monthly european technology venture capital bulletin...
TRANSCRIPT
February 2011
Monthly European Technology Venture Capital Bulletin February 2011
The Go4Venture Monthly Venture Capital Bulletin is a publication
commenting on the latest results from our European Technology
VC Headline Transactions Index®.
Go4Venture’s European Tech VC Headline Transactions Index is
based on the number and value of transactions reported in
professional publications. The Index is compiled on a monthly basis
as an early indicator of the evolution of the market for venture
capital funding for European technology companies.
For more details please refer to the Methodology Note available at www.go4venture.com/research/hti.htm.
About Go4Venture
Go4Venture Advisers LLP is a London-based corporate finance advisory firm focused on providing European technology entrepreneurs and their investors with impartial advice to help them develop and execute growth strategies. Our services encompass: • Financing strategies • Buy and build strategies • Exit strategies (trade sale and IPO advisory) • Strategic advisory and valuation
We are particularly well-known for our international equity private placement services, where we have developed a reputation second to none in Europe among international VCs.
Further information is available at www.go4venture.com.
Go4Venture Advisers LLP is authorised and regulated by the Financial Services Authority (FSA).
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February 2011
Dear Clients and Friends,
Please find attached the February 2011 edition of Go4Venture’s Monthly European Technology VC Bulletin,
including the latest results from our proprietary Headline Transaction Index (HTI) which tracks technology
private financing deals as reported in the press.
February continued the positive trend that we have been reporting for some months with year-to-date
figures of EUR 374mn, well ahead of 2010 by value (+38%) and just a bit off early 2008 (when the market
was roaring ahead).
What is really striking though is that the number of deals reported has virtually halved, resulting in an
average transaction value which has trebled compared to year-to-date last year, from EUR 2.1mn to
EUR 6.2mn. This move is partially led by a return to what we refer to as “Landmark deals” (more than EUR
20mn), two of which occurred in February alone: Wonga (EUR 86mn) and Appsense (EUR 51mn). Both are
of such size that they are in the Top 3 and Top 15 respectively in the history of Landmark deals since
counting started in 2002.
Our interpretation of this change is further evidence of the cycle slowly picking up. Let’s now wait for the
seminal Facebook/Groupon/LinkedIn IPO which will create another Netscape moment!
But we read more than that. In our view, investors have come to realise that tech is only worth doing if
it is done on a big scale, playing the high risk/high reward theme to its full logic. This trend is spurred by a
couple of factors:
• Compared to the late 1990s, in this cycle the scalability of internet plays has delivered
businesses of unprecedented size at an unprecedented speed – and with profitability to boot.
So it may be unclear whether Facebook is worth $50 or $100bn, but it is worth something, and rather
a lot, unlike the Webvan or Pet.com from the internet bubble burst era.
• Investors from outside the venture world have shaken the complacency and sudden lack of
confidence in the VC world. Investors like DST have realised that with relatively little money and by
playing outside the established rules which nobody questions any more (e.g. common vs. preferred
shares), it is possible for one investor to move the valuation of these VC-backed companies. In
short, this brings the high stake market making hedge fund approach to the VC world: instead of
pressuring the entrepreneur, let’s play other investors. However, this may encourage a game of last
man standing – as shares pass from hand to hand – which of course may potentially be the downfall
of this cycle’s recovery.
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February 2011
February had a couple of these outsider investors at play:
• Wellcome Trust made two bold plays, one in Europe with Wonga, a high profile online retail lender;
and one in the US with Oblivion, an ambitious online music play which aims to charge everyone a
little (via ISPs and device makers) so that we can all enjoy unlimited music (by contrast with the
premium model followed by all other music services). What is remarkable is that Wellcome, a large
trust with an investment team experienced across all asset classes, has decided that venture is now
offering high return opportunities (but as a direct investor rather than a LP).
