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European Tech Scaleup Market, May 2017: Not the New Economy – the New World of Innovation Financing

May 2017 was a watershed month in European tech financing. Every market participant should take notice and reflect on how these developments impact their business. To download the full Go4Venture May 2017 Bulletin, complete with charts and company profiles, click here.

For the first time ever:

  • The amount invested in Europe in a single month went beyond €2 billion
  • Close to 40 companies are featured in this issue of our Bulletin, i.e. have received investment of more than €10 million
  • The Top 10 financings were all led by non-VC investors, mostly corporate investors but also private or public equity investors

Of course, we could all be dismissive of these “tourist” investors, as some of the VCs call them. And believe this is a cyclical feature. We feel different, and have been for some time (see our April 2017 Bulletin last month).

This is not to say there is plenty of froth in the market.

  • Softbank’s Vision Fund is probably the biggest influence, in Europe and elsewhere. This is part of Masayoshi Son’s plan to make Softbank the world’s most valuable company by raising a tech fund which is the world’s largest private equity fund ever – full stop. As well as its size, the structure of the fund is unusual, with equity investors also its debt providers (in effect capping their returns without really protecting their losses), and Softbank making a third of its contribution through bringing a quarter of its ARM Holdings share to the Vision Fund.
  • The effect of such a giant investor is already felt with the €470 million Series B investment in Improbable. Such a vast round is hard to comprehend for people from outside, and it is difficult to believe that the company actually received that sort of money all upfront: it was started in 2012, mostly has traction as a provider of gaming middleware, and its touted cloud-based simulation tool SpatialOS has just launched in beta.
  • Results of some of the big European bets are still an open question. Spotify just announced its results showing an impressive 50% growth in revenues to €2.9 billion, but also a loss doubled to €539 million (18% of revenues).
  • Europe has already seen its fair share of crashes. In the UK alone, as reported by The Financial Times: Fling, Karhoo, Powa and Ve Interactive were all branded as potential unicorn companies, but never made it. Admittedly most of these companies were pushed by HNWIs who are used to high risk/high reward investments. But we also have had the hype surrounding Monitise (LON:MONI) (a B2B fintech company snapped up by FiServ for c. £70 million after hitting a £1 billion market cap just a couple of years ago), or Quindell (now known as Watchstone Group – LON:WTG) which was a case of repeated fraudulent founder and CEO. And UK is not alone, with Germany offering us Rocket Internet (FRA:RKET) which has lost about half of its market cap since its Oct 2014 IPO.
  • And of course that’s not to mention the wonderful world of WeWork, the only coworking company valued at over $17 billion (you could be forgiven to have forgotten the fate of Regus in the late 1990s) or Initial Coin Offerings (ICOs).

As usual, in times of hype, there is merit in keeping our heads cool:

  • There are plenty of good European tech companies, growing more quickly, to get to a bigger exit. Granted the number of European unicorns is only a fraction (1/10th) of the US and a European exit is probably one third as big on average, but that’s primarily because the European mentality, trained by years of investment scarcity, remains too often obsessed with capital efficiency rather than size of the outcome.
  • With the support of corporate investors and generalist financial investors now getting involved, European companies can get financing they couldn’t reach before. This is changing the attitude of European market participants. Good projects get funding they need. European startups can choose their investor, if they have the patience (and resources) to go beyond the obvious investor names.

In short, the European venture dam has burst: while all these years technology investing was synonymous with specialist venture capital funds, innovation financing is now the remit of every investor.

To download the full Go4Venture May 2017 Bulletin, complete with charts and company profiles, click here.

The Go4Venture Team

By |July 10th, 2017|Uncategorized|0 Comments

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