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The case for VC and the opportunity in Europe

In this report we show the state of the tech ecosystem in Europe.The next goal for the European VC market is to incorporate more institutional investors as LPs. The current state of European tech ecosystem and the scale and track record obtained by European VCs will allow the industry to incorporate them as active investor in the asset class.

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The case for VC and the opportunity in Europe

  1. 1. Excellence in Business The Case for VC and the Opportunity in Europe 2018
  2. 2. European Tech Ecosystem1 2
  3. 3. 722 592 386 379 204 176 132 108 104 508 3 European Tech funding is showing an exponential growth pattern  Tech Funding in Europe reached €25bn in 2017, an implied 42% CAGR since 2012, with UK leading in terms of funding and France in terms of number of deals Source: TechEU Report. (1) Rest of Europe (including Turkey). Tech Funding by Year (€bn, # Deals) Tech Funding by Country, 2017 (€bn) Tech Funding by Country, 2017 (# Deals) 4,3 5,5 10,1 14,6 16,4 25,0 1.309 1.874 2.213 2.647 3.456 3.397 2012 2013 2014 2015 2016 2017 Amount Number of Deals 7,1 4,0 3,1 2,9 1,8 1,5 0,9 0,6 0,4 2,2 CAGR 2012-17 (1) 21% (1) 42% • The number of deals having grown at a 21% CAGR 2012-2017 vs. 42% of the funding implies an increase in terms of average deal size from €3,3m in 2012 to €7,3m in 2017. 3,3 2,9 4,6 5,5 4,7 7,3 Average Deal Size (€m) 18%
  4. 4. 4 Round sizes in Europe are increasing as startups are growing bigger, faster and becoming global leaders in their markets  Number of Deals in Europe have been growing at a 15% CAGR (2012-2017), with bigger rounds (€20- 100m, >€100m) showing the highest growth. Although UK remains number one in terms of deal sizes, France has taken first place in terms of number of Deals, having grown at 59% CAGR Source: TechEU Report. Round Sizes in Europe (# Deals) Round Sizes in UK (# Deals) Round Sizes in France (# Deals) 1.331 1.456 524 1.073273 590 99 234 9 26 2014 2017 €0-1m €1-5m €5-20m €20-100m >€100m CAGR 2014-17 33% 29% 42% 27% 3% 395 145 141 227 78 132 30 74 4 9 2014 2017 €0-1m €1-5m €5-20m €20-100m >€100m 3.379 15% 2.236 CAGR 2014-17 35% 19% 31% 17% (28%) 587 (3%) 648 75 329 73 260 22 102 9 28 1 €0-1m €1-5m €5-20m €20-100m >€100m CAGR 2014-17 46% 67% n.a. 53% 64% 720 59% 179 20172014
  5. 5. FinTech continues to be the most dynamic vertical in Europe  FinTech continues to be the top vertical in terms of number of deals and volume, followed by Healthcare and Food 5 4,1 3,1 1,9 1,6 2,0 0,9 0,9 0,8 383 336 105 141 98 34 137 62 FinTech Medical / Healthcare Food Transportation Security Telecom Analytics Fasion Funding # Deals Funding by Vertical in 2017 (€bn, # Deals) 10,6 9,1 18,1 11,2 20,1 13,4 Average Deal Size (€m) 27,6 6,7 • Fintech is expected to remain strong in the coming years as we are still in the earlies stages of innovation for financial services (specially in B2B) • Europe has a strong track record in both med and health tech. The largest deal in this sector was Roivant Sciences which raised a round of over €1bn Source: TechEU Report.
