In this guest post Victor Basta, managing director of boutique investment bank Magister Advisors and a specialist in the technology sector, examines the surge in private equity-backed late-stage technology funding, and the implications for the sector.
You start a business, work incredibly hard and build a business of real quality. A few years in, you get a call from a senior exec at a large company who wants to buy your business. It’s exciting but your life savings are at stake.
In this guest post Victor Basta, managing director of boutique investment bank Magister Advisors and a specialist in the technology sector, argues that we'll see fintech valuations fall steeply across the board this year.
Germany just passed the UK in number of tech developers. A sharp rise in German VC funding will surely follow.
The UK’s hammer-lock on leadership in European tech development has just been eclipsed for the first time ever by Germany. Moreover, Germany has set the stage for a tripling of venture money into its fast-emerging tech ecosystems.
Apple just bought a $400m Xmas present called Shazam. Three years ago, Shazam was valued at $1B by investors. That means its value has fallen 60% in three years, while it has grown in size, and NASDAQ has risen almost 50%.
Amid record amounts of capital raised by VCs worldwide, and a sharp rise in the number of private “unicorns” valued at $1 billion-plus, there has been a quiet, barely noticed implosion in early-stage VC activity worldwide.
It’s been a busy period for the UK’s fledgling digital banks. Since January, eight UK digital banks have collectively raised $600m and two challenger banks were acquired for $2B+.
Business coaching and success podcasts are a huge global industry. American coaches collect $1B+; no wonder 3x as many coach today as 10 years ago. And the number of 'how to succeed in business' podcasts are too many to count.
Our migration debate hardly mentions ‘immigrant founders,’ yet I believe they hold the key to the future of the UK’s strategic tech industry, and the UK economy by extension.
The ICO (cryptocurrency financing) debate may grab headlines, but there is a far greater, more valuable, and ultimately more transformational opportunity that remains hidden from headlines.
Fin-tech backers have turned their attention to disrupting the whale-sized insurance industry.
US investors are helping to create the next wave of European unicorns and already reaping huge dividends.
Rocket Fuel’s recent rock-bottom $125m sale to Sizmek confirms an unavoidable trend in advertising technology (ad-tech).
So many books have been written about how to win in business. The simplest way, in my experience, is to use core values fully in an organisation. It’s also one of the hardest things to get right.
Perhaps the single biggest tech investment area the last 5 years has been fin-tech. In Europe and the US, disruptors of everything from lending to foreign exchange have raised unprecedented capital to challenge banks and their kin:
Negative news recently from Soundcloud, which cut nearly half its staff only a year after ‘mulling over’ a $1B M&A offer, is now the exception rather than the rule in European tech.
A report from London & Partners yesterday outlined how the UK tech sector remains extremely strong despite Brexit.
One of the hottest areas for VC investment is AI/ML; artificial intelligence algorithms, related machine learning systems, neural networks, and back-end processing to produce insightful and self-learning applications.
London has been the undisputed European technology centre. Until now. Our view is Berlin will rapidly begin to take over, and in 10-15 years we will see the Berlin cluster as Europe’s technology hot-bed.
Confusion reigns about the impact a hung parliament will have on business confidence and, of course, whether the nation’s plans for Brexit will change. Naturally, this concern is magnified for sectors driving UK economic growth, with the tech and financial sectors foremost among them.
Since 2011, $60B of VC investment has gone into fin-tech globally. That’s 7,000 funding rounds, a staggering collective commitment by the venture industry to the future disruption of banking, trading and payments.
Amid the hype around Europe’s surging tech market, with talk of Silicon Valley losing its lustre to new hubs like London or Berlin, comes a sobering long term trend that suggests the complete opposite is in fact the case.
In recent weeks on both sides of the Atlantic ‘gig economy’ companies have consolidated at an accelerating pace. IAC has led the wave, acquiring Angie’s List after two years of courtship for $500m, after buying a smaller UK business only a few weeks before.
While venture investing outside the US has come a long way in recent years, our analysis shows it remains an entirely different industry than US VC.
We are in a perverse moment in the global venture capital industry: VCs are fast coming to resemble private hedge funds, and the more money they are able to raise, the worse-off startups are becoming. Capital is flowing into funds of all types, yet the rate of investment is shrinking rapidly.
The recent bankruptcy of online auction house Auctionata Paddle8 and the very public failure of the UK’s ‘challenger’ Tandem Bank to close its Chinese-investor round share one trait: both were affected by Chinese investors who failed to fund at the last minute.
Power management should be viewed as one of the largest single segments in the global IT industry, and a major source of future ‘unicorns’ (companies worth $1B+). We see the power sector being broken into two categories: those addressing the mobile device/network segment, and general power technologies for other applications.
Tesla’s $48B market value has just surpassed Ford’s $45B. This based on Tesla’s 76,000 vehicles vs Ford’s 6,600,000 vehicles. No thats not a typo, those are the numbers.
Will tightening H-1B US Visas and $1.2Tn of offshore cash drive international tech talent acquisitions?
A few days the US CIS tightened the qualifications for international tech talent seeking the H-1B ‘genius visa’ into the US.
