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European Tech Scaleup Market, Summer 2017: Jean Who Laughs, Jean Who Cries

While you were away, summer came and summer went, and the story of constant progress of the European tech investment market continues.

Click to read the full July and August 2017 Bulletins. Please note that we have combined the commentary for our summer (July and August) Bulletins. You can find the individual company profiles and charts unique to that month by clicking on each link above.

The Headline Transactions Index (HTI) continues to plough on, and similarly the Scaleup Index (focused on €5–100m financings) is progressing too. Year-to-date the overall market nearly doubled in number of transactions, and increased by more than 50% in value. Within that, the market for mega rounds (≥€100m) exploded (doubled in size and value — and pulling the whole of the market with it), and activity at the early-stage continued unabated. Comparatively, the Scaleup segment progressed less, with a 50% increase in number, but only a 33% progression by value.

Scaleup Index, 2015 — August 2017

Headline Transactions Index (HTI), 2015 — August 2017

In short, the market is bifurcating between the mega rounds (driven in particular by sovereign wealth funds, private equity and Softbank’s Vision Fund), and the early-stage, where all punters are trying to strike gold. In between, you find proper Scaleups(on their way to become growth equity plays and hopefully unicorns), and big bold Series A/B plays in frontier sectors. Summer provided great examples in all categories:

On the other hand, while you were away, preoccupying market overheating signs kept accumulating.

The big story of the summer was Initial Coin Offerings (ICOs) — brilliant marketing (just in the name!). In two months, we had:

  • Goldman Sachs report pointing out that in the last 12 months to July 2017, ICOs had raised more money than angel & seed internet VC funding globally
  • Companies like OMG (sic), Tezos, Bancor and Filecoin all raised >$200m

Then:

  • An analyst (Peakstate) pointed out that “unlike shares [coins] do not confer ownership rights. Investors hope that successful projects will cause tokens’ value to rise.”
  • China banned ICOs
  • The FT publishing the ultimate article on bitcoins and tulips

Softbank’s Vison fund continued its buying spree and hit a crescendo with a $4.4bn investment in WeWork. Just to put things in perspective:

  • According to the Financial Times, this is largest single investment into a private company ever.
  • This is an investment in a real estate play. As the FT put it, this transaction seems “at odds with the mission statement of the Fund”.

Of course, a bit like the New Economy of the late 1990s, we, laymen, don’t “get it”. This is a business which only breaks even on $1bn of sales, and whose main business model is to arbitrage between long leases it holds vs. short leases it sells. Oh, and the CEO flew hundreds of its employees and their guests to the UK for a weekend summer camp festival featuring private performances by Florence and the Machine (we’ve seen that movie before).

The market went overboard with financing ridesharing companies: Go-Jek (Indonesia) raised $1.2bn in a round led by Tencent, Via got $250m from Daimler, GM has Lyft, VW has Gett, and Renault, Nissan and Mitsubishi have just announced working on a ‘robo’ global ride-hailing serve, all car companies see the writing on the wall. This doesn’t mean that they all should finance their own ridesharing service.

Silicon Valley tech giants continued their boundless expansion oblivious to public controversies, be it paying their fair share of taxes (the EU have had enough) or governance issues (re hard driven culture and/or sexual harassment): Amazon (Seattle-based) bought Wholefoods, and Tesla dropped the “Motors” to demonstrate it is not just about cars.

Clearly the European tech investment pressure cooker is also getting hotter — it is however unclear at what point it’ll all explode

Pension funds are getting desperate for returns: as their liabilities increase (ageing population), their traditional returns have evaporated, be it in traditional (government bonds) or alternative (hedge funds) investments. The motivation to close this gap via other forms of alternative investments (VC, PE and direct co-investments) could hardly be stronger to avoid painful benefit cuts.

Growth and private equity’s money continues to pour in (and that’s in addition to State funds and corporates):

  • New mega funds continue to pop up, most recently Apax Digital’s $1bn TMT fund.
  • PE funds are increasingly investing in tech, directly or via their portfolio companies: Apax acquired Matches.com (providing an exit to SEP); BC Partners-backed PetSmart bought online food retailer Chewy.com.

According to Pitchbook, PE now represent nearly 20% of the VC exits in the US- no doubt this is coming to Europe too:

 

So, we have a snake biting its own tail: pension & state funds as well as corporates seeking returns to survive and as a result pushing money into a system which can only lead to a crash. The only way out is to change the rules of the game, by allowing this extra money not to be channelled only by traditional tech funds or in competition with these funds (which can only lead to price inflation) but instead help these non-tech traditional funds to co-invest with tech funds (leading to more investments) — that’s what the Go4Venture platform is about.

Click to read the full July and August 2017 Bulletins.  Please note that we have combined the commentary for our summer (July and August) Bulletins. You can find the individual company profiles and charts unique to that month by clicking on each link above. 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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