EUVC Newsletter 10.03.24 | Oranges supreme, SaaS in focus and old wine in new bottles
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Highlights
🌍 Global Market Dynamics: Despite global tensions and economic shifts, stock markets rally, with significant growth in American and European equities.
🔍 Passive Investing Perils?: As passive investments surge, concerns rise about their potential to inflate stock values beyond economic fundamentals.
📉 Climate Tech Conundrum: While VC investment in climate tech dipped by 14.5% to $41.1 billion in 2023, sectors like low-carbon mobility and renewable energy sources continue to attract attention.
🏦 Banking Blues: UBS CEO lambasts European regulators for stifling growth, suggesting a preference for "national champions" over competitive global players. He spotlights the UBS-Credit Suisse merger as a strategic but crisis-driven move.
🛡️ Defense Tech's Dawn: Europe's defense tech sector gears up for a revolution, with the EU pushing for 40% joint procurement by 2030. However, VC hesitancy lingers over ethical concerns.
🏗️ EIB's Bold Bet: The European Investment Bank lays out a grand plan to lead in green and digital transitions, leveraging its €550 billion balance sheet.
🔎 European Diversity Dilemma: In a challenging VC landscape, female founders in the US carve out a record share of VC dollars (27.8% of deal value in 2023), setting a new precedent. Europe, it's your move.
💼 Euro ETFs Emerge: The surge of ETFs in Europe forces mutual fund managers to rethink, with 92% considering launching their own ETFs within two years.
🚀 SaaS Stays Supreme: Enterprise SaaS continues its reign in VC returns. PitchBook data reveals that early-stage SaaS companies boast expected annual returns 5.5% higher than other tech verticals.
🤖 AI's Infrastructure Influence: With AI's continuing allure, infrastructure SaaS startups are set to benefit significantly. VC funding in the sector rose to $2.2 billion in Q4 2023.
🌱 Agtech's Mixed Bag: Despite an overall decline, precision Agtech shines with $687.7 million invested in Q4 2023. Robotics and drone startups like Carbon Robotics and Quantum Systems lead the way.
🕹️ Govtech Gains Ground: With global spending expected to top $17.5 billion, govtech startups like PermitFlow and Second Front Systems secure substantial investments.
🏆 Mews' Unicorn Leap: Amsterdam's Mews turns unicorn with a $110M raise, aiming for global hospitality tech domination.
🔎 Private IPOs Pique Interest: The concept of "Private IPOs" gains traction as an alternative to traditional IPOs, allowing early backers to sell privately and bypass public market volatility.
Read the deep dive below.
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Another European (Dutch) Unicorn: Enter Mews
Mews, an Amsterdam-based cloud property management system provider, recently achieved a significant financial milestone by raising $110M in a funding round led by Kinnevik. This funding round not only marks a significant cash infusion but also catapults Mews into the coveted 'unicorn' status with an approximate valuation of $1.2B. The funding round saw participation from notable investors including Revaia, Goldman Sachs Asset Management, Notion Capital, and LGVP, underscoring the broad investor confidence in Mews' business model and growth trajectory.
The capital raised is earmarked for several strategic initiatives aimed at bolstering Mews' market position and fostering innovation within the hospitality industry. A significant portion of the funds will be allocated towards global expansion efforts, enabling Mews to penetrate new markets and strengthen its presence in existing ones. Additionally, a focus on research and development is evident, with plans to innovate further in the digital transformation space for hospitality organizations. This includes enhancing the existing platform and possibly introducing new features that align with the evolving needs of the hospitality industry.
The company's impressive growth metrics, including a 60% year-on-year revenue increase and processing over $8B in Gross Payment Volume, are indicative of its strong market position and operational efficiency.
Mews has a clear strategy for growth that includes strategic acquisitions. The company has already completed three acquisitions—Frontdesk Anywhere, Hotello, and Nomi—bringing its total number of acquisitions to eight. These acquisitions are not just for expanding the client base but also for integrating complementary technologies and expertise into Mews' offerings. This approach not only enhances the value proposition for existing and potential clients but also solidifies Mews' position as a leader in the hospitality technology sector.
