Sunday 22 January 2017

Europe lagging behind US and Asia in unicorn funding

Eric Auchard

Published 23/09/2016 | 02:30

A handful of European tech firms are testing the appetite for initial public offerings (IPOs), taking their lead from a modest rebound in listings in the US after a two-year slump.

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Danish credit card payments processor Nets and Dutch online food ordering firm Takeaway.com plan to list on their home markets this month while Spanish mobile phone tower business Telxius and German online pharmacy Shop Apotheke Europe are eyeing IPOs in October.

According to data from venture market research firm CB Insights, European tech IPOs have been thin on the ground in recent months while venture capital has also crumbled.

The rush last year to mint "unicorns" - firms valued at over $1bn - led to a worldwide crash in venture capital funding that is continuing to drag on the creation of new startups, especially in Europe, while weighing on stock markets.

The market for new tech listings in Europe retreated from five IPOs in the second quarter of 2015 to just one a quarter later and it has attracted only modest interest since then, with many planned listings being cancelled.

While not yet a flood of household names, larger tech firms in Europe are watching the upcoming listings to see if prices hold up enough to justify their own IPOs, rather than letting investors cash out through a merger with a bigger company.

"The market is in a place where quite a few European companies can see IPOs happening at a premium compared to their last investment rounds," said venture investor Alexander Frolov at Target Global.

Europe remains a hot-bed of very early stage "seed" investments, typically under €1m, which account for 49pc of all funding rounds in Europe, far more than in other regions.

But the region lags well behind the United States and Asia in terms of larger investments for companies looking to expand.

This is partly due to far lower levels of investment in the region compared to Silicon Valley or keen Asian tech markets.

A run of successful European tech IPOs means venture capitalists could be back with bigger investments in the next generation of bright ideas. That's not happening yet.

Instead, venture funding in Europe fell to $2.8bn in the second quarter, down 20pc from the first quarter of the year, according to an analysis of funding trends by KPMG International and CB Insights.

That's just a tenth of the $27.4bn in global venture capital funding last quarter.

North America boasted six times more funding and Asia three times as much as Europe.

The availability of capital translates into the size of new tech players emerging in each region. Industry insiders and academic experts say the biggest issue for Europe is the funding gap that exists between firms achieving early success and proven winners with track records and sustained growth prospects that can become global players.

A major hurdle keeping European firms from becoming the world's next Facebook or Alibaba is the far more risk adverse nature of public investors, and a tradition of private market investors selling companies early through merger deals. (Reuters)

Irish Independent

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