Swiss web gurus launch €50 million early stage VC fund

Rolf Brugger, co-founder of T-Capital Management Keystone Archive

The launch of a new early-stage venture capital fund by private equity novices might seem untimely, even foolhardy, at a time when more established funds are scaling back or moving cautiously, but two successful web pioneers are going ahead with their plan to raise a €50 million fund.

This content was published on April 18, 2002 - 10:56

Michael Bornhäusser and Rolf Brugger, founders of T-Capital Management, are taking the bold step to raise a €50 million fund to invest in early stage digital publishing firms. The new fund is called Time Capital Fund. T-Capital expects to announce a first closing in July of this year.

Bornhäusser gave Swiss Venture Update an exclusive sneak preview of the new endeavour in a phone interview last week.

The plan is to tap institutional investors, pension funds, corporate venturers, and fund managers across Europe to raise the capital. The fund is being structured by PriceWaterhouseCoopers and is registered in the Cayman Islands.

"We've had very good response to the fund in the UK," says Bornhäusser. He also mentioned that a third partner, an experienced corporate financier, will join T-Capital in the coming weeks.

PriceWaterhouseCoopers connection

PWC's Corporate Finance division in Zurich is also a shareholder in T-Capital Management, with a 12.5 per cent share of the equity of the company. It acquired the shares in a "services for equity" investment, according to Philipp Arnett, manager of corporate finance.

The fact that PWC is involved gives some credibility to a venture capital fund management team that is without a track record in the private equity industry. "PWC has a number of such projects underway," says Arnett.

PWC is not going to be investing in the fund itself. "It is not our policy to invest in private equity funds," explains Arnett.

The fund will invest in four specific technology sectors: broadband technology and services, including interactive TV; Internet based advisory services and technologies; digital rights management; and content creation technology and services. "This is a focus fund," says Bornhäusser.

Good deal flow potential

"We've got 14 companies as potential portfolio firms," says Bornhäusser. Such a deal flow evokes some admiration from insiders contacted by Swiss Venture Update for comment. "T-Capital could be smart to enter the scene at this point in time, now that valuations of Internet industry firms have plummeted," says a venture capitalist in Zurich.

The fund will target early stage deals, although Bornhäusser says he will consider distressed equity if "it fits a portfolio firm's business plan".

An industry analyst in the UK wonders at the wisdom of taking on distressed equity investments - companies that are in a cash crunch and unable to raise or borrow new capital. "It will be extremely hard work to dig through all those deals in search of a good one," he says.

"I shudder at how much extra work that will bring them," says a Swiss fund manager in a phone interview.

The big question is will T-Capital be able to raise a new early stage tech fund that, let's face it, plans to invest in Internet companies in the second quarter of 2002?

"I believe it will not be easy to raise a new fund in this environment," says a local VC.

Bornhäusser is upbeat and determined nevertheless. He says that his cross-industry scope, targeting financial services, media, IT and telecoms customers will give his companies an anti-cyclical growth prospect.

It's all in the network

"The most important thing about this fund is that we are entrepreneurs. We've got the network and the experience," says Bornhäusser.

According to Bornhäusser, the fund is receiving backing from Bertelsmann and Sun Microsystems, although he would not say if that "backing" involved a financial consideration.

He also talks about a two million franc software tool he says his firm has developed to reduce risk. It is a "people-based risk management tool" that enables T-Capital to measure not only financial performance, costs and revenues, but also human resource development, sales, and production against the business plan. This reporter has not seen the tool in action.

A media whiz kid and an IT manager

According to publicly available information, Michael Bornhäusser was born 1961 in Karlsrühe, Germany. He was involved in the emergence of private radio in southern Germany and worked as a member of the management board for several private radio stations.

Rolf Brugger worked for a major insurance company for a number of years and has a background as an IT manager in large organisations.

The two were early entrants into the multimedia and electronic publishing market that evolved into the fast growing Internet publishing sector. The two founded MMK in Basel in 1995. They were part of the first wave of Swiss entrepreneurs to sell their Internet company to foreign buyers when Pixelpark merged with MMK in 1998.

Since then the development of Pixelpark, which is publicly traded on the Neuer Markt, but is controlled by Bertelsmann, has been fairly typical of some other Swiss and German Internet media companies. It has seen a steady climb in revenue but a corresponding increase in losses, reporting losses since 1998, according to data from

It cut staff last year to Y2K levels and is closing down a number of branch offices to focus on the German and Swiss markets. It can no longer be considered a European player, which was a driving factor in its high valuation and corresponding market capitalisation.

With the cutbacks, the firm is no longer in the Pan European league and is overvalued, says Bank Julius Baer analyst Melinda Wiharto, who has a "Reduce" call on the stock.

Brugger is currently Chairman of the Executive Board Pixelpark, Schweiz, something he does "part-time", according to Bornhäusser.

A digital portfolio

T-Capital originally operated under the name Incubator AG. Its business model was that of a consultancy, with Bornhäusser involved full-time advising start-ups on acquiring venture capital.

The company made two investments last year. But Bornhäusser is only talking about one of them, Secure Digital Container (SDC) AG, a Pixelpark Switzerland spin-off, founded in 1999.

SDC has been seeking venture capital for some time. It holds an international patent for a "device for the distribution of digital music" held by Rolf Brugger. The company's business plan has been making the circuit here for a few months, but insiders say the firm lacks a leading CEO.

A number of venture-backed firms, such as Audiosoft SA, in digital rights management space have gone into bankruptcy or disappeared from the market in the past 12 months but that does not have Bornhäusser worried.

"It's good news for SDC. The others had bad timing. The market is just growing now. But they already burned through their money before [the market caught on]," says Bornhäusser.

A spate of new funds from newcomers in Switzerland

The Time Capital Fund is the fifth new fund announced by a Swiss partnership this year. Contrary to what is sometimes said by foreigners about the Swiss being too risk averse to make a really good venture capital industry viable, there is little evidence of "cowardly capitalism" (to steal a phrase from writer Daniel Ben-Ami) here.

There is no lack of bold Swiss private equity fund managers aiming to raise new funds this year. No less than four new, specialty venture capital funds are planned or are already underway. The Aravis Venture fund is a new 200 million Euro fund from Venture Associates, targeted at biotechnology start-ups.

NanoDimension and Capital Stage are both raising funds totalling more than €100 million that will target businesses considered to be part of nanotechnology macrotrend.

And a fourth early stage tech fund is being considered by the private equity arm of one of Switzerland's largest global banks. Its managers have been dabbling in investing in microsystems, software, and optics companies in the past year and are now testing the waters of raising capital from other limited partners.

by Valerie Thompson

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