In this edition of ScaleUp Views from the Lazard Venture & Growth Banking team, we provide an update on our plans to launch a benchmark of the European Venture Growth ecosystem, the Lazard T100 Venture Growth Index (T100). We announce the first cohort of companies that we believe may be demonstrating the potential to disrupt multi-billion dollar sectors and verticals of the global economy. We note the health of the venture and growth ecosystem in Europe during 2020 and highlight some of the key themes that have the potential to drive value creation in coming years.
- We utilise a rigorous methodology to identify, and undertake analysis on, a large funnel of companies as candidates for the T100. The first 50 companies to join the T100 universe, represent breadth and diversity across stage and sector but share commonality in their magnitude of disruption and potential for value creation.
- Despite the impact of the Covid-19 pandemic, 2020 has proved to be another active year in the European Venture & Growth ecosystem. With over $21bn invested year-to-date, the final total is likely to almost match the record levels of 2019. There has been some bias towards funding the bigger winners with a 20%+ fall in deal count offset by a 20%+ increase in average deal size.
- The consumer facing banking and payment FinTechs which have rapidly scaled to millions of users have raised big rounds in 2020. By contrast consumer facing InsurTechs have seen a more muted year with Covid-19 dampening growth. As we hopefully exit the crisis, we believe both verticals are positioned for further momentum; we include companies from both in T100. We also see significant promise in the companies enabling the next generation of software infrastructure to support both FinTechs and incumbent banks.
- We believe that digital marketplaces have some of the strongest prospects in the Consumer sector; they disrupt different vertical markets by enabling a much more efficient supply chain and closer affinity between buyers and sellers. Within T100, there are companies addressing this in the travel, home improvement, refurbished electronics, fashion, live music and fitness industries.
- In Software, the bench of European companies with global prospects has been transformed in recent years. World class data science expertise and lower cost engineering have provided the opportunity for first class commercial talent to repatriate from the US and build SaaS companies with truly global potential. Our T100 companies all use advanced data analytics to provide platforms enable corporates to market and provide more personalised products and services, maximise revenue and unlock efficiencies.
- Digital Health and Med Tech are the key focus verticals within Healthcare for T100. Despite some disruption from Covid-19, there remain some very strongly positioned companies in T100 which are transforming care through utilising digital platforms and more mobile hardware. The Life Sciences vertical has clearly come of age with some big exits in recent years, which we believe will be better reflected in its own index.
- T100 also reflects a number of technology enabled infrastructure companies which are transforming key verticals such as delivery, micro-mobility, transportation and freight, all of which have huge potential. There are also several companies driving the next generation of SpaceTech by leveraging the possibilities of low earth orbit. All of these companies are benefitting from the strong surge in investment activity in the InfraTech sector.
- While DeepTech looks somewhat less favoured by investors, with the growth in funding flowing to other sectors, we believe this is largely due to the optimal route for monetisation of technology being through a vertical market focussed business model. Despite this there remain some T100 companies in DeepTech that have global potential from being best of breed platforms in semiconductors or hardware devices.
We look forward to providing a further update with our views early in the new year, when we will announce the final cohort of companies and begin to track the performance of the 2020 Vintage of the T100.
ScaleUp Views is published by the Lazard Venture & Growth Banking Team (VGB). We are a team of 14 focused on providing advice and private market fund-raising to companies in the Venture & Growth ecosystem in Europe and Globally. The T100 is our curated universe of some of the most interesting companies in Europe which are likely to raise a significant sized funding round in the next 12-18 months. The team is in regular dialogue with the T400, our focus global universe of investors across various pools of capital.
In this document T100 companies are highlighted as such.
Europe is now brimming with growth stage private companies…
In our first ScaleUp Views published in July 2020, we introduced our plans to provide a benchmark of the Venture Growth asset class with our T100 European Venture Growth Index. The T100 is a carefully curated list of 100 of the most interesting companies that we expect to undertake a venture growth style financing in the next 12-18 months. The T100 Indices will become a series of vintages measuring the financial returns from investing in the financing rounds undertaken by those companies in any given year.
While 2020 will be the first vintage year of the index, we previously provided an illustrative example of what a 2017 vintage might have looked like in the last ScaleUp Views.
Key objectives we aim to meet with the T100 index are to:
- Establish venture growth investments as an institutional asset class in Europe
- Provide exposure to some of Europe’s most interesting companies which are expected to use venture growth style financing
- Provide asset allocators with greater transparency and a measure of performance and quality
- Allow large European pension funds to consider allocating to the asset class
...and we now announce the first cohort of T100
Venture & Growth is an increasingly important and material asset class in Europe
The idea behind the T100 is for it to be broadly representative of the institutionally investable venture & growth asset class, offering a breadth across sectors and stages. By institutionally investable, we mean that there is an identified opportunity to deploy meaningful amounts of capital in order to contribute to a diverse and successful asset allocation strategy for an institutional investor.
