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21 March 2017
Atomico Need-to-Know
All eyes on US enterprise IPOs, but most significant
offering is Korean
What do you need to know?
Why does it matter?
What do you need to know?
Why does it matter?
Key questions
● Ve Interactive, which h...
China to double down on importing foreign tech talent
Why does it matter?
● VC as an asset class is gaining increasing recognition from LPs
● LPs are increasingly looking to ma...
M&A wrap up
Acquiror Target Target desc. Amt Comments
Intel Mobileye Autonomous vehicle sensing $15b
34% premium to last...
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Atomico Need-to-Know 21 march 2017


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Atomico's Need-to-Know, 21 March 2017 - Essential Information for Founders and VCs

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Atomico Need-to-Know 21 march 2017

  1. 1. 21 March 2017 1 Atomico Need-to-Know
  2. 2. All eyes on US enterprise IPOs, but most significant offering is Korean 2 What do you need to know? Why does it matter? Key questions ● Netmarble’s planned IPO garnered little tech industry coverage, but not only would it join ranks of the largest tech IPOs by proceeds raised, it could have outsized impact beyond Korea as the company looks to use the massive funds to support its M&A plans to build a global business. It already acquired Kabam (~$800M) and Jam City in past year ● In China, meanwhile, there is a very strong pipeline with companies such as Zhong An, Meituan-Dianping, Toutiao & Didi all IPO candidates (and all likely at significantly >$10B+ valuations) ● Will Singapore’s Garena, another big player in mobile gaming on an IPO course, follow Netmarble into another potential large-scale public offering from Asia? ● If Next Games can successfully IPO, will others look at this option as an alternative source of funds to the more traditional VC + growth equity path? ● Will China’s fat tech IPO pipeline start to empty in 2017 and where will they choose to list? US? HK? Singapore? China? Next Games, the Finnish gaming company, set its IPO price range at €7.50-7.90 for an initial market cap of €138-143M, or 6.6-6.8x net revenue of €31M in 2016. The company is looking to raise €30M on the NASDAQ First North Exchange. Lowercase, AMC Networks, IDG Capital are investors Alteryx, a data analytics software provider, has set its price range at $12-14, indicating a valuation of $783M at midpoint of the range, or 9.4x LTM revenue of $86M Mulesoft priced at $17, above its initial range of $14-16, & then climbed 44% to close first day at $24.75, for a market cap of $3.1B, or 17.4x LTM revenue (vs median public SaaS multiple of 6x LTM revenue) SaaS identity management company, Okta, has filed to IPO. Okta has raised $228M (A16Z 20%, Sequoia 21%) and its last private round was at $1.2B. Revenue in 9M to Oct-16 was $115M Yext, the NYC-based location data company, has filed to IPO. Its last private round was at $525M and it has raised $117M. Yext reports LTM revenue of $124M, up 38.5% YoY. Sutter Hill ventures holds 23.6%. Insight also a large shareholder Netmarble, South Korea’s largest mobile gaming company, is said to raise up to $2.4B in what would represent Korea’s second largest ever IPO. Netmarble is raising the funds to support its M&A plans and to expand globally. The company is backed by $500M from Tencent (22% ownership) and could be worth >$10B, according to analysts ● MuleSoft’s strong first-day performance reflected growing confidence in US enterprise software IPO pipeline. MuleSoft was first to list of a set of four US enterprise software IPOs (Okta, Yext & Alteryx) ● In addition, reports say four other enterprise software companies, ForeScout, AppNexus, Carbon Black & Cloudera, have all also filed confidentially to IPO, but further details are not yet available ● Outside the US, mobile gaming is set to deliver two IPOs of very different sizes. At one of scale, Finland’s Next Games looking to raise €30M, while Korea’s Netmarble plans to raise a huge $2.4B
  3. 3. 3 Source: What do you need to know? Why does it matter? Key questions ● Tim Berners-Lee, the creator of the WWW, singled out algorithmic transparency of one of three key challenges for the future of the web in a new strategy document ● Similarly, governments are also increasingly focused on the topic as algorithms look set to take a major role in decisions that impact people’s daily lives. For example, the EU’s General Data Protection Regulation, set to be implemented in 2018, currently proposes a “right to explanation” to enable citizens to challenge decisions taken by algorithms. The UK Parliament’s Science & Tech Committee is also now launching an investigation into algorithmic decision-making ● DARPA, meanwhile, is funding 13 different initiatives focused on making AI “more explainable”, e.g. through interfaces that make workings of AI systems more explicit through data, visualisations and natural language explanations ● The more that algorithmic decision-making