• Atomico has a more typical VC structure but given its pedigree (started and largely funded by the
Skype founders) can hardly be described as a traditional VC. This month, Atomico also made two
bold plays, one in Europe, Fon (the DSL renegade which allows users to access each other’s home
internet connections as they roam); and in the US, Rdio (an all you can eat music service with a
sleek mobile user interface).
One cannot underestimate the importance of these battles for the venture capital industry. At stake is the
validity of the VC asset class, which has delivered poor returns to investors over the last 10 years, both in
the US and in Europe. Will these bets pay off? Is the model limited to internet plays or is it applicable to other
sectors as well? And more fundamentally, will these examples be an inspiration to all VCs to be more
ambitious or more cautious rather than following the herd like it happened in the late 1990s.
Enjoy the reading. Please direct any questions or comments to [email protected]. If you do not
wish to receive future HTI updates from us, please send an email with the title “unsubscribe” to
The Go4Venture Team
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February 2011
Investment Summary
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Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
Valu
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Go4Venture HTI Index by Deal Value
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Go4Venture HTI Index by Cumulative Deal Value
2008 2009
2010 2011
February 2010 2011 Year-to-Date 2010 2011
Landmark Deals # - 2 Landmark Deals # 1 2 €m - 137.6 €m 26.6 137.6
Headline Deals # 5 2 Headline Deals # 11 7 €m 55.7 26.5 €m 129.9 92.0
Small Deals # 55 23 Small Deals # 113 51 €m 55.0 58.7 €m 112.8 144.4
All Deals # 60 27 All Deals # 125 60 €m 110.7 222.8 €m 269.4 374.0
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February 2011
Large Headline Transactions Summary
(> £5mn / €7.5mn / $10mn)
Company Sector Round €mn Description Investors Wonga (UK) www.wonga.com
Internet Services
C 86.3 Provider of same-day high interest loans.
Accel, Balderton Capital, Dawn Capital, Greylock, Meritech Capital, Oak Investment Partners, Accelerator Group, Wellcome Trust
Appsense (United Kingdom) www.appsense.com
Software Late Stage
51.3 Provider of user virtualisation solutions for mobile working. AppSense's product decouples user-specific information from individual devices and deploys it across a range of devices (desktops, laptops, phones etc.) on demand.
Goldman Sachs
hurleypalmerflatt (UK) www.hurleypalmerflatt.com
Cleantech Late Stage
16.5 Technology consultants with a particular focus on sustainability.
ISIS Equity Partners
FON (Spain) corp.fon.com
Telecom Services
D 10.0 Provider of hardware and software allowing customers to connect to Wi-Fi hotspots anywhere in the world in exchange for sharing Fon Wi-Fi at home.
Atomico Investments, Coral Group, Unknown Investors
VOSS (UK) www.voss-solutions.com
Software C 7.3 Provider of B2B Unified Communications (UC) solutions encompassing conferencing, collaboration tools and unified messaging as well as traditional telecoms solutions.
Eden Ventures, Intel Capital, XAnge Capital
Source: Go4Venture
Key Bold indicates lead investor(s) * Internal round ** Led by existing investors
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February 2011
Company Sector Round €mn Description Investors Wonga (United Kingdom) www.wonga.com
Internet Services
C 86.3 Provider of same-day high interest loans.
Accel, Balderton Capital, Dawn Capital, Greylock, Meritech Capital, Oak Investment Partners, Accelerator Group, Wellcome Trust
Wonga.com (UK), a provider of same day short-term loans though it online platform
and a smartphone app with a near real-time automated credit checking algorithm,
raised €86.3mn in a Series C round led by Meritech Capital, Oak Investment
Partners and the Wellcome Trust with participation from Accel, Balderton Capital, Dawn Capital,
Greylock and TAG. The money will be used to strengthen Wonga’s balance sheet to allow it to raise
additional debt in support of its lending activities
Launched in 2007, just before the credit crisis, with APRs in excess of 4000% and obvious questions about
the wisdom of encouraging such borrowing, this business attracts criticism and controversy. In its defence,
Wonga claims to be passionate about responsible lending, that it rejects 2/3s of applicants and that its typical
customers are young professionals earning more than the national average wage and borrowing only small
amounts and therefore in no way sub-prime. In fact, under certain circumstances, a Wonga loan can be
cheaper than an unapproved Bank overdraft so Wonga may well be extremely disruptive in this market.