We exclude the earlier stages of venture (typically Seed, Series A and most Series B) from the index. That is not to say that we don’t believe that companies at the earlier stages cannot be an interesting investment opportunity with an attractive return profile (indeed this part of the ecosystem is critical to the launch of companies that can progress to the later stages), it is simply that we do not think that they create the same opportunity to deploy an institutionally meaningful quantum of capital.
T100 represents some of the most interesting companies into which capital could be deployed
The primary test for whether a company should be in the T100 is whether we believe that it is a company which is reasonably likely to seek to undertake a $50m+ funding round in the next 12-18 months and that it could offer a potentially compelling investment opportunity.
All T100 companies are demonstrating significant growth potential...
We segment the market into three stages and six sectors.
Stage is segmented into Venture, Growth and Later Stage. The chart above provides an indication of how we define each stage. However, these definitions are not absolute and we retain flexibility to account for the following types of situation;
- Revenues are lower than those indicated but there is potential for growth in the future to significantly exceed that indicated
- Disruptive factors like Covid-19 have interrupted the normalised growth trajectory of the business
- The technology or market position being built could be highly strategic to a potential acquiror
...with breadth across sectors
We segment the sectors into six; Consumer, DeepTech, FinTech, Healthcare, InfraTech and SaaS. While there are common attributes between companies in these sectors, the business models companies use can vary widely between sales to businesses (B2B), to consumers (B2C), sales of hardware and/or software, monetisation through advertising or the marketplace model whereby the company provides a trusted platform to intermediate between buyers and sellers.
We evaluate a large funnel of potential T100 companies...
We have developed a process for forming the T100 in order to capture a comprehensive group of companies in Europe that we consider are most interesting and have the potential to be truly disruptive, rapidly transform segments of the economy and to become market leaders in multi-billion industries.
We start with scouring the landscape of activity in the earlier stages of the venture space to identify interesting companies, utilising our global investor network, the wider Lazard network of business connectivity and analysis of data and news flow of the venture landscape.
Our team has been actively focused on the venture & growth ecosystem since 2015 and has met hundreds of businesses over this time period. In 2020 alone, we have analysed over 400 different businesses which have completed recent funding rounds and we have held over 220 company meetings.
...using a methodology to seek to uncover companies which may have the potential to be the big companies of tomorrow...
Following an initial meeting with a company we perform an preliminary review to evaluate whether it should be in the T100. This entails ranking the business on four metrics:
- Market opportunity
- Leadership position
- Path to value creation
If companies meet the evaluation criteria for the T100, we request financial disclosures that relate to historic and expected headline financials. As noted earlier, while there is a typical growth profile for a potential T100 company at a certain stage, there are no steadfast rules and we retain the flexibility to include companies which may have a growth profile below ‘typical’ but where we see the potential prospect of exceeding typical growth rates in the future.
...creating a rigorous and robust list of the best
We believe the process we have developed for T100 company selection is the most rigorous and robust created for an investor facing list of growth stage private companies in Europe. We hope the index will help to establish growth equity as a truly institutional asset class, increase understanding of the asset class and its performance and provide exposure to some of Europe’s most interesting companies that are currently expected to seek to use venture growth style financing.
The Venture & Growth ecosystem has been resilient in 2020...
Clearly during the course of 2020, we have endured one of the biggest crises in a generation with the Covid-19 pandemic. However, as we argued in the first issue of ScaleUp Views in August, in many cases the disruption caused has been a net benefit to venture & growth stage companies as technology transitions have accelerated. Many of the companies in both the T100 and the wider Venture & Growth ecosystem are driving these changes and as a consequence in general the capital to continue funding them has been forthcoming despite the crisis.
...with capital in particular flowing to the big winners in H2...
In fact in 2020 with $21.5bn invested year to date, it looks likely the total amount invested will be within reach of the $23.2bn invested in 2019. This will be a remarkable achievement given that in H1 2020, total invested capital was running down 25% YoY compared with 2019. There will be a substantial fall in the deal count for 2020, with the year to date deal count down 24%, however this will be offset by a large increase in the average deal size from $60m in 2019 to $71m in 2020. In Q3 of 2020, the average deal size was a massive $99m which is over 30% bigger than the previous largest average deal size for a single quarter.
...and different sectors are seeing quite different trends
Underneath this strong overall performance, there has been considerable variation between the different sectors. The Healthcare, Fintech and SaaS sectors all saw stability in terms of capital invested and deal counts were also stable for Healthcare and SaaS. There was a 20% decline in deal count in InfraTech sector, offset by an increase in average deal size, resulting in a 14% decline in capital invested. Deal count dropped heavily in FinTech, but was offset by large average deal sizes as capital flowed to the scale players. Consumer was the weaker sector in 2020 with capital invested falling 26% and deal count falling by almost half.