With more than 5,000 global clients and management of over 350,000 hospitality spaces, Mews is significantly impacting how hospitality businesses approach their operations and guest experiences. The integration with over 1,000 leading hospitality technologies further demonstrates the platform's versatility and the company's commitment to providing comprehensive solutions to its clients.
Next-Gen Tech & Market Dynamics
From the bustling moving pavements of Agtech to the palatial boulevards of Defence Tech, from the greens of Climate Tech to the control and make-up of the Govtech grid, each has a unique narrative.
Navigating the Green Maze
Climate Tech emerges as an arena for cross-functional innovation, driven by the urgent call to address our rapidly deteriorating environment. The sector is buoyed with an inflow of venture capital as the consensus of sustainable practice increases. It sees the rise of cutting-edge startups that span carbon capture, renewable energy, and emissions tracking. But the path is not easy, and there are a number of potential challenges: market volatility, regulatory challenges, and inherent scaling difficulties of a cutting-edge technology.
Therefore, general sector resilience, continued strong investment even among wider economic downturns, is important to make Climate Tech an indispensable part of the world transitioning towards sustainability.
Just as we see fluctuations in stalwarts such as the S&P 500 or Berkshire Hathaway, Climate Tech investments are expected to ride out their own. It broadly shows that long-term optimism exists, above and beyond any transient troughs or peaks. This optimism is buoyed by a discernible shift in the proportional allocation of VC funding towards Climate Tech.
Only a few years ago, the share of venture capital money for the sector was just 5% of the overall investment - something that has now impressively ballooned to the realms of 20-25%.
In such pioneering countries as Sweden, this ratio magnifies up to an amazing 75%: in the country, pronounced commitment to the promotion of sustainable innovation is really emblematic.
Sowing Seeds of Innovation Amidst Uncertainty
The agricultural technology sector is brimming with creativity, fueled by the necessity to enhance food security, streamline farming practices, and diminish ecological footprints. Precision farming and IoT devices to advanced analytics and biotech solutions are some of the new technologies that have found their way into the sector.
There are still some stumbling blocks in the way: saturation of the markets, uneven rates of adoption, and complexity related to integrating high-end technologies into conventional farming. In spite of these hurdles, agricultural technology continues to shine as a promising path toward a future of more sustainable and effective farming.
Startups in this space are not just redefining the way farming was done but are taking big strides towards solving critical questions like water usage, soil health, and optimization of crop yield.
Fortifying the Future with Innovative Arsenal
We’re witnessing the dawn of a new day at Defense Tech. From European powers, the emphasis is put on the increase in defense capabilities through innovation, with substantial investment going to startups specializing in dual-use technologies, cybersecurity, and unmanned systems. This commands special attention to Defense Tech as a cornerstone of both national security and sovereignty.
However, the ascent of Defense Tech has not been without challenges. There is serious consideration to find out what are ethics and have a very sensitive balance with regulatory scrutiny and military and commercial application. Over time, the increasing reliance on government contracts combined with the cyclicality of defense spending to require a strategic approach to funding, product development, and market penetration for the sector.
Digitizing Governance for Efficiency and Accessibility
Govtech is an ascending force of change in what it takes to redefine the very interface between governments and their citizens through digital solutions. The sector rises in innovation to make governance efficient, transparent, and accessible, ranging from streamlining administration to great investment and collective drive. These can range from permit management, water management, and secure software development, to thousands of other startups that now fill the field—all indications of its vigor and potential for impact.
However, there is the stumbling block of bureaucratic inertia and privacy among many others, and how it is very difficult for these countries to integrate new technologies into existing infrastructures.
In Focus: SaaS Stays Supreme
The enduring supremacy of Enterprise SaaS in generating VC returns remains unchallenged, further solidified by recent PitchBook research. SaaS models continue to offer an attractive investment avenue, mainly due to their lower capital requirements and higher profit margins compared to other sectors. This enduring appeal is underscored by the projection that early-stage SaaS companies are expected to outperform ten other technology verticals by an approximate annual return rate of 5.5%.
As AI continues to gain traction among investors, its intersection with SaaS, particularly in infrastructure, is poised for significant growth. The infusion of AI into SaaS infrastructure is not merely an incremental improvement but a transformative shift that can redefine operational efficiencies, customer experiences, and product innovation within SaaS offerings. With VC funding for infrastructure SaaS witnessing a notable uptick, reaching $2.2 billion in Q4 2023, the focus is increasingly shifting towards startups that are adept at leveraging AI to enhance data software and systems.