  6. 6. 6 Government-backed vehicles continue to be among the most dynamic investors in Europe in terms of number of deals  However, in terms of amount invested, funds such as Index or SoftBank have invested significantly more. For example, Swiss biotech company Roivant raised over €1bn from SoftBank Vision Fund Source: TechEU Report. Top Investors by Number of Deals, 2017 (# Deals) Top Startups by Funding, 2017 (€m) 86 32 31 30 27 24 21 20 20 18 BPI France HTGF Kima Ventures Partech Ventures Idinvest Partners Balderton Capital Almi Invest Global Founders Capital Index Ventures Creandum 1.093 1.001 455 440 384 361 360 286 273 255 Delivery Hero Roivant Sciences Improbable Deliveroo Com Hem Farfetch Auto1 Group Truphone OakNorth TransferWise
  7. 7. 36 16 3 Acquisitions IPOs Mergers Buyouts 7 The European exit landscape  VC represents an almost half of the total volume of exits in year 2017. VC-backed exits have registered record successes with cases such as Mobileye and Delivery Hero Source: TechEU Report. Exits in 2017 (# Deals) Exits by Type in 2017 (# Deals) Top VC-backed Exits in 2017 Capital Involved in Exits in 2017 (€bn) Top Countries by Number of Exits in 2017 (# Deals) Other Deals 64% VC- backed Exits 36% Rest of Capital 52% Capital involve d in VC exits 48% 555 Total: €61bn Total: 610 Deals 121 112 77 47 45 Sweden Germany UK France Israel Company Country Exit Price / Market Cap €13.4bn €4.5bn €1.8bn €1.7bn €1.5bn Frankfurt Stock Exchange Frankfurt Stock Exchange
  8. 8. 8 Most notables exits and IPOs in Europe in year 2017  IPOs supported some of the largest exits in year 2017, being the VC-backed German food delivery unicorn Delivery Hero the most important with a market cap of €4.5bn Source: TechEU Report. Top Exits of 2017 (€bn) Top IPOs of 2017 (€bn) 13,4 9,5 8,5 4,8 4,5 1,8 1,7 1,5 Mobileye WorldPay Drillish Gemalto Delivery Hero Allfunds Bank HelloFresh Bambora 4,5 1,7 1,0 1,0 0,8 0,4 0,2 0,2 Delivery Hero HelloFresh Play Communications Alfa Financial Software Rovio Entertainment Boozt Fashion Prodways Zur Rose Country Country
  9. 9. The VC Opportunity Is in Europe2 9
  10. 10. 10 European society has shifted towards Entrepreneurship  Europe has acquired a strong Entrepreneurial Mindset with a great acceptance of entrepreneurship as a career path and a high rate of repeat founders with a greater acquired experience. Evolution of Entrepreneurs by Geography (Percentage of Entrepreneurs over Working Age Population) Sources: Atomico Survey. (1) Total Entrepreneurial Activity –Global Entrepreneurship Monitor 2002 - 2016 of Students think that Entrepreneurship is a valid career path 79% 85% of Students are optimistic or think that European Tech Ecosystem is going to remain about the same 82% Entrepreneurship is Taught in the Best Universities 5% 7% 10% 6% 6% 7% 5% 6% 6% 5% 5% 8% 2002 2009 2016 Eastern Nordic Southern Western Acceptance Rate between women, 2% more than in men Average 5% 6% 8% • European Entrepreneurship has almost multiplied by 2x in the last years, reaching about 8% of working age population
  11. 11. 1,1 9,7 0,5 4,5 Graduates Per Annum Graduates Last 10 Years There is an unparalleled engineering and science talent pool in Europe  Europe has an unprecedented ecosystem of talent that has been backed by world-class academic institutions, which are currently producing significantly more talented professionals, focused on the tech industry, than the US. 11 5 of World’s Top 10 Computer Science Institutions are European c. 5m Source: Atomico, Eurostat. Developers By Hub 71.497 9.990 27.333 40.538 15.915 9.586 11.346 22.944 83.262 London Lisbon Madrid Paris Berlin Oslo Stockholm Istanbul San Francisco Science, Technology, Engineering and Mathematics (“STEM”) Graduates c. 0.5m Global Rank Institution Location 1 ETH Zurich 3 Oxford Oxford 7 Imperial College London 8 EPF Lausanne 9 TU Munich Munich208.429