enters into areas that impact the daily lives of citizens, the more momentum will build to ensure that people can understand how decisions are taken and to ensure that there is accountability for any ‘poor’ outcomes that result from ‘bad’ models. ● In preparation, companies will need to be ready to explain and justify their algorithmic models or face the risk of major pressure from users, media & other stakeholders, as exemplified by controversy around ‘fake news’ ● How realistic is it to be able to “explain” how decisions are made by complex deep learning processes? ● How ready are companies to be able to respond to demands from regulations to provide greater transparency about how their algorithms make decisions? ● What role should companies play in helping governments to understand if and how any regulation should be rolled out to increase algorithmic transparency? Momentum is building behind calls for greater ‘algorithmic transparency’ as AI becomes a more pervasive presence “We also want to see stronger transparency and accountability in the use of digital resources and tools such as computer models (algorithms) that help determine the information and opportunities available to citizens. Hand in hand with this, we will continue to push for responsible policies around the collection and use of personal data by governments and companies.” Web Foundation (Sir Tim Berners-Lee) Delivering Digital Equality: The Web Foundation’s 2017 – 2022 Strategy 1. Power: All People Can Make Their Voices Heard Equally 2. Accountability: Citizens Hold Governments and Companies to Account 3. Opportunity: Women and Other Excluded Groups Gain Economic and Social Opportunities and Resources Web Foundation’s Key Challenges for Future of Internet
  4. 4. 4 Source: What do you need to know? Why does it matter? Key questions ● Ve Interactive, which had previously raised at a £1.5B valuation, has seen its valuation reduced to £300M, following an emergency £3M bridge funding round. The company has also replaced its Founder & CEO. Former ARM chairman, Stuart Chambers, has pulled out of becoming the company’s new chairman. Company has 1,000 staff, a number that seems like to reduce as it goes through a process of “re-organisation” and “rationalisation”. ● Ve Interactive was notable for raising all of its £50M+ funds from high-net-worths & other “non-institutional investors” and for implementing a “complete ban on venture capitalists” ● Ve Interactive joins a list of UK startups (Powa, Fling, Karhoo) that have all experienced major issues or been deadpooled that had not raised money from any VCs ● High profile failures, such as Powa, can have a negative knock-on impact on the perception of UK tech, even if the founders and their companies have largely been (by their own choice) on the outside of the development of the UK’s tech ecosystem ● Can Ve Interactive turn things around with a new management team and successfully raise more money from outside the VC circle? ● Given the large sums of capital being deployed by high-net worths into some of these failed or struggling businesses, is there an opportunity to support investors that would like to invest in tech, but that lack the expertise and experience of the sector to channel this capital into more sophisticated investments? Ve Interactive latest non-VC funded UK startup to ‘struggle’
  5. 5. China to double down on importing foreign tech talent 5 Source: What do you need to know? Why does it matter? Key questions ● Robin Li, the founder & CEO of Baidu, declared Trump’s victory as an opportunity for China to attract global talent and urged the country to do even more to simplify the process of issuing permits to foreign talent ● China has responded with initial moves to relax visa rules for foreign workers & students. The changes reduce the complexity of applying for extended work permits, while also decentralizing management of ‘green card’ issuance in order to speed and simplify the process ● Recruitment forms part of a broader strategy to build China’s technological might alongside efforts to restructure its industrial policy through a scheme known as Made in China 2025 ● Further evidence that important countries such as China will not sit idle and will look to exploit any potential changes in global talent flows that result from the rise of populist administrations in key ‘destination’ markets for global talent ● Technology competitiveness is increasingly seen as having significant alongside economic & sovereign might as one of the three key pillars of building a global superpower. Forward-looking nations such as China are increasingly putting technology right at the very heart of their Government plans in order to base their long-term strategy on being highly competitive technology-focused economies ● While governments in the US and Europe look set to tighten controls on overseas talent, will other countries follow China’s lead to exploit this opportunity to position themselves more attractively in the global war for talent through easing controls on visas for overseas talent? ● Will we see a reversal of the trend to put R&D centres and innovation labs in Silicon Valley? Will global tech companies choose to create more talent bases in Shenzhen or Shanghai or London or Paris? “China's government knows that recruiting the world's top talent is key to developing better homegrown technology, and even has a State Administration of Foreign Expert Affairs that drafts strategy, coordinates rules for hiring overseas experts and holds an annual conference to discuss ways to attract top talent.” Bloomberg Gadfly, March 2017