In slicing up a piece of the retail financial services market and dealing directly with consumers without the
expense of a branch network Wonga is building a disruptive business model with all the scalability of a
consumer-centric business. In addition, using modern data mining techniques, it is able to offer near instant
lending decisions resulting in superior customer service (speed, convenience and transparency).
Lead investor Oak (€1.8bn (2006); AUM: €7bn) is a stage-agnostic technology specialist based in the US. It
has made almost 500 investments over its 33-year history with very impressive results. Well known
American investor Meritech Capital Partners (€282mn (2005); AUM: €1.8bn) specialises in information and
medical technology companies. It seeks to lead follow-on investments in the portfolio companies of early
stage VCs.
The Wellcome Trust has a £14bn investment portfolio, just over £2bn of which is in growth and venture
investments. £1bn of this is in VCTs and the rest in a mixture of funds and direct investments in healthcare,
knowledge companies and financials. Wellcome has recently completed a $77mn investment in new digital
music marketplace beyondoblivion in the US in conjunction with NewsCorp. Smart investors like the
Wellcome Trust are coming back to the market but if they are going to make bets, they’re going to be big.
Major European VC Balderton Capital (€404mn (2009); €1.6bn), which provided the first round of €5mn in
June 2007, will be well known to our readers. Returning investors who initially supported the €18.5mn
second round in June 2009 were Accel Partners (€370mn (2008); AUM: €5bn), Dawn Capital (AUM €50mn),
Greylock (€478mn (2009); AUM: €2.3bn) and The Accelerator Group (TAG), the personal vehicle of
influential father and son investment team Robin and Saul Klein (a partner with Index Ventures).
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February 2011
Company Sector Round €mn Description Investors Appsense (UK) www.appsense.com
Software Late Stage
51.3 Provider of user virtualisation solutions for mobile working. AppSense's product decouples user-specific information from individual devices and deploys it across a range of devices (desktops, laptops, phones etc.) on demand.
Goldman Sachs
AppSense (UK), a provider of virtualisation solutions for remote workers, raised €51.3mn
in Late Stage funding from Goldman Sachs. The funding will be used to accelerate
expansion in the US where revenues have been growing at 150% year-on-year.
Remote working is now ubiquitous. Hot-desking, SaaS, Sharepoint and alternatives mean that employees
now spend considerable time away from the office working on a variety of different computers and other
devices. Using VPNs to work remotely from home or elsewhere on virtual desktops is now common.
The problem with employees being independent of their own desk is of course management. Moreover, if
employees are not at their own desk, they do not necessarily see their own desktop when they log on.
AppSense’s products fix this problem. All users have a personalised desktop which follows them wherever
they work – so-called user virtualisation. Each user receives only the applications they require with central
control of upgrades, license management and IT policy. Server load and quality of service to the users can
be better balanced leading to a potential reduction in server infrastructure and therefore carbon footprint.
AppSense reported a 60% jump in sales to $47mn in the year to July 2010. Having increased headcount
from 180 to 300 last year, the company is expected to recruit another 150 in the next 12 months. As well as
US-expansion, the company also plans to move into Asia and Latin America. Clients include the UK’s
GCHQ, BAA, GE, Citigroup, Volkswagen and Time Warner.
AppSense has an interesting investment history. Founded in 1999, it received first round funding for an
undisclosed amount from 3i, Baird Capital, CS First Boston and Compaq in March 2003. Only a year later
the management team undertook an MBO. As an early mover in this new layer of desktop infrastructure,
AppSense then grew organically alongside virtualisation providers such as Citrix, VMware and Microsoft.
