Tech eating tech, tech eating the world - and all investors want in on the game

Growth in European tech venture and investment is spreading: in a market which was only previously a game for specialist tech investors, everyone now wants to get in to being a technology investor. As of the end of February, two months into the year, figures are up by amount invested (+23%), and the number of transactions reported by the professional press is roaring ahead (nearly doubled). As far as larger transactions are concerned (≥€10 million) however, the market is simply stable.

In short, the upper part of market is line with last year, but the smaller end of the market is progressing tremendously (bearing in mind we exclude the seed end since we only monitor investments ≥€1 million). The way we interpret this forking of the market between larger transactions is that technology investment growth is spreading in every direction geographically, sector-wise and at every stage (See also, January 2017 Bulletin and commentary, ‘Welcome to Europe’s Silicon Valley).

As a result, investors are optimistic. In its latest annual survey for its LPs, Upfront Ventures shows this striking statistic: over 60% of VCs are now optimistic compared to less than 20% a year ago. Admittedly respondents are mostly US but the results would be similar for European VCs. As reported by the US National Venture Capital Association (NVCA) in its annual report, for the first time ever, five venture-backed companies have become some of the most valuable publicly-traded companies: Apple, Amazon, Facebook, Alphabet and Microsoft.

However, it is not just the usual VCs which are optimistic – what was a game played among geeks is now an investment theme which everyone wants exposure to. And rightly so:

• Technology is now everywhere – all sectors are now becoming technology-enabled. Just like mechanization has reduced agriculture to a few % points of GDP in developed countries, automation (robots guided by AI) will reduce manufacturing to a handful portion of our world economy. Even if manufacturing is still a key activity. Just like feeding people.
• We’ve seen nothing yet in terms of technology invading every part of our lives. Internet of Everything (to use a term coined by Cisco) is making access to computing power and data ubiquitous. What is changing the world is applying near limitless cheap computing resources to umpteen volumes of data, making AI practical.

These changes are bringing all investors into technology investing: not only traditional tech investors but also corporates and generalist financial investors of all kinds (family offices, private equity investors, hedge funds, sovereign wealth funds etc.). We find that every corporate is playing a game of survival trying to remain relevant: adapt or perish. Not only have all major corporates become active investors but they are becoming aggressive acquirers, one sometimes leading to the other. Recent examples include:

Investments:

• Rakuten participating in Simplesurance’s c.€20 million Series C round. Simplesurance provides software that lets online shops offer product insurance at the checkout.
• GV investing £20 million (€23 million) in Currency Cloud, a provider of F/X payments services on a B2B basis.

Acquisitions:

• Travelers buying Simply Business, a UK-based online insurer, for £400 million (€465 million).
• Intel acquiring Mobileye for $15 billion (€14 billion), a leader in car assisted driving solutions.

The key driver is that everybody now understands technology is eating the world (to paraphrase Marc Andreessen). And everyone, whether they are tech, generalist or corporate investors, wants to be part of the tech scene to stay relevant – and, as we have seen with Intel’s acquisition of Mobileye, sometimes at eye-watering premiums.

With Intel buying Mobileye we are really reaching a new height – tech eating tech:

• It is not only non-tech companies buying into tech companies, here we now have the example of a leading tech company aiming to re-invent itself. Intel doesn’t want to be a chip (= manufacturing) company, it wants to be a data company. “The way we look at the world is a bit different,” CEO Brian Krzanich said. “We are a data company.”
• As Intel tries to remain relevant, it is prepared to pay an eye-watering valuation: $15 billion, i.e. 30x P/R forward looking, 43x P/R on a historical basis. In fact, it is “only” a 34% premium over Mobileye’s closing price the day before, i.e. public markets had anticipated the company’s strategic value: large ($350m in revenues in 2016), fast-growing revenues (40% p.a.) and a dominant position (80%) in a hypergrowth market segment (assisted driving).

These tectonic changes are bringing all investors into technology investing: not only traditional tech investors but also corporates and generalist financial investors of all kinds (family offices, private equity investors, hedge funds, sovereign wealth funds etc.).

What is fascinating is that the way to engage with what is now a much wider range of investors hasn’t really changed: it is mostly about haphazard and time-consuming meetings, bouncing from one contact to another. This is where Go4Venture fits in by helping private tech companies publish equity research (rather than just data points) and using corporates and generalist investors’ reading habits to send them information on companies proactively raising funds.

To read the full February 2017 bulletin on Go4Venture, with company profiles and analysis, click here.