This week on the startup to scaleup journey:
1. News and Insights this week
Pitchbook publishes 2Q20 European investment data
This is Europe-level data that adds to the UK analysis last week from Beauhurst. Many similar themes and trends, especially around the challenges at early stage:
Q2 2020 saw VC deal activity in Europe totalling €9.5 billion (surprisingly the third largest quarterly figure on record), but....
The shift towards larger and later stage investment rounds has continued to rise – 61.2% of deals in the first half of 2020 were over €25 million.
The quantity of first-time rounds has declined steadily since 2014 and is pacing to be the lowest annual total since 2009.
Software, food delivery and the mobility sector have all seen good levels of deal-making activity and it is expected that Covid-19 will continue to accelerate investment in these sectors.
VC deals with CVC participation reached €8.2 billion through H1 2020, keeping pace with the record set in 2019.
The largest deal to close in Q2 was the Amazon led €527.6 million investment into Deliveroo (just cleared by the CMA this week).
The full report is here.
What investors say about founders
We spend a great deal of time digging into what investors in European startups are thinking. Other than 1/1 conversations, there are few ways to tunnel into this topic efficiently. European VCs are usually pretty tight-lipped about discussing their perspectives in public. Why so, when US investors are so incredibly open?
Investor and writer Nicolas Colin is trying to change this and provides regular contributions into the VC conversation via his publication, European Straits on substack, and his contributions to the Capital Call newsletter.
His latest essay, The 10 keys to investing in European Startups, offers real insight into the VC mindset, providing some great tips for founders - even though it's aimed at investors. This fly-on-the-wall analysis captures what investors are talking about 'between themselves'. Key takeaways are:
1. The qualities that make a good founder at this point in the paradigm shift are energy, velocity, rigor, and knowledge—not unlike a jazz musician.
2. Favor founders that are extremely focused on one niche and then expand outwards—both through new products and onto other national markets.
3. Make sure to identify if the business is ‘default local’ or ‘default global’, and to assess the founding team accordingly.
The full article is here: The 10 Keys to investing in European Startups
Choose your investors wisely
Last week we published our top 5 takeaways for founders from our 1H20 investment insights. Our number 1 item was 'Choose your investors wisely'. We have since amplified this in our latest blog posted on Tuesday.
Rarely have we had so much feedback on a single topic in one week - we now have an encyclopedia of (confidential!) war stories. Sorry we can't share these but we can share a frank perspective on the subject from Oussama Ammar, a highly contrarian private investor in his blog entitled Keep your cap table clean. He holds nothing back. One of his many insights from this revealing article:"One of the secret reasons that investors have for saying “No” to a deal, which they’ll never actually admit to you, is that they don’t want to do a deal with the jerks you already have in the cap table. It’s not a personal thing — it’s that a good investor doesn’t want to validate bad investors by being associated with them. It would send the wrong signal for them personally. So even if they like the project or the entrepreneurs, they can’t do the deal."
The blog post is here: Keep your cap table clean.
New developments in SaaS business models
The convergence of SaaS with fintech solutions (payments, lending, cards, insurance...) is becoming a big topic with SaaS investors. About 90% of public SaaS companies have subscription-based revenue models. One of the most exciting growth opportunities as we emerge from Covid is the integration of fintech offerings within specific vertical SaaS solutions. Early evidence confirms that subscription revenues per customer can be boosted by 2-5x.
Upselling has thus far been the primary driver of subscription revenue growth. Now, integrated fintech looks set to rival this in capturing more of a customer's monthly software spend.
SaaS startup leaders need to be on top of this important trend and be ready to discuss the specifics with investors when pitching. As a primer, a great piece by a16z entitled Fintech Scales Vertical SaaS provides an excellent overview of this business model opportunity.
The Future Fund keeps on giving
As at 2nd August, out of 839 applications, 537 companies have been approved for £534m worth of Convertible Loan Agreements since the Future Fund scheme was launched. Latest stats are here. The scheme has proved a major success so far and over 2x the original amount allocated (£250M) has so far been approved.
2. Other pieces that are really worth reading/listening to this week:
A VC that seeks founders who can change the world
On The Twenty Minute VC this week, a deeply insightful interview with Steve Jurvetson, the Co-Founder of US VC Future Ventures who announced their debut and flagship $200M Fund in 2019. Steve’s incredible portfolio includes the likes of SpaceX, Tesla, Planet, Memphis Meats, Hotmail, and the deep learning companies Mythic and Nervana. Steve also sits on the board of both SpaceX and Tesla. Prior to founding Future, Steve was the co-founder of renowned Valley firm Draper Fisher Jurvetson where he led investments in 5 companies that went public in successful IPOs and several others that became billion-dollar acquisitions. A true legend of VC.
The future of work is here — but something is missing
An insightful essay by Sanna Westman of Creandum VC on remote working and what we miss compared to the office environment. The piece looks at critical human needs from Maslow's hierarchy. A great way for Creandum to discover companies that are able to bring the positive physical office vibes to remote work making it as enjoyable, engaging and inspiring as the “old normal”.
Further great insights on this topic in an excellent Wall Street Journal article this week.
A Founder's Guide to Writing Well
Of the many skills attributed to successful entrepreneurs — vision, execution, persuasion, perseverance, grit, resilience — effective writing inevitably fails to make the list. But words matter. At a minimum, they shape the impression you make on others — often the first impression. A valuable article on the subject of writing skills just published by First Round Capital is here: A Founder's Guide to Writing Well.
'The Never Ending Now'
A thought-provoking article from one of our favorite young authors, David Perell. If you are inspired by the writing quality and want to improve your online writing skills for a blog, newsletter or deep essay writing, David also has a wealth of insight to share if you follow the links from this article. It's not the content per se it's how he works the reader and draws you in. His twitter posts (@david_perell) make you pause.
VC’s are marketers, not financiers
We love listening in on VC chat and subscribe to a number of feeds in the VC blogosphere. One of the latest is Odin, a community of VCs based in London that share some interesting perspectives. The latest, VC’s are marketers, not financiers, is worth a read. Very succinct but true.
and finally.... Apple - now the world's most valuable company
In case you didn't see the news as reported by CNBC: Apple shares closed up 10.47% Friday, giving it a market valuation of $1.84 trillion. Saudi Aramco, which had been the most valuable publicly listed company since its market debut last year, now trails at $1.76 trillion as of its last close.