In mid-January, founder CEO Charles Sharland moved aside to be replaced by professional CEO Darron
Antill who had been COO. Prior to AppSense, Mr. Antill had been CEO of virtualisation integrator Vistorm
where he oversaw record revenue growth, acquisition by EDS (for an undisclosed sum) and subsequent
transition to HP.
The involvement of Goldman Sachs as lead and sole investor is unusual but reflects the diversity of
Goldman’s proprietary investments, particularly in support of its corporate finance activities. Goldman does
not attribute the transaction to any particular division, but certainly has the resources at its disposal. GS
Growth Partners - the growth equity investing arm within the Goldman Sachs Merchant Banking Division –
has invested over $3.7bn in over 300 growth and technology companies since 1994 with a preferred
transaction size of $20-200mn. Goldman Sachs’ private equity arm – GS Capital Partners – is currently
investing its $20.3bn sixth fund raised in 2007. Depending on transaction size, investments are made either
from GS Capital Partners funds or directly from Goldman’s balance sheet.
Readers may remember last month’s $500mn investment in Facebook as part of a $2bn placing led by
Goldman. We expect to see more of these types of investments ahead of a revival of the IPO market, as
investment banks vie for manager mandates.
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February 2011
Company Sector Round €mn Description Investors hurleypalmerflatt (UK) www.hurleypalmerflatt.com
Cleantech Late Stage
16.5 Technology consultants with a particular focus on sustainability.
ISIS Equity Partners
Hurleypalmerflatt - HPF (UK), engineering consultants for mission critical
facilities, raised €16.5mn in Late Stage funding from ISIS Equity Partners.
HPF offers building services engineering, energy, IT and sustainability consulting and surveying, with
particular expertise in demanding environments such as trading floors, data and operational control centres,
hospitals and pharmaceutical laboratories. HPF does not fit easily into any single one of our investment
categories. However, as all of the company’s services relate to sustainable development or refurbishing
buildings while improving their green credentials, we have categorised this as a cleantech deal.
With five UK offices and operations in India and Australia, HPF’s clients include Shell, UBS, Barclays, Allen
& Overy, the British Library and Reuters. It is particularly notable for a services company that HPF achieves
a level of repeat business of almost 90%.
Founded in 1968, current Chairman Paul Flatt joined the company in 1990 when it was called JF Hurley &
Partners. Over the past ten years as MD and now Group Chairman, Flatt has led the company’s growth both
organically and through three acquisitions to achieve a 2009 turnover of £22mn with some 200 employees.
Not only is sustainability now a key Corporate Social Responsibility (CSR) consideration in general, but even
though CRC is still somewhat in limbo, existing legislation such as the changes to Part L of the building
regulations which came into force in October 2010 mandate increased sustainability for both new builds and
refurbishment.
Lead investor ISIS Equity Partners (€350mn (2007); AUM: €780mn) invests £2-30mn in businesses primarily
based in the UK and valued at £5-75mn. Sectors covered include business services, consumer markets,
financial services, healthcare, IT & Media, energy and cleantech . ISIS has previously featured in our HTI
index with investments such as a €10.6mn investment in outdoor accessories firm Wiggle in July 2006 and
two sub €5mn Series A investments in e-tailer GettingPersonal and marketing firm InspiredThinking in 2010.
ISIS differs from a conventional VC in that as well as traditional equity stakes it will also buy entire
businesses, support MBOs/BIMBOs, finance acquisitions and conduct secondary buy-outs. The latter will
have put ISIS in a strong position for the last few years with the IPO market effectively closed for exits and
investors forced to focus on managing their existing portfolios, greatly extending the deal life-cycle.
Since 1999, ISIS has made over 40 investments, roughly 75% of which have already been realised. As with
conventional VCs, its funds come from a variety of institutional investors including pension funds, funds of
funds, family offices, business investors and insurance companies. ISIS also manages five Baronsmead
Venture Capital Trusts (VCTs) listed on the LSE. Launched in 1995, Baronsmead was one of the earliest
VCTs and currently has some £250mn under management.