  12. 12. 17 19 1 2 12 Europe is the largest developed and integrated market  Europe is the largest developed and integrated market and the best positioned for technology development due to its impressive size in terms of GDP, Internet Users and Smartphone Users. 321 510 1 2 Population (Millions of people) 176 228 1 2 Smartphone Users (Millions of people) GDP (PPP, $tr) Internet users (Millions of people) 279 405 1 2 Europe is the Largest Developed Market(1) Source: World Bank, Atomico. (1) Europe includes EU, Switzerland and Israel. Benefits of an Integrated Market Free Capital Movement Unrestricted Commerce Unique Regulatory Environment Strong Investor Protection Pan-European Financial Institutions Cost-Effective Advantages 1 2 3 4 5 6
  13. 13. European VC industry has been built over the past 20 years, with stable teams capable of exploiting the opportunity  VC teams in Europe have developed a solid experience of c. 10 years proving their ability to select the best investment opportunities given that they have been through several economic cycles and understand the challenges involved in the sourcing and selection of the best alternatives. 13 Currently Active European VC Firms by Founding Period European VC Funds with +10 Years of Experience(1) 5% 16% 25% 31% 22% 1990 - 1994 1995 - 1990 2000 - 2004 2005 - 2009 2010 - 2015 c. 80% of the European VC industry already has more than 10 years of experience Source: Invest Europe. (1) Non-exhaustive list. Founding Period
  14. 14. Results 1.311 308 265 240 229 179 134 118 78 GreenTech & Transport Energy Efficiency Education & Support Agriculture & Food HealthTech ICT DeepTech General Innovation Security & Public Services And public institutions will continue supporting Entrepreneurship 14  European Union Programs represent only c. 10% of Public Investment in Europe. The Union will keep supporting entrepreneurship in Europe, as it has done historically, fuelling many successful businesses. Source: European Commission Europe 2020 Initiative is Fuelling Entrepreneurship Post-2020 Europe Investment Plan Total 2016 Allocation to SMEs through innovation programmes €2.9bn 2020 2027 Horizon 2020 Funding by Topic in 2016 (In €m) High Quality Proposals Funded Expected Impact in the European Economy Research & Innovation Investment Long- Term Objective €80bn of Public Investments €120bn in Public Investments2014 • Focused on Entrepreneurship and Innovation, Horizon 2020 is “Europe 2020 Initiative” flagship program to support SMEs Exemplary Program within “Europe 2020” Achieve a 33% of proposals funded (vs. current 20%) €400bn by 2030 3% of the EU’s GDP, compared to the current 2%
  15. 15. 1 • Mobile, Telecom, Healthcare and Software Not surprisingly, Europe is already one of the largest global Tech Hubs…  Europe has been able to develop some of the most powerful tech hubs globally. (1) Also includes Rhein-Main-Neckar. (2) Taking into account Cambridge Area too. Amsterdam & Eindhoven The Netherlands • Amsterdam: ICT / Life Sciences • Eindhoven: Green Tech and software Antwerp & Burssels Belgium • Life Sciences Zurich Switzerland • Medtech and pharma / life sciences Paris France • Media, advertising, e- commerce, sharing economy, AI London & Dublin(2) UK and Ireland • Cambridge: Biotech, wireless • Dublin: Medtech, hardware • London: Consumer, finance Stockholm Sweden • Telecoms, Peer to Peer, Software Helsinki Finland • Mobile telecoms, gaming, open source Copenhagen Denmark • Life sciences 15 Berlin & Munich(1) Germany • Berlin: ICT / Life Sciences • Munich: Hardaware, software • Rhein: IT Tel Aviv Israel Barcelona Spain • Mobile Telecom, E- Comerce, Gaming and Software 10 11 9 1 2 3 4 5 6 7 8 2 3 4 5 6 7 9 8 10 11
  16. 16. …with a large Deep Tech Startup ecosystem 16  Europe is thriving with deep tech companies, closing the gap between the continental and American startup ecosystems. However, European deep tech startups lack the funding levels strengthening US companies. Deep Tech Startups Founded since 2011 (Cumulative number of companies) 490 950 687 1252 2011-2013 2014-2016 Europe US 94% increase • Between these two periods European deep tech startups have increased at a 94% rate compared to an 82% increase in US deep tech startups Source: The State of European Tech 2016 – Atomico. (1) Data for 9 months only during 2016. Deep Tech Investment and Exits in Europe(1) ($m Capital Invested and Number of Deals) • $2.3bn has been invested in Deep Tech since the start of 2015, a 4x increase since 2011 289 244 470 718 1.328 935 2011 2012 2013 2014 2015 2016F 82 55 160 218 296 282 Capital Invested ($m) Number of Deals