As SaaS companies incorporate AI to improve their offerings, they not only enhance their competitive edge but also redefine market standards and expectations. This evolution is likely to spur further investment and innovation, attracting a new breed of startups that are native to AI and infrastructure SaaS. Consequently, the landscape is set for a surge in disruptive technologies that can offer unprecedented efficiencies, analytics, and automation capabilities. Investors and market participants are closely monitoring this space, recognizing the potential for significant returns and market transformation.
Passive Investing & Euro ETFs
The rise of passive investing and the European ETF landscape each represent one of two highly pivotal trends that, though independent at first blush, are intrinsically interconnected.
This is a basic realc in which the appeal of wide market exposure at low cost has captivated the investor psyche. The difference is that this gravity force towards passive constructs, democratizing investment holds potential dangers that can distort the potential market's efficiencies and focus wealth within a small group of index constituents.
It is within this complex milieu that Euro ETFs emerge. The double-edged sword, on which European investors grapple, is that this nuanced and diversified nature of the European market is fertile ground for ETFs. Such vehicles, intrinsically passive and infinitely adaptable, provide a conduit for the mitigation of the systemic risks associated with passive investing, affording a buffer through both diversification and targeted investment strategies.
Private IPOs: Innovation or Old Wine in New Bottles?
Private IPOs represent a novel approach to capital raising, where early backers of a company sell their stakes to long-term investors such as mutual funds or sovereign wealth funds in a private setting. This mechanism sidesteps the traditional IPO process and its associated market volatility. While Stripe's $6.5 billion stock sale, valuing the company at around $50 billion, is often cited as a successful instance of a private IPO, this approach raises several critical questions about market dynamics, valuation transparency, and liquidity.
One of the primary criticisms of private IPOs revolves around liquidity and market transparency. Traditional IPOs, despite their complexities, offer a certain level of transparency and liquidity that private IPOs may lack. By circumventing the public markets, private IPOs restrict broader investor participation and potentially obscure true market valuations. The limited liquidity, primarily due to a smaller pool of potential buyers in private transactions, can lead to valuation discrepancies and challenge the price discovery mechanisms inherent in public market transactions.
Critics argue that private IPOs are merely a rebranding of private placements, a long-standing mechanism for raising capital without resorting to public markets. The skepticism arises from the notion that calling a process a "private IPO" does not inherently change the underlying dynamics of private capital raising, nor does it address the concerns associated with private placements, such as reduced regulatory scrutiny and investor protections.
This skepticism is further amplified by the perception that private IPOs may be employed as a strategic narrative to create an illusion of innovation within traditional private equity transactions.
The emergence of private IPOs prompts a reevaluation of the traditional IPO process and its role in the broader financial ecosystem. While private IPOs offer an alternative route to capital for companies and early investors, they also reflect and possibly exacerbate existing challenges in the IPO landscape, such as high fees, regulatory burdens, and market volatility. However, the long-term implications of this trend on the traditional IPO market, emerging companies, and the broader investor community remain uncertain.
In other news
The report offers a detailed exploration of the challenges concerning cross-border investing and scaling in emerging ecosystems in Europe. Read the newsletter covering it here.
🗓️ The VC Conferences You Can’t Miss
There are some events that just have to be on the calendar. Here’s our list, hit us up if you’re going, we’d love to meet!
Odense Investor Summit | 📆 13 - 15 March | 🌍 Odense, Denmark
0100 Conference Europe | 📆 16 - 18 April | 🌍 Amsterdam, Netherlands
TechChill Riga 2024 | 📆 17 - 19 April | Riga, Latvia
SuperVenture | 📆 4 - 6 June | 🌍 Berlin, Germany
Nordic LP Forum & TechBBQ | 📆 September | 🌍 Copenhagen, Denmark
North Star & GITEX Global | 📆 14 - 18 Oct | 🌍 Dubai, UAE
GITEX Europe 2025 | 📆 23 - 25 May 2025 | 🌍 Berlin, Germany
Anything else you’d like me to cover on the newsletter? 👇