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February 2011
Company Sector Round €mn Description Investors FON (Spain) corp.fon.com
Telecom Services
D 10.0 Provider of hardware and software allowing customers to connect to Wi-Fi hotspots anywhere in the world in exchange for sharing Fon Wi-Fi at home.
Atomico Investments, Coral Group
Fon (Spain), which provides its customers with access to Wi-Fi hotspots worldwide in
exchange for sharing their broadband connection at home, raised €10mn in a Series D
round led by Atomico, with Coral Group and unspecified existing investors participating.
Fon sells Wi-Fi routers that broadcast two signals – one encrypted and private, the other public and
accessible via password to other Fon users. Fon customers gain access to Wi-Fi hotspots wherever there
are other Fon users in return for sharing the bandwidth they are renting from their ISP.
Growing a Wi-Fi network in this way – using the crowd-sourcing mechanism which has proved so successful
in group buying ventures such as Groupon – has always been controversial legally. For private individuals to
make their ADSL or other internet connections available publicly is a violation of the terms of service of many
ISPs. It is however difficult for ISPs to police Wi-Fi hotspots piggy-backing on their infrastructure.
Fon was started in 2005 by Argentinian serial entrepreneur Martin Varsavsky who already had a number of
successful telecom ventures to his credit, including Jazztel (MCE:JAZ), Spain’s second largest publicly
traded operator and Ya.com, Spain’s third largest web site/DSL provider. Shortly after inception, Fon raised
€18mn in first round funding from Google, Index Ventures, Sequoia Capital and Skype thus lining
themselves up with a number of powerful industry players. There have been no major legal battles, but one
might expect ISPs to pass on the cost of providing extra bandwidth on their infrastructure to their consumers
– and not just Fon subscribers.
Martin Varsavsky argues that Fon is actually advantageous to ISPs. In a modern context, Varsavsky’s most
pertinent argument is based on Fon’s rates for aliens – those who sign up for access to Fon’s network of Wi-
Fi hotspots but who do not have broadband at home and do not contribute to the network. Fon’s rates make
it cheaper to sign up with an ISP than sign up without a broadband connection at home and simply leech off
your neighbour every day. Given that three of Varsavsky’s former ventures were ISPs - Jazztel and Ya.com
in Spain and Viatel in the US - he can claim to have some insight. Moreover, Fon’s telco partners – which
include BT in the UK, MTS-Comstar Russia, SFR France and ZON Cable Portugal – allow Fon to build its
Wi-Fi into their routers.
The latest development in this story is an agreement with Japanese mobile carrier Softbank to give iPhone’s
broadband access through the Fon network, thus reducing the load on SoftBank’s mobile network. If rolled
out in other markets it will be interesting to see ISPs and telecoms carriers fight to balance the loads and
revenues between traditional telecoms masts and IP broadband infrastructure.
The round is led by London-based technology investor Atomico (€116mn (2010); AUM: €200mn), a fund
started by Niklas Zennström and Janus Friis who were also behind early investor Skype. The pair are
extremely familiar with the legal issues surrounding ISPs through one of their previous ventures – peer-to-
peer file sharing service Kazaa. With additional offices in Hong Kong and São Paulo Office, Atomico has no
geographic or stage preference and has made over 40 investments. It has, been particularly busy recently,
having also announced a $17.5mn investment in US-based subscription music service Rdio.
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February 2011
Company Sector Round €mn Description Investors VOSS (United Kingdom) www.voss-solutions.com
Software C 7.3 Provider of B2B Unified Communications (UC) solutions encompassing conferencing, collaboration tools and unified messaging as well as traditional telecoms solutions.
Eden Ventures, Intel Capital, XAnge Capital.
