After an explosion in internet-related investment activity in Europe in 2012, activity in the first half of 2013 fell temporarily by one third versus the same period last year as investors temporarily paused for breath, according to analysis by Magister Advisors, an M&A advisory firm to the technology industry.
The analysis is confined to investments with a meaningful value of USD10m or more. During the entire period however, the average investment value held firm at USD29m. All signs point to a resumption of significant internet activity later in 2013, as VCs position themselves to invest actively again in the sector.
The total value of meaningful investments in technology businesses in Europe since the beginning of 2007 now amounts to USD13.5bn.
Internet-related investment activity since 2007 accounts for USD4.9bn, or more than a third of the total, reflecting the fundamental importance of web-based business models and a surge in the creation of “frictionless businesses” unhampered by non-core functions.
Internet investments are defining the European technology landscape and redefining commerce more than a decade after the Internet “tech bubble” burst.
The stand out sector for investment was Internet-related businesses. More than 30 per cent of investment activity in Internet businesses since January 2007 has taken place in the last 18 months, reflecting a surge of interest in business models that are rewriting the rule book in a diverse range of markets including food, retail services, deliveries, real estate, music, consumer finance, gaming and automotive.
Victor Basta, managing director of Magister Advisors, says: “Since the beginning of 2007, a remarkable USD5 billion has been invested in European Internet companies, almost equivalent to total investment in European hardware and software combined. What we are seeing is effectively a wholesale reshaping of European retail towards e-commerce. This is a transitional development.”
On a shorter time horizon, in the last two years, 31 percent more has been invested in Internet companies than in hardware and software companies combined.
Discussions about the future of the High Street are completely pointless unless there is consensus that vendors must be multichannel, Magister Advisors contends.
Basta says: “For more than a decade retailers have been pointing to incremental percentage increases in the value of ecommerce transactions, complacently predicting a gradual and unthreatening shift. In 2013 we see the emergence of a category of companies that are providing consumers with an unprecedented opportunity to redefine their shopping behaviour. Regular commerce will not exist in five years’ time. Virtually everything will be multi-channel – and choice will be completely in the hands of the shopper.”
Key Internet segments that saw the largest number of investments last year were the consumer web (24 investments), ecommerce (14 investments) and Ad-Tech (seven investments).
Consumer web investments included investments in a range of online utilities – from food delivery to travel booking.
Only two USD10m+ investments in Europe last year were connected with social networking and only two were in gaming.
“The social land grab is effectively over,” says Basta. “The leaders will be acquirers of new functionality, but we do not foresee the emergence of any new significant social platforms. Gaming is less predictable. It is a hits business. It is probable that new hits will emerge. The essential point for games businesses is that success is not an easily repeatable phenomenon. The task for games entrepreneurs is to understand when they are on the ascendant and sell equity at that point. Being big is not being better.”
