Earlier this month, Ross Ahlgren represented Kreos Capital at the 0100 Conference in Dublin dedicated to connecting UK, Irish, European and US, Growing Companies and Growth Capital and Private Equity investors.¬† Some of the panels that are worth highlighting included ‚ÄúCapitalizing in the golden age of private equity‚Äù and ‚ÄúInvesting in the Mid-Market‚Äù as¬†well as the panel that Ross moderated – ‚ÄúLate stage capital in Europe‚Äù with SVB, TCV, Insight, Medicxi and Frog Capital.¬† In addition to several specific sector discussions on Healthcare, FinTech, and Artificial Intelligence, all sectors Kreos is actively investing in and continually assessing, the overall tone of the conference was quite upbeat regarding Europe‚Äôs attractiveness to global investors, growth capital availability and exit prospects for European companies.
On Ross‚Äôs panel, Alex McCracken from SVB said
‚Äú2018 will be a great year.¬† We believe that we will see more mega rounds,¬†more syndicated loans to equity backed companies and competition from wide ranging corporates, sovereign wealth funds, mutual funds, hedge funds, etc‚Äù. Alex also added, ‚ÄúThere is a lot of momentum building in 2018 for very big, world class European companies like Klarna, Funding Circle, etc. to exit.¬† Several could be European IPOs, and this will be a turning point in the ecosystem going forward‚Äù.
Cian Cotter, Managing Director at Insight Venture Partners, was particularly excited about European prospects¬†in 2018 saying
‚Äúwe are more bullish on Europe than Silicon Valley.¬† We see more alignment with capital efficiency, timing of growth, timing of exits, etc. with the European GPs‚Äù.
John Doran, a General Partner at TCV¬†added that
‚ÄúWhile on an absolute basis, there are less opportunities in Europe than the US, however, the number of deals vs. the relatively lower amount of capital and firms chasing those deals makes¬†Europe more attractive now relative to the US.‚Äù
When discussing exit prospects for European growth companies,¬†one of the panellists indicated that,
‚ÄúWe definitely are seeing more competition for prospective M&A exits and strategic corporate investments.¬† Our different European exchanges continue to develop and deepen their bases and we are seeing more corporate buyers willing to pay higher prices for European portfolio companies.¬† That being said, corporate buyers and strategic investors are very sophisticated,¬†and at the end of the day, companies are bought, not sold.¬† So, we need to build real market leaders with strategic importance‚Äù.
On the topic of corporate investors, Kevin Johnson, General Partner at Medicxi Capital said that
‚ÄúIn Healthcare, corporate investors are a very good thing.¬† The science is really the known and relatively easy part.¬† The hard part is to know if the end product will be commercially viable.¬† Corporate investors on the¬†boards and within our companies are surrogates for the market place at large and help focus the boards and teams‚Äù.
Looking beyond healthcare, on the Artificial Intelligence and Machine Learning panel, the prevailing consensus was summed up well,
‚ÄúThese technologies are now so pervasive across all sectors that they are becoming embedded into all business models, not just autonomous driving applications, automation & IOT‚Äù. Addressing one of the main concerns about AI, he noted that ‚ÄúAI is not about loss of jobs.¬† The current supply of software engineers can‚Äôt keep up with cyber security threats alone, much less the mountains of data that we are creating from the rapid proliferation of connected devices.¬† It is simply beyond human capacity to manage or mine all of the data, so AI and Machine Learning are the best solutions‚Äù.
As noted above, while the general consensus was rightfully quite positive about the outlook, there were several notes of caution added, John of TCV also added, that
‚ÄúSoftbank and others are distorting the very late stage market a bit.¬† But in the mid-market, we are paying slightly higher multiples than the B2B valuations on NASDAQ which are now¬†~ 5.5x which, while not¬†cheap, are rational and not overpriced.‚Äù
Additionally, as expected, a topic on everyone‚Äôs mind going forward was Brexit and how it might affect different sectors.¬† Quotes from the panels included –
‚ÄúAs we have already seen, Brexit will affect the Goliaths of industry that we are trying to disrupt, more than our agile, innovative and disruptive companies, so we are diligent but not overly-worried about it.‚Äù ¬†And furthermore, it was said that ‚ÄúTeams and business models that are focused solely on the UK may have issues, but not the vast majority of the companies we see.¬† Most of these companies are global by default and leaders in their sectors‚Äù.
While these observations are a just a sampling of what we heard at the conference, they seemed to capture the current sentiment that we are also seeing as we actively invest in the current European growth capital market.