VOSS (UK) a provider of Unified Communications (UC) for large enterprises and
service providers, raised €7.3mn in a Series C round led by Intel Capital with
participation by existing investors Eden Ventures and XAnge Capital.
Once upon a time, businesses used to communicate by writing letters, picking up the telephone and
occasionally meeting in person. Nowadays there are many more options. Phone calls may be VoIP, fixed
line or mobile. Written communications may be sent by SMS, e-mail, instant messaging etc.. The advent of
low-cost domestic conferencing systems such as Cisco’s Umi, Microsoft’s Lync or Skype is a sign that video-
conferencing is finally coming of age. Moreover, all of these methods of communication can now be used
from multiple locations.
From a corporate point of view, managing many different methods of communication from several different
providers could be costly. This is the problem VOSS’ platform is designed to solve. Controlling all
communications needs through a single portal means reduced Total Cost of Ownership (TCO) for large
enterprises. Managed service providers also use the platform for the same reasons. Customers include
AT&T, Cisco, IBM and Verizon. VOSS had 2009 revenues in excess of $10mn.
Led by new investor Intel Capital (which invests from its own balance sheet and had portfolio valued at
€1.6bn as of December 2010), this investment follows on from a €9.3mn Series C round which appeared in
our September 2008 issue. As we discussed at the time, VisionOSS is run by seasoned entrepreneur Mike
Frayne who was previously founder and chairman of Intec Telecom Systems plc and founder of international
IT services group iOCORE.
The returning investors are an unusual collaboration of French and British investors, although this is the first
round in which they have both participated.
Transactions by UK-based Eden Ventures (€86mn (2007); AUM: €250mn) feature regularly in our Headline
Transactions Index, which recorded seven deals by Eden last year. One of these – online pawn-broker
Borro – featured in our March 2010 issue. Focussing on early stage technology companies, Eden has
particular interests in telecoms and enterprise software, SaaS, digital media and e-commerce, social media,
the internet and mobile communications. This is not the first time Eden has co-invested on a
communications investment led by Intel. In January 2009, Eden, Intel and DFJ Esprit made an €8.3mn
investment in telecommunications product management software company Tribold which featured in our
January 2009 bulletin.
Created in 2003 by French mail and parcel delivery company Groupe La Poste, XAnge Capital (€300mn
AUM) raises funds from retail investors on an annual basis and features relatively frequently in the HTI. Our
Headline Transactions Index recorded eight investments by XAnge’s last year, two of which featured in our
bulletin – Phone and Phone in January and Nexway in July. XAnge manages both institutional funds (from
financial and strategic investors such as AGF (Allianz Group), Deloitte Finance and GMF (COVEA Group))
as well as retail funds from La Poste’s bank network. Through its various funds XAnge invests at all stages.
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February 2011
Published on 29 March 2011 by Go4Venture Advisers LLP
48 Charles Street +44 (0)20 7529 5400
Berkeley Square [email protected]
London
W1J 5EN
Disclaimer
This report has been prepared and issued by Go4Venture Advisers LLP who are authorised and regulated by the Financial Services Authority.
All information used in the publication of this report, has been compiled from publicly available sources that are believed to be reliable, however no representation, warranty, or undertaking, express or limited is given as to the accuracy or completeness of the information or opinions contained in this report. Opinions contained in this report represent those of Go4Venture Advisers LLP at the time of publication. This research is non-objective. This document is provided for information purposes only and should not be construed as an offer or solicitation for investment. Furthermore, as the information contained in this document is strictly confidential it may not be reproduced or further distributed.
The value of investments and any income generated may go down as well as up. Past performance is not necessarily a guide to future performance. Investors may not get back the amount invested. This publication is not intended to be relied upon in making any specific investment or other decisions. Appropriate independent advice should be obtained before making any such decision.
This report has been compiled by Jean-Michel Deligny, Managing Director – for and on behalf of Go4Venture.
Copyright: 2011 Go4Venture. All rights reserved
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