Lessons For European Fin-Tech Companies: Why Nutmeg Was The Largest Fin-Tech Fund-Raise In Europe In 2016
We acted for Nutmeg’s Board in the company’s ca. €50m fund-raise near the end of 2016. It was the largest reported equity fund-raise across all fin-tech sectors in all of Europe during last year.
Taking a successful tech company public on a London stock market has always been harder than onto NASDAQ. The market is much smaller, and the level of tech knowledge amongst bankers and analysts far less deep than US peers.
AI M&A, Funding Reach New Highs But The Peak Is Yet To Come. We believe AI will shortly cease to exist as a segment, shifting M&A activity from current ‘capability buys’ to much higher value ‘platform buys’
Europe has created an unprecedented number of tech companies these last ten years. Early stage money, once so hard to come by, is now 25% of US levels, an astonishing statistic given how young the European tech industry is.
Technology breakthroughs often focus on new operating systems or major semiconductor developments. But one of the most significant yet under-reported trends is for technology companies to try to 'leapfrog' each other with 'over-the-top' technologies.
Europe is much further behind the US in late stage tech investing than it appears. Late stage tech funding is far behind the US, and surprisingly over ⅓ of funding rounds in Europe target non-tech e-commerce or marketplace businesses.
Europe’s start-up ecosystem has grown by leaps and bounds in the last decade. Yet it risks being stalled by the lack of later stage financing for Europe’s tech industry, which has hardly budged in five years.
European tech can benefit hugely from Asian investors refocusing away from the US. We think 2017 will be a watershed year for Asian investment into European tech.
Perversely we think the most active ‘European’ destination will be the UK.
European technology has come of age in 2016, according to M&A advisory firm Magister Advisors’ annual review of the European technology M&A and investment landscape. Total M&A deal value has more than doubled in Europe in the last 12 months to $127.2BN.
Surprisingly, Payment Service Providers. It must be the hardest job in tech to raise money for a new social network. Facebook and Google together now command 2/3 of all new mobile ad spend, the life blood of any social network, leaving little room for anyone else.
The European technology industry has come of age in 2016, according to a recent Magister analysis. Unprecedented M&A interest from Asian buyers, together with a strong IPO market for the best European tech businesses, has driven a surge in “blockbuster” deals (greater than $5B+ in value).
Because China’s premier Xi Jinping loves football (soccer) local billionaires are falling over themselves buying European clubs. He must also love technology, judging by Chinese behaviour towards European technology companies.
A Magister Advisors poll of the fastest-growing UK tech companies suggests half the key talent on average is British, 30% EU and 20% further afield. So Brexit’s uncertainty now demands half the UK’s best tech talent to rethink if they want to, or can, stay and perform.
European Tech Financings Slowing Down Even Before Brexit Effect, While M&A Activity Remains Unusually Strong
More entrepreneurs than ever are choosing to compete from Europe. 10 years ago most founders building international tech businesses would automatically move to the US.
AI Teams Being Acquired For Over $2m / Employee; Employee Value Often Far Greater Than Business Value
Twitter just paid $150m for 14-person Magic Pony, a UK-based AI visual search company barely anyone had heard of before the deal. At $10m+ per employee it marks a high water mark in AI for what is essentially a team acquisition.
We believe the just announced Microsoft/LinkedIn marriage can work, even if there are likely some very tough times ahead as both companies combine awkwardly.
Ad-tech or market-tech; call it what you will; the programmatic advertising and targeting industry has become a hugely complicated morass of 4,000 products, many with overlapping functionality and unclear benefits for end customers.
Venture capital investors across the US and Europe are failing to take full advantage of high-value “exit windows,” according to Magister’s 15-year analysis of VC and private equity (PE) exit activity. Our analysis suggests VCs are significantly better at investing than exiting.
GM just paid $1B+ to acquire 40-person self-driving technology vendor Cruise Automation; last year Continental AG paid $700m for Elektrobit’s automotive software business unit (full disclosure: Magister has advised Elektrobit).
After 5 years, 18 successful deals and $2B+ of value generated, Magister is evolving into two separate entities.
Statement on Virtual Currencies to the European Parliament’s ECON Committee. I appreciate the opportunity to speak with you today and share my views on virtual currencies. I am a Partner with Magister Advisors LLP, an EU-based boutique investment bank we established in 2011.
2016’s quieter funding and IPO markets will drive more tech private mergers than ever before. These mergers can support successful growth companies through a volatile funding environment, and accelerate creation of a future group of enduring unicorns.
As Bitcoin and Blockchain investment fast approaches $1bn, we have spent the last three months speaking with over 30 of the leading Bitcoin and Blockchain companies globally (with c. $500m of total investment), plus industry groups, financial institutions and investors, to gain detailed insight and understanding of the development of the market and the direction these fascinating technologies will take in 2016.
The S&P 500 is ending 2015 where it started. Yet all is not stable in tech. 2015’s extremism is setting the stage for a turbulent, and unstable, 2016.
