Note: This is an article from Emerce, available here: https://www.emerce.nl/nieuws/zorgen-om-hoge-waarderingen-europese-techbedrijven.
They don’t call it alarming, but they do find it impressive and unsustainable. Several tech investors, surveyed by the news agency Bloomberg, are closely watching the financial developments in the European tech sector.
It’s no longer cheap to invest, and valuations are on the high side. Martin Davis of Draper Esprit talks about “a bit of a bubble”, and Erin Platts of Silicon Valley Bank says that sometimes the valuations she hears make her eyes water. Georgi Ganev of Kinnevik finds the valuations high but not excessive. The consumer is moving faster than expected towards digital services, so, the reasoning goes, the investments are worth following this movement.
It has long been said that Europe lags behind the US in terms of venture capital. In terms of valuations, this is no longer the case. Investors are enthusiastically opening their wallets to finance start-ups and scale-ups with millions and millions at a time. A random recent example: Bunq raised 193 million euros in growth capital earlier this week in its first external financing round. In return, it gave away ten percent of its shares.
Even early, often unproven concepts for things like, for example, flash grocery delivery services, are capturing hundreds of millions of euros per round. Mainly on promise.
Other reasons for the high valuations of tech companies are that investors are competing with each other for the same deals. This drives up the price: they are willing to take a smaller stake in exchange for the same amount of money. Moreover, there is growing interest in Europe from American investors. They see more opportunities for good deals here than in their domestic market. And the existing European investors themselves are managing to raise increasingly larger funds. Money that they are obliged to spend over a period of about four to five years for the return of their own financiers.
According to Bloomberg, the European tech sector now has 166 unicorns, companies valued at a billion euros or more. Mollie and Messagebird from Amsterdam are two of them. Together, this group of companies represents 800 billion dollars in the books of their investors.
In 2020, tech investors invested 109 billion dollars in start-ups and growing companies. This year, the counter is already at 74 billion.
A recent study by Ebitwise.nl states that 68 Dutch companies raised 2.5 billion euros in growth capital in the second quarter. In the same period, Dutch investors themselves raised three billion euros. A destination for this capital still needs to be found.
Photo: Andreas Krispler (cc)