– Expanding horizons at Carlyle

The euros 300 million ($305 million) target The Carlyle Group set last autumn for its European Internet fund already sounds almost absurdly modest given the volume of capital flooding into Europe-focused new economy’ offerings of all kinds. No surprise, then, that Carlyle Internet Partners Europe has been expanded to more than twice the size originally envisaged to be capped at euros 650 million ($660 million).

At this point, it is worth remembering just how large a vehicle of that magnitude would have loomed only three or four years ago, even in Europe’s larger buyout sector.

The truly astonishing feature of Carlyle’s fund-raising effort, however, is that the group attracted indications of interest that could have taken the fund to $3 billion – ten times its original target. While Carlyle’s reputation, its experience of technology-based investments in the US and the strong management and advisory line-up assembled for the new fund undoubtedly sharpened appetites for this particular offering. However, the potential level of oversubscription for Carlyle Internet Partners Europe also suggests that a colossal mismatch exists between institutional demand for exposure to Europe’s new economy’ and suitable fund opportunities. The problem for US investors with high minimum commitment levels is particularly acute.

Carlyle has not commented on the make-up of the fund’s investor base, but there is little reason to suppose it has deviated significantly from the model predicted by international managing director Christopher Finn at the launch. Finn expected capital from a broad cross-section of European sources including strategic corporate investors, financial institutions and private offices would exceed, albeit by a small margin, monies from US, mainly institutional sources.

The Carlyle fund currently ranks as the largest dedicated Internet fund raised for Europe, although it may not hold this position for long if Doughty Hanson’s proposed offering (story, page 10) exceeds its $500 million target by a similar proportion. Both vehicles, like Hicks Muse Tate & Furst’s global new economy fund, have the resources to undertake larger, infrastructural-type investments as well as more conventional venture’ or early-stage fundings.

Carlyle Internet Partners Europe’s remit encompasses the entire new economy value train from telephony and other infrastructural services through enabling technologies to all forms of e-commerce, while its geographic focus is pan-European.

The fund’s management team is headed by Jean-Bernard Tellio, who carved out LVMH’s early Internet investment strategy, and by Tim Jackson the entrepreneur behind the QXL, the online auction company, while prominent Internet entrepreneurs and investors feature on the fund’s advisory board.

As well as its European headquarters in London, Carlyle has opened offices in Paris, Munich, Milan and Moscow, a factor which is likely to be a key contributor to the success of the fund. And not only in terms of tapping into local deal flow: ironically, while the Internet is making the geographic location of a company less of a strategic issue, it has had no perceptible influence as yet on firms’ preference for an investor with a local presence.