Software as a Service (SaaS) has matured. Its elder statesman, Salesforce, is worth over $50B and nearly every private software company is now SaaS. The reasons are clear. SaaS businesses have much more certain future revenue than older “perpetual license” businesses, and can therefore grow more reliably. Also, SaaS companies have regularly received very high investment valuations, generally 5-10x revenue, and SaaS is the only model many software investors will invest in.
Cries of “shock wave” and “bursting bubble” greeted Square’s recent IPO pricing. It’s understandable when the IPO is $2B lower than Square’s last round only months ago, in a stock market that has remained stable throughout the year.
Wealth management is a $30 trillion industry in which the vast majority of “experts” charge 1-2% in fees annually. Despite this charge, on average they perform worse than the overall market.
$1 billion of funding has gone into e-procurement companies since 2011. 2015 could see another $1 billion of funding, 4 times all of 2014’s investment level and by far the most intensive rate of new investment the space has ever seen.
As Twitter dips below its IPO price, the business needs to execute a strategy urgently that utility platform to a real product business. At $25 a share, Twitter would be worth materially more to a larger business that can accelerate its product and feature innovation. An acquisition, in the absence of that innovation, would appear far more likely today than six months ago.
Fifteen years after the dotcom collapse we see another tech crash approaching. ‘Bubble’ and ‘unicorn’ are entering the mainstream vernacular. We are becoming comfortably numb with tech company overvaluations.
Look closely at this Brueghel ‘Instagram’ from the 1500s; at the bottom right corner of this holiday snap is a figure that has just crashed into the sea. The painting: The Fall of Icarus.
Travel technology leaders making opposite bets as industry seeks to transform: Magister Advisors advises Mobile Travel Technologies Ltd on its sale to Travelport.
The rise of next generation Fin Tech companies will trigger a wholesale restructuring of the banking sector. But banks can survive, maybe even prosper, by proactively focusing on becoming world-class ‘NetCo’s,’ standing behind and supporting thousands of ‘ServCo’ startups fighting for customers’ wallet-share across a wide range of financial transactions.
The payments market is changing more rapidly now than ever before. Both corporate and individual customers no longer tolerate paying large fees for what are essentially commodity services, transferring money securely.
A lot has been written about Uber’s latest financing round (mostly, about the reported of $50bn+ valuation), in the context of the current ‘herd’ of unicorns (apparently, 10 new horns sprouted in the last month).
Late stage growth companies often reveal far too much ‘dirty laundry’ in monthly packs prepared for their board meetings. In normal practice this is fine to stimulate debate and ensure transparency. But when that company is being sold in a high value M&A deal, these packs can give buyers cause to worry about things they might never have thought to ask.
One of the major themes we have pursued at Magister is big data infrastructure and analytics. Needless to say, despite the number of companies positioned as ‘big data’, actual leaders in the space are few and far between, all the more so in Europe.
Technology breakthroughs often focus on new operating systems, devices, or major semiconductor developments. But one of the most significant, yet under-reported, trends is for technology companies to ‘leapfrog’ each other with ‘over-the-top’ (OTT) technologies.
We’ve dealt with hundreds of tech buyers over 25 years. Apple and Oracle are head and shoulders above the rest, for the thorough, discreet, structured, and efficient way they execute a large number of deals each year.
We break our tradition of not publicizing our client work to congratulate the leadership of both Boku and mopay AG on today combining to create the world leader; Magister advised mopay on the transaction. We don’t often get to work on a deal which creates a real world market leader, reaching 5 billion mobile users in 80+ countries.
How can a fast-growth tech company get sold for $1 billion+ before their 100th employee, or even their first $ of profit?
RocketFuel’s announced acquisition of
[x+1] is the first major combination of two significant, independent AdTech companies in the current M&A wave, combining a leading DSP and DMP to create a more holistic (and more SaaS-like) platform.
$2bn of AdTech M&A Since February, with Enterprise Buyers In the Middle of the Froth.
Most founders contemplating a large €20m+ investment round immediately calculate their percentage ownership ‘post-dilution’ (meaning what they owned immediately before the funding round, versus what they own the second after it closes).
Let’s imagine Liverpool’s sale of Luis Suarez for £75m to Barcelona as an M&A deal that needs careful structuring. Without knowing the real deal terms, here’s how we think it should have been structured.
US venture investors are not coming to Europe, they are already here, in VERY large numbers. They’re such a big factor in the European funding scene that the whole concept of “US VCs” and ”European VCs” is a thing of the past.
So far this year has seen 50%+ more European tech M&A deals above $50m vs. last year, according to Magister’s recent analysis of European Tech M&A.
Big Data is going through Gartner’s “trough of disillusionment”. Endless articles espouse why big data is a fad, doesn’t matter or is failing.
Whether a deal is $50m or $1bn; the dynamics are the same. A surprise email from a prominent acquirer expressing strong interest in a “strategic deal that could benefit both parties.”.
If we were a prospective client, evaluating whether or not to hire a particular M&A advisory firm, here are 5 questions we would pose.
At the height of the 2000 bubble, the scramble to buy promising early-stage businesses sent the price per employee through the stratosphere, to $10m+ at the peak. That meant a 20-person business, just getting market traction, could be valued at $200m. In hindsight, it was “insane”.