Spacs chase start-ups: "The only thing left for the big guys is going public"

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Trade Republic:

The German online broker is one of the most valuable fintechs in Europe

Photo: Thomas Trutschel / imago images / photothek

manager magazin: Mr. Kalantary,

almost every week a start-up reports

that it has cracked the billion mark in its valuation.

According to the

latest study

from your company, venture capitalists invested around $ 127 billion worldwide by the end of March, more than ever before in a quarter.

Are there any estimates for the second quarter?

Ashkan Kalantary

: I think we can expect stable venture capital investments around the world in the second quarter as well.

Our next Venture Pulse Report will appear at the end of July 2021, then we will know more precisely.

Which industries are currently favored by investors?

What we hear is that artificial intelligence, robotics and solutions related to the blockchain are once again the focus of venture capital investors.

I am particularly excited to see when the travel start-ups will rebound.

With 40 percent of the VC volume, "unicorns" were the big winners in the first quarter.

Can this trend continue?

Yes, it is becoming apparent. In the last few weeks we could see that new unicorns from Germany are also joining us. In particular, companies from the software and fintech sectors are booming, reflecting the Europe-wide tendency for the rise of financial services in particular. In addition to the usual B2C companies such as Scalable Capital, more and more B2B companies are joining the circle of unicorns: Celonis, for example, which offers business software, even rose to Decacorn with the last financing round of one billion US dollars. And the Swedish payment service Klarna, in turn, catapulted its company value to around 46 billion dollars.

This is reminiscent of the proverbial devil who is always looking for the biggest pile. But why is that so, why do larger start-ups, which are already well financed, bring in proportionately more money?

Early phases are simply more risky because the business model has not yet been tested, the product-market fit is uncertain - i.e. whether the product or service selected for a particular market can also be easily and permanently sold. German and European investors continue to be more risk averse than their American counterparts. They prefer to invest in 'safer' companies and less in risky phases. This is also shown by our figures: In the first quarter of 2021, a total of around 7.19 billion US dollars was invested in the late and final phases of start-ups in Europe, while almost 5.3 billion US dollars flowed into the early phase.

Big is not always beautiful, as the sad story of Wework and Uber shows.

Sure, they're not purely fintechs that are currently heavily invested in, but they too were once hyped start-ups.

The growth of Wework depends on the scale in the real estate market and the expansion of Uber on the drivers and regulation.

Software scales faster and easier, as we can see from the example of Celonis.

Still, investors have become more cautious.

Quite a few billion dollar unicorns like the German online broker

Trade Republic

, the smaller competitor

Scalable

or the French

crypto start-up Ledger

benefit above all from the hype on the stock exchange. It is - regardless of low interest rates - not a one-way street. Fintech investors riding the wave here, are they daring too much?

I do not think so. The fintech industry has developed into one of the most attractive start-up industries in recent years, not just in Europe, but worldwide. Fintechs are no longer niche companies and are very attractive for investors. We see that in large financing rounds such as Klarna with 640 million US dollars, Lendinvest with around 682 million dollars or Mambu with around 135 million US dollars. Above all, however, the market is now more broadly positioned: While we initially saw N26 and Co. as providers of banking solutions, today we are dealing with B2C trading platforms or B2B solutions. I still see great potential in the B2B area in particular.

GP Bullhound

did the

math

: Tech start-ups in Europe are currently worth 801 billion dollars.

52 unicorns with a total valuation of $ 95 billion were added by mid-May this year alone.

18 start-ups are already Decacorn, Klarna brings it to 46 billion dollars, as I said.

With such high valuations, is there only an IPO as an exit?

Sure, we always see the IPOs as these are public knowledge.

There were 34 such IPOs in Europe in the first quarter of 2021.

Indeed, the only remaining option for the big players is going public.

However, our figures show that exits are predominantly about trade sales - i.e. sales or partial sales to other companies - of which there were almost 50 in Europe in the first quarter of 2021.

Here there are also downrounds ...

... so to follow-up financing with a lower rating than in the previous financing round ...

... yes, that can happen.

We saw around 15 such funding rounds in the first quarter of this year.

What role will Spacs play in the future as a potential buyer of start-ups in Europe and Germany?

Photo: imago stock / imago images / argum

Photo gallery

The biggest start-up cash injections of the year in Germany

Start-ups need capital in order to be able to grow steadily.

In addition to the capital, many companies often lack the expertise and the strength to go public.

In some business models, the choice of international venture capitalists is also limited.

Spacs IPOs could fill this gap.

Especially from the USA we have some heavily filled Spacs that have to place their capital, otherwise the sponsors will be left at their expense.

We expect brisk investments here.

So will we see more Anglo-Saxon investors in the future reaching for start-ups in Europe and maybe also in Germany?

Kalantary

: I think so.

Because start-ups from Europe currently bring investors higher returns per invested euro compared to the USA and China.

And as I said: Bulging spacers from the USA are looking for good takeover targets.

In the first six months, German companies raised more money than ever before in the first half of the year - quite a few of them start-ups.

Where do you think we will be at the end of the year in terms of volume and number of IPOs?

Kalantary:

In fact, we have seen more than 100 IPOs in the Europe, Middle East and Africa economic region since the beginning of the year, more than we have seen since the beginning of the millennium.

Investor demand is high and there is a lot of liquidity in the market.

Some well-known German start-ups benefited from this, most recently Bike24, About You, and Mr. Spex has just launched.

And the pipeline for the second half of the year is still well filled.

Tell us more ...

Many of the IPOs that are expected are not yet public, but there are individual hints and signs, including Parship Meet, Utimaco, Mymuesli. The exact number is difficult to predict because the decisive factor is how the market environment will develop. We are currently seeing that the market environment for IPOs is tending to become more difficult, also because many of the companies that have recently gone public have shown a mixed performance since their initial listing. I think investors have become more picky now. But good assets will certainly find their way onto the stock market anyway.

With the hype about unicorns, one quickly loses sight of the fact that very young start-ups have a harder time making money.

Are they falling through the cracks with VC investors in this country?

How much do they ask for venture capital at all?

As I said, investments in very young companies are considered riskier because their business model has not yet been tried and tested.

Especially during the pandemic, the already established companies with a high rating appeared more exciting, as they usually stand for more investment security.

Smaller start-ups have had and are having a harder time, but can benefit from alternative financing options that are or have already started this year.

You are referring to the "future fund of the federal government. Occasionally regionally oriented funds want to support young companies in the start-up phase. Is that enough to get more promising start-ups off the ground in this country?"

Time will tell.

In any case, the future fund is a step in the right direction to promote and develop start-ups in Germany.

Some of the grants are aimed at a specific type of start-up.

For example, the Deeptech Future Fund, with which innovative technologies from the areas of artificial intelligence and biotech are to be promoted.

In this way, ideas can already be supported that normally take a long time to become profitable.

In this respect, the fund is a sensible institution, especially since we have seen that investments in the early stages of start-ups were scarce in the first quarter of 2021.

The interview was conducted by manager magazin editor Lutz Reiche

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