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European Tech Scaleup Market, September 2017: Venture going through a time warp

To download the full Go4Venture September 2017 Bulletin, complete with company profiles, click here.

We’ve been pinching ourselves in disbelief for some time: is European tech investment going through its singularity moment, when Europe learns how to build world category leaders? Or is it a sign of a market getting ahead of itself?

Based on Headline Transactions Index (HTI) data September 2017 is breaking all records:

  • This is the second largest funding month on record for the HTI — ever (the largest being May this year). This is on the back of 4 mega-rounds in one single month, and Scale-Up investments (€5–100m) are the largest on record and are double what they were in September 2016
  • Overall, 2017 looks like it is going to be a record year with c. €16bn expected to be invested in total — about 3x what the annual tally was 10 years ago

 Go4Venture Scaleup Index, 2015 — September 2017

Go4Venture Headline Transaction Index (HTI), 2015 — September 2017

 

September is emblematic of the new diversity of investors in European venture capital. In addition to the usual VC and growth equity funds, you find (looking at lead investors in Scale-Up rounds):

  • Private equity funds, e.g. LBO France, NVM Private Equity, Mobeus Equity Partners
  • Sovereign funds, e.g. Bpifrance
  • Pre-IPO institutional funds, e.g. Fidelity, Norron Asset Management, T. Rowe Price
  • Corporates, e.g. BP Ventures, LG, Rakuten, Samsung
  • Family offices, e.g. Groupe Artemis, Invus
  • Asian investors, e.g. Ping An, Tencent

A chart (using Go4Venture’s data) from Silverpeak’s presentation at the Venture Capital Forum, the annual tech day of InvestEurope (ex EVCA), the European trade association of the Private Equity and Venture Capital industry, sums it all:

 
 
At the same time signs of a toppish market are accumulating:

  • One player, Softbank’s Vision fund, is trying to redraw the rules of investing. In many ways, Softbank’s Vision fund is operating in a parallel universe – but its gravitational waves are impacting the rest of the market.
    • The irony (in the name) of the €0.5bn investment in Improbable has been lost on many. For what we know, this is the largest investment in venture ever – full stop. Marketing coup?
    • Investment in companies like WeWork adds to the intrigue. In the words of the founder (as reported by Forbes): “Our valuation and size today are much more based on our energy and spirituality than it is on a multiple of revenues”.
    • The fact that Masayoshi Son is mostly playing with debt from others adds to the stupor (asymmetric returns underwritten mostly by Middle Eastern money), suggesting that less savvy investors are joining the party.
  • Corporates are rushing to the tech market with abandon. Nowhere else more than in the transportation sector, for instance Delphi buying NuTonomy for $400m upfront (NuTonomy had raised $20m in venture funding previously). Or Continental rumoured to buy Argus Cybersecurity for $300m to $400m ($30m funding to date).
  • Star companies continue to raise money at prices which beggar belief. This is the case of Magic Leap raising another $500m against all odds (as reported in The Verge). Or Uber selling stock at distorted prices to hide its true value (as reported in The Financial Times).
  • The craze about Initial Coin Offerings (ICOs) is unabated – Just the name makes it suspect – a name dreamt by a marketing genius who clearly is seeking to mislead. Surely all the comparisons with the VC model cannot hide the fact that ICOs just don’t buy you any right in any company – just the option to join the merry-go-round hoping you can sell your token to the next fool. At best, this is Kickstarter on steroids, i.e. the company will exchange your token for some useful service. But let’s not entertain ICO credibility by comparing apples and oranges.

There is no question that European tech investment is getting better at building greater value companies with more predictability. But there is plenty of room for improvement. The reality is that a wall of money (private equity, corporates, sovereign wealth funds, family offices, Asian investors etc) is sustaining the growth in European tech investment well beyond the normal cycle. Let’s enjoy it while we can but let’s keep in mind that no amount of money can make up for smarts and experience.

To download the full Go4Venture September 2017 Bulletin, complete with company profiles, click here. For more information about the Go4Venture service, click here or email michael.galvin@go4venture.com.

The Go4Venture Team

By |November 14th, 2017|Uncategorized|0 Comments

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