By continuing to use this site you consent to the use of cookies on your device as described in our cookie policy unless you have disabled them.
You can change your cookie settings at any time but parts of our site will not function correctly without them.
I agree

European Tech Scaleup Market, June 2017: The world is shrinking

June is continuing the trend we’ve been seeing these past few months: continuing expansion. When looking at the first half of 2017, the European Headline Transaction Index (HTI) is 75% up by value, driven in particular by larger mega transactions (≥€100m). Scaleups (€5–100m) are also up more than 50% by number and close to 30% by value. To download the full Go4Venture June 2017 Bulletin, complete with company profiles, click here.

Scaleup Index

Headline Transactions Index (HTI)

This is part of a worldwide trend towards more money going into private tech companies, driven by the US and Asia as described in PWC’s latest Moneytree report:

In fact, for the first time ever, Asia raised more money than the US in Q2 2017, so we are in a world where the US is still a leader number of transactions, Asia has more investment by value (just) but on half the number of companies (which means the average financing is twice as big as in the US), and Europe is lagging with half the number of companies funded and half the amount of money on average:

In this flurry of activity, the 2015 market hiccup seems to be long forgotten and the number of private companies achieving the unicorn status (reported valuation of $1bn or more) is raising again:

This market ebullition is driven by the universal hunger for innovative companies:

  • Corporates are desperate to re-invent themselves and see involvement with emerging growth companies as essential their digital transformation.
  • Public authorities see innovation as the only way to win an advantage over other countries. Major countries have started funds with a remit to invigorate the tech market, be it:
  • Developed countries: e.g. Bpifrance (the most active European scaleup investor in 2016) or High-Tech Gründerfonds (Germany’s most active and leading seed stage investor); or
  • Emerging markets with major Sovereign Wealth Funds (SWFs) such as Abu Dhabi’s Mubadala Investment, Malaysia’s Khazanah, Singapore’s Temasek, or Saudi Arabia’s Public Investment Fund (PIF).
  • Institutional investors realise that they just cannot ignore tech companies: performance in public market is stupendous, and looking for value draw them inexorably towards private companies. Just like private equity investors are now moving towards earlier stage companies. And VCs are taking advantage of propitious market conditions to re-up.

Examples of announced funds’ closings include:

  • Felix Capital (London, UK) raised €130m ($150m) for its second fund, two years after its inaugural €100m ($120m) fund for “the creative class”.
  • Vitruvian (London, UK) closed a whopping €2.4bn for its third fund to invest in high-growth businesses across Europe.
  • Partech Ventures (Paris, France) closed its 7th venture fund at €400m backed by EIF, Bpifrance and corporate investment from Accenture, Adecco, Cisco, the French lottery, L’Oreal, Nokia and Unibail-Rodamco.

This comes on top of Softbank’s largest tech fund in history, a game-changing $93bn vehicle raised in May 2017, a fund (target: $100bn) which has started to make investments not just in later-stage situations or roll-ups, but also in dead-on venture companies such as Brain Corp (AI for self-driving robots), Improbable (virtual world operating system) or Plenty (vertical farming).

Despite all this gung-ho activity, the market seems surprisingly rational:

  • If anything, as investors keep chasing unicorns by investing in mega rounds (≥€100m), there is more scrutiny on all smaller companies.
  • Public markets are not taking IPOs at face value and some of the newly public companies have had a torrid time (see the abysmal stock market performance of Snapchat or Blue Apron).
  • The market seems be taking failures in its stride. Company closures include previous darlings or high profile companies, such as Vertu (luxury mobile phones) or Jawbone (wearables). And restructurings include Soundcloud (music streaming) and Faraday (electric vehicles).

At the same time, there is an inkling of the end of an era. The investor market is not as hot on Internet plays as it used to be since the logic of winners take all (Google, Facebook, Amazon etc) is taking the oxygen out of newcomers. And the renewed interest in B2B SaaS plays seems almost passé and is creating a feeding frenzy.

As a result, investors are more prepared to look further afield, including:

  • Unweaving the threads of big data, using AI to make sense of data which already exists or are now collected cost-effectively using inexpensive IoT sensors. This is part of the digital transformation of companies and processes, essentially making organisations more predictive than reactive.
  • Exploring new areas such as agritech or spacetech. Europe has a considerable pool of companies working on breakthrough technical solutions. Take for instance, Zero2infinity, a spacetech company, which is developing a mini-satellite launching system which is outside US export restrictions and can be used without a launchpad — this first truly global solution in an industry dominated by US suppliers so far.
  • Going cross-border. More investors are following sector expertise rather than geography. Tier 1 funds increasingly build bridges with their brethrens overseas. For smaller funds, this is more of a challenge as they don’t have the profile or the scale to justify building those relationships.

That’s also why the Go4Venture platform exists, as a way to promote European late-stage companies and from time to time send Registered Members co-investment opportunities when a lead tech investor has been identified, allowing Members to meet virtually, regardless of geography.

Click here to see full June 2017 Bulletin. For more information about the Go4Venture service, click here or email michael.galvin@go4venture.com.

The Go4Venture Team

 

By |August 8th, 2017|Uncategorized|0 Comments

About the Author:

Comments are closed.