The world of innovation financing is being redrawn, where does this leave the VCs?

In the April 2017 Bulletin, we see a total of 15 Large (≥€10m) HTI transactions, rather unspectacular compared to last month (26 transactions), or last year, when there were 23 (see April 2016 Bulletin).

Looking across all deals ≥€1m (see chart below) is no different — We are seeing the total deal value falling below last month and April 2016.

Despite this 2017 remains the best year so far! 24% ahead by transaction value and double the total number of deals.

And we already know that May will be all but ordinary. Not only are we expecting a final total number of large transactions double that of April, we know May 2017 will be the largest month ever recorded in our HTI for total value of transactions. Primarily led by one transaction, the €469m Series B funding round for UK-based Improbable, a company which has created a simulation engine to allow game developers to build huge, persistent online worlds.

According to our HTI data, this is the (joint) third largest investment ever in European technology, alongside Spotify who also raised a total of €469m two years ago in June 2015. There will be more on this next month.

Last month, in our March 2017 Bulletin, we highlighted how corporate and generalist investors are changing the nature of the game of innovation financing and April just saw further examples of the corporate trend.

Not only are all corporates getting into tech but the scale of the tech investment by corporates is staggering, we have:

  • Dell Technologies Capital coming out of stealth and Cisco announcing its fourth acquisition of the year, averaging 1/month
  • SoftBank raising a $100bn fund with minimum check size of $100m, which is the largest tech fund known to-date, as well as leading the $502 million Series B funding round for Improbable
  • Warren Buffett of Berkshire Hathaway admitting he had made a mistake not investing in Google and had underestimated Mr Bezos. “I was too dumb to realise what would happen… I did not think he could succeed on the scale that he has.” according to the Financial times.

As a result, VCs are reacting in a couple of ways, by:

  • Returning to fundamentals: back to good old SaaS companies, whose recurring revenues attract plenty of exit opportunities via trade sale (to PE-backed software companies) or IPO.
  • Focusing on deep technologies: investing in the infrastructure (sensors, communications, processing and storage) to cope with the big data generated by all sorts of sensors which multiply as the IoT unfolds.
  • Exploring new investment areas: healthtech of course, but also ag-tech and spacetech.
  • Extending geographic reach throughout Europe: realising that Europe is a good match for deep tech, and the Continent’s diversity creates vibrant innovation.

If we consider a VC world, which is more stingy with valuation versus a world irrigated by lax corporate money, it is clear to see that these two worlds of innovation financing won’t exist in parallel for very long; The two will converge.

It is with this convergence in mind that Go4Venture operates its syndication service for companies seeking to complement their round of financing with generalist investors once they have identified their lead tech investor. That model we believe will become increasingly prevalent because it mixes VC’s experience with more abundant (but also value enhancing) corporate and non-tech generalist investors.

For more information about the Go4Venture service, click here or email michael.galvin@go4venture.com.

See full April 2017 Bulletin — http://go4venture.com/bulletin/apr-2017