  6. 6. Why does it matter? ● VC as an asset class is gaining increasing recognition from LPs ● LPs are increasingly looking to make direct investments, whether through their own initiative entirely or by co-investing alongside their GPs Upfront Ventures LP survey reveals general optimism about VC, but also highlights some concerns 6 Note: 2016 n= 73, 2017 n= 82 Source: capital-startup-industry/1 What do you need to know? Key questions ● Upfront released their annual LP survey, though note is US-centric and likely also is biased towards the views of LPs active in VC only, not the full LP universe ● LPs over past few years have become more optimistic about VC (coming off a low period in 2009-2012) and growing number seeking to grow their allocations to VC ● LPs see co-investment as increasingly important with 29% flagging it as “very important” ● Two-thirds of LPs shared concerns around trend for faster fundraising pace, while 71% also expressed concerns about investment pace, valuation upticks & burn rates ● How does the LP view stack up differently in other regions, i.e. Europe or Asia? ● How should GPs respond to increased importance of direct investment for LPs? ● Will LP concerns on fundraising & investment pace lead to a slowdown from GPs?
  7. 7. M&A wrap up 7 Acquiror Target Target desc. Amt Comments Intel Mobileye Autonomous vehicle sensing $15b 34% premium to last unaffected share price. Intel paying this giant premium keen to avoid repeating its failure to the smartphone era and build a strong position in automotive, which it sees as the next giant semiconductor & software market Pinterest Jelly Crowdsourced Q&A platform N/A Founded four years ago by Biz Stone (Twitter); whether Jelly will integrate with Pinterest or remain separate is undecided; Pinterest has raised $1.32B Geopost Stuart B2B last-mile logistics network N/A Geopost, an existing investor, has acquired the company outright. This follows a recent transaction that saw Hermes, a German parcel delivery company, acquire a majority stake in the German last mile delivery startup, Liefery. Google Kaggle Hosts data science and machine learning competitions. N/A Raised $11m from Google;Hal Varian;Index Ventures;Khosla Ventures;Max Levchin PVH True&Co Vertically-integrated online lingerie startup “Tens of millions” PVH, the fashion company owner of the Calvin Klein & Tommy Hilfiger brands, made the acquisition to drive deeper into online sales & increase the level of sophistication of how it uses data to connect with customers Didi Chuxing 19Pay Online payment & ecommerce platform RMB 430M / $62M+ Transaction is still unconfirmed, but Didi reportedly acquiring 19Pay to obtain a highly-valuable & hard-to-acquire Chinese payment processing license. The number of independent payment processors is declining as more deals of this nature have been driven by players wishing to offer their own payment capabilities CA Technologies Veracode Cloud-based app security testing $614M Another transaction indicative of the trend of consolidation in the enterprise SaaS space. CA Technologies has been looking to expand beyond its core application performance monitoring (APM) market to increase the total potential spend amongst its customers with security seen as a key adjacent market to enter through this acquisition. Veracode has raised ~$115M, last raising primary equity in 2014. Travelers Simply Business UK-based online insurance broker for small businesses $490M Acquisition price of £400M represents a quick turn of 3.5x for PE fund Aquiline Capital Partners, who acquired Simply Business in April 2016 for £120M. Travelers is a $34B market cap US insurance company looking to build out its digital capabilities in the face of a rise of insurtech startups. A ~$500M UK tech acquisition that pretty much passed under the radar. Wal-Mart/ ModCloth Online retailer of vintage-inspired fashion and decor $50-$75M ModCloth had raised $78M from VCs. Wal-Mart is increasingly focusing on the apparel/clothing category and this is its third acquisition in 2017, following the purchase of ShoeBuy and MooseJaw. Sodexo Xpenditure/ iAlbatros iAlbatros: a travel booking specialist / Xpenditure: a paperless expense management system N/A Sodexo, a 50+ year-old food services & facilities management company ($16B market cap) has acquired two early-stage companies to build out its digital capabilities in travel and expense management.
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