  17. 17. 17 Able to build extremely successful precedents  Some of the most successful startups globally have been developed within the European VC landscape and each year a greater number of European companies achieve this condition, continuing a clear growth trend. Source: CB Insights, Crunchbase and GP Bullhound Research. European Extremely Successful Cases Evolution up to 2018 (Number of companies with a valuation over $1bn) 7 37 70 Up to 2010 Up to 2014 Up to 2018 mobli +30 +33
  18. 18. …And a proven VC track record 18  Venture Capital Teams in Europe have developed a solid experience and have proven to give consistent and increasing double-digit returns. (1) Source: The Acceleration Point - Invest Europe. Data as of end of 2015. (2) Non-exhaustive list. 1,8 4,9 5,3 4 10,2 11,6 14,9 13,3 181 273 312 363 383 529 539 418 2009 2010 2011 2012 2013 2014 2015 2016 Exit Value # of Exits European VC-Backed Exits (€bn and Number of Exits) CAGR 33% 10 18 17 11 27 22 28 32 Average Exit Value (€m/exits) Double-Digit Net Fund Returns in EIF’s VC Portfolio (Net Fund IRR since 2007) 33% 23% 16% 66%66%66% 46% 32% 27% Top 10 FundsTop 20 FundsTop 30 Funds IRR Boundary Median
  19. 19. 3,8 3,8 5,1 5,5 6,4 2012 2013 2014 2015 2016 This attractiveness is already being perceived by investors 19  Larger European VC Funds and increased fundraising are finally giving the industry enough scale to commit Pan-European investments and achieve higher returns. Source: Invest Europe, EDC, Atomico, Pitchbook 1Q 2017 European Venture Report. • Europe’s VC industry is coming off two record fundraising years in which more than €17bn was raised. Before 2015, only in one year (2008) fundraising had surpassed €6,5bn • During Q1 2017 the industry raised €2.1bn setting the pace for a >€8bn fundraising for the third consecutive year 48 66 64 108 127 2012 2013 2014 2015 2016 CAGR 14% CAGR 28% • European VC Funds are now able to push for the winners in later funding rounds and support the companies in turnaround situations Incremental Fundraising by European VC Funds (€bn) Mean Fund Size Evolution (€m)
  20. 20. 1.10x 0.78x 1.58x 1.89x 2005-2010 2011-2015 European VC’s potential is being untapped 20  European VC Ecosystem offers significant room for growth and represents an attractive alternative to the US VC market, being the improvement in performance of European VCs a proof of it. Sources: “Global Private Equity and Venture Capital” 2016, Preqin; NVCA; EVCA; Northzone Ventures and IMF. United States Europe 20,2 19,7 77 20 United States EuropeSize of the Economy (GDP in $tr) VC Investments during 2017 (in $bn) Roomfor growth 2005-2010 2005-2010 2011-20152011-2015 Economy Size Vs. Amount of VC Investments Venture Fund Exit Value / Capital Commitments • The economies of the US and Europe are similar in size but VC investment differs greatly • There is significant room for growth in VC investment in Europe • From 2011 to 2015 Europe has been able to deliver more returns on capital commitments than the US
  21. 21. MADRID (HQ) Sagasta, 18 28004, Madrid Tel: +34 91 310 2894 BOGOTA Carrera 14 No. 93 – 40 Oficina 301- 304 Tel: +57 1 732 2122 MEXICO D.F. Torre Mayor, Paseo de la Reforma 505 Piso 41,Cuauhtémoc México D.F. CP 06500 Tel: +52 55 68438659 SEVILLE Fernández de Rivera, 32 41005, Seville Tel: +34 671548201 ISTANBUL Buyukdere Cad. No. 255. Nurol Plaza B.0434450 Maslak, Istanbul, Turkey Tel: +90 212 277 70 47 MIAMI 801 Brickell Avenue, 9th floor, 33131 Miami, Florida Tel: +1 786 600 1462 www.axonpartnersgroup.com

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