In 2013 at least one European next-generation technology company will achieve a USD1bn value through a sale, IPO or fundraising.
This prediction from Magister Advisors, global M&A advisers to the technology industry, reflects how quickly the next wave of European tech companies is maturing into high value businesses.
The momentum has been building for several years. VC-backed technology exits in Europe in 2009-10 reached a high water mark against the US, with European exits having a value of around USD15bn against USD30bn in the US. What is more striking is the differential in funding levels. In the US in 2009-10 USD25bn was invested in VC funds and in Europe USD6bn was invested. Europe, therefore, delivered half the results with one fifth of the resources – or a multiple of 2.5x that achieved by US VC funds.
Victor Basta, managing director of Magister Advisors, says: “European investors typically enter at roughly half the valuation that US VC funds do, and exit at similar valuations as in the US. The quality of startups in Europe has increased enormously. Part of the reason for that is that we are seeing a wave of repeat entrepreneurs. Back in the late nineties, fewer than one in ten European startups was led by a serial entrepreneur. That figure is now closer to four in 10.”
In Magister Advisors’ view, the most likely companies to achieve a USD1bn financial event in 2013 are:
• Wonga – the pioneer in small personal loans
• Klarna – revolutionising the payments industry
• MindCandy – developer of Moshi Monsters
• Shazam – the world-leading music search app
• Huddle – collaboration tools for companies
• Just-Eat – online platform for restaurant deliveries
• Rovio – entertainment media company, creator of the Angry Birds franchise
Basta says: “What is remarkable about these companies is just how fast they have grown in the face of a sustained worldwide economic slump, and how quickly their company values have grown in such a short time.”
Magister Advisors has identified several factors that have catalysed the creation and development of this next wave of companies in Europe:
• A focus on new business models based on ‘Big Data’ analysis.
• Business models that feed off high levels of social engagement and incentivise the use of mobile technology to the full, enabling many to grow much faster than in the last post-2000 wave.
• A sharp increase in growth capital available to the best European start-ups, much of this now coming directly from Silicon Valley investors, all of who are investing actively now in Europe.
• Affordable and more stable talent in Europe versus Silicon Valley, aided by the decline of other key knowledge industries in Europe, such as financial and professional services.
Basta says: “Europe always lagged the US when it comes to early achievement of stratospheric valuations. The playing field is now much more level, with European companies arguably better at exploiting particular aspects of the commercial potential of the internet. To build scale online requires an ability to trade across borders and cultures and Europe is a better breeding ground for web-based businesses in this regard.”
Magister Advisors contends that many of these next-generation companies will remain headquartered in Europe.
“There is no need to move to Silicon Valley any more. Berlin and London are actually seeing an inflow from California technology companies such as Google, reversing decades of outflow during which talent left Europe for California. Affordable talent, and ‘scale from anywhere’ capabilities are taking the shine off the idea of relocating to the Valley,” says Basta.