In the following sections, we identify some of the key themes by sector which we think are driving growth and value creation in the ecosystem, supporting our rationale for incorporating companies within those sectors into the T100 index.
The FinTech sector has seen ballooning deal sizes...
The FinTech sector has been one of the most active in Europe in recent years with total venture investment increasing for $1.4bn in 2016 to $4.8bn in 2019. Growth has been driven by the rapid scaling of many of the businesses in the sector and in fact the number of deals per year has only grown by 28%, whereas the average deal size grew by over 2.9x to from $20m to $58m hence driving most of the growth.
...driven by the rapid scaling of consumer facing FinTechs
Consumer facing FinTechs have been the dominant driver of the larger deals with the likes of N26, Transferwise and Revolut each raising over $0.5bn in total in the last 5 years and Klarna raising well over $1bn. During 2020, there has been a consolidation around the scale players with the number of deals year to date falling by half but the average deal size increasing a further 64% to $95m.
There are 15 companies in the initial cohort of the T100 outlined here:
...with some of the biggest scale players represented in the T100
Of these companies, six are consumer facing FinTechs which have all built significant scale and leadership positions around verticals including FX translation, lending, peer to peer payments and wealth management.
- Revolut offers a financial ‘super-app’ encompassing a wide range of financial services from bank account consolidation to cheap foreign transactions to the ability to trade stocks, cryptocurrencies and commodities. It has been successful in scaling globally and hit a users base of over 12m by summer 2020.
- Klarna provides payment and short-term lending services, increasing conversion of interest to purchases for merchants by enabling consumers to spread payment over a number of monthly payments rather than paying upfront. It has already reached over 90m consumers across more than 200,000 merchants in 17 countries.
- Transferwise provides relatively low cost FX transfers to consumers and businesses at a much tighter spread and more quickly than incumbent banks. It has scaled to a global customer base of over 7m customers transacting over £67bn per annum.
- Lydia offers a mobile payment app with emphasis around easy peer-to-peer payments and ability to easily share payments between friends. It has built what it regards as a loyal user base of over 3m younger customers in France and is expanding into new markets across Europe.
- Blockchain.com provides a platform for management of crypto-currency investments to consumers and institutional investors. Over 50m of its wallets are used for storage of crypto-assets and it also provides trading, saving and lending services. Since May 2020, around a third of all bitcoin transactions have taken place through its wallet.
- PensionBee enables consumers to consolidate their existing pensions and contribute to a new one using a seamless fully digital app, with a simplified experience of saving for retirement. It has scaled to over 300k users in the UK.
Consumer facing InsurTechs activity has been dampened by Covid
Beyond the FinTech verticals noted above, InsurTech represents the other major consumer facing theme which has gained prominence in recent years. Insurance represents a huge market, largely based on legacy technology and business models, which is ripe for disruption. This has been best demonstrated on a global basis by the successful IPO of Lemonade (founded in 2015, now worth c.$5bn).
The market has been particularly active in Europe, with a peak of activity in 2019 from large funding deals for companies like Wefox, Ottonova, Alan, Friday and Zego. The market has subsided a little in 2020, with some impact from the Covid-19 pandemic dampening growth and leading to a sharp fall in both deal numbers and deal sizes.
...but strong potential prospects remain as we exit the crisis
Despite this we continue to believe that the vertical has significant potential for the future as more normalised economic conditions resume. There are four InsurTech companies in the initial cohort of T100
- Alan offers a full stack health insurance product to the French market, primarily sold to corporates and small businesses to provide coverage to their employees. It simplifies the process of onboarding through a fully digital platform, enables much quicker digital management of claims and integrated digital health services like virtual access to a GP. It now covers over 100k individuals and is expanding across Europe.
- Clark provides an app based digital insurance manager which can consolidate information on consumers’ insurance into one place and provide advice and access to new policies from a wide range of life, home and auto insurance providers. It differentiates itself from offline insurance broker by providing full transparency and more cost effective cover. It has scaled to over 250k customers in Germany and has recently expanded into Austria.
- Friday is a full stack insurance company in Germany primarily focused on offering car insurance that is simpler and more transparent with a fully digital interface to the consumer. Innovations include billing per km driven, monthly cancellation and paperless administration. Its products have been recognised by Stiftung Warentest, Auto Zeitung and Focus Money as market leading with relatively low premiums.
- Ottonova provides a range of digital led health insurance products including full stack health insurance for the German market, top health & dental insurance in other European markets. It provides comprehensive coverage at competitive prices including a digital health concierge and a less complicated experience for consumers. It also provides its software to other insurers to allow them to leverage its fully digital technology platform.
Massive potential opportunity in next generation infrastructure for banks and FinTechs...
