clients. We are now exploring the possibility of taking this service to other locations in Asia."

Facilitating the formation of joint ventures between portfolio companies and the largely corporate smart city fund LP base has always been part of Eurazeo's strategy. The standout Asian example is arguably EVCo, a Singapore-based green vehicle logistics fleet operator and the result of a collaboration involving SMRT-owned Strides Mobility and Chinese commercial electric vehicle (EV) player DST.

Smart City II will continue the investment strategy of its predecessors, targeting new low-carbon economy, renewable energy, advanced mobility, property technology, logistics, advanced manufacturing, and deep technology. Europe will be the focus, although 35% of the corpus has been earmarked for China and Southeast Asia. It would have been 40% but for the larger-than-anticipated fund size and the participation of more LPs with specific geographic mandates.

Fund I was raised in 2016 by France's Idinvest Partners, prior to its acquisition by Eurazeo. The EUR 137m corpus was deployed across 25 investments globally. Asia is represented in the portfolio through Southeast Asia ride-hailing and services platform Grab and Chinese autonomous driving technology developer WeRide, as well as DST.

Mialaret observed that the US and Europe are entering a climate tech boom, but this will not eclipse Fund II's activity in China. EVs, distributed solar, and data-enabled manufacturing are all areas of interest.

"Chinese companies have been driving unit economics to a point where prices are becoming acceptable for customers in developing countries. That's important for us," he added. "We continue to be engaged in China because the country has a lot of great companies with much to offer decarbonisation and climate mitigation in the rest of Asia."

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