The rise of the consumer facing FinTechs has provided both a growing opportunity for software which can be used to create the traditional services of the banking industry as well as to bring the flexibility to create new ones. In addition, the potential threat of the FinTechs to the incumbent banks has acted as a catalyst for accelerating the modernisation of legacy IT systems and transitioning to cloud native architectures.
As can be seen above deal count in the ‘banking infrastructure software’ vertical has remained relatively stable at around 8-10 deals per year, however the size of the deals has grown rapidly from $11m in 2016 to $74m in 2020 YTD. The main areas of interest have been in cloud native banking systems, in particular APIs, which can link the new platforms to the legacy ones and more efficient platforms for money transfer and payments.
...is also a key theme of T100 companies
Within the T100 we include the following companies in the vertical:
- Thought Machine provides cloud-native core banking solutions capable of being configured easily to suit the needs of banks and FinTechs. It seeks to offer a smooth implementation, better user experience and to enable banks to develop new innovative services and deploy them at scale. Existing customers include Lloyds Banking Group, Standard Chartered, Monese, Curve and Atom.
- 10X Banking enables banks to migrate to cloud native based technology architectures with its digital banking platform designed to modernise the process of back-office in the banking sector. The platform specialises in providing financial services based on open banking principles covering banking process automation, compliance reporting, security and analytics. It has existing customer relationships including Nationwide and Westpac, which are also strategic shareholders.
- Fidel provides an API which can be used by banks, FinTechsand consumer brands to integrate data from a consumer’s payment cards into their products and services. This allows them to easily build applications such as loyalty-based rewards where consumers can be rewarded for purchasing from a particular brand independent of which card they used to make the purchase. Existing customers include RBC, Just Eat, Avios and Klarna.
- Currency Cloud provides multi-currency account infrastructure to FinTechsand banks using its APIs. With this they are able to allow their customers to manage multiple currencies simultaneously and receive and pay funds at low cost and at competitive exchange rates. It seeks to provide global compliance with various regulatory regimes which can also enable FinTechsto operate in jurisdictions where they themselves are not regulated. Existing customers include Starling Bank, Revolut, Klarna and Monese.
Consumer sector has seen some big winners in venture...
The consumer sector has been the source of some of the biggest value creation in the venture & growth ecosystem both globally and in Europe. In the US companies like Amazon, Google & Netflix emerged from initial venture rounds in the late 90s, followed by Facebook in the late 00s. In Europe, Spotify was also founded on venture financing in the late 00s and went on to become the biggest venture backed exit for the region and third biggest globally.
Parts of the consumer sector have been significantly impacted by the Covid-19 pandemic, with the number of companies securing funding in 2020 almost halved compared with 2019. This has been somewhat offset by a significant increase in the average deal size as investment activity has centered around the Covid-19 beneficiaries already at scale such as Cazoo, ManoMano and Wolt. There are 8 companies in the initial cohort of the T100 outlined here:
...with several digital marketplaces looking promising now
The dominant theme of these companies is that most are some sort of digital marketplace, which increase efficiency in an existing supply chain and provide a much more personalised experience to the consumer.
- Tourlane provides customised travel packages, seeking to attract discerning and high spending consumers to its fully digital platform where it has cut out the costly middle-men in custom tours and seeks to offer a highly bespoke product.
- ManoMano provides a fully digital platform for the home improvement and gardening market, connecting consumers directly to manufacturers and wholesale merchants whilst providing a community of reviews of speciality products and sellers to facilitate commerce.
- Back Market facilitates the market for refurbished electronics by providing a centralised online destination for consumers to buy used smartphones and laptops with greater confidence.
- Vestiaire Collective provides a trusted platform for buying and selling of second hand high end fashion items, with the scale and data required to offer a personalised experience for the buyer and a liquid market for the seller.
- Urban Sports Club connects consumers to a wide range of health & fitness venues giving more choice to the consumer whilst maximising revenue for the venues and lowering the costs of customer acquisition and churn.
Achieving scale for a marketplace is not easy and it is a major achievement of all the T100 businesses with this as their business model. Once achieved, the marketplace business model can become very attractive with huge network effects unlocked as has been demonstrated by companies such as Farfetch in Europe (founded in 2007, now worth $20bn+) or Mercado Libre globally (founded in 1999, now worth $77bn+).
...plus others are reimagining existing categories or driving the creation of whole new ones
In addition to marketplaces, there have been several companies in the consumer space which have created significant value by reimagining an existing market and utilising direct digital channels to create a large customer base. Examples include Hello Fresh in Europe (founded in 2011, now worth c.$9bn) and Dollar Shave Club (founded in 2011, acquired by Unilever for $1bn in 2016) and Stitch Fix globally (founded in 2011, now worth c.$6bn). They have each upended their market of food, shavers and clothes to create large differentiated brands and experiences which can resonate strongly with consumers.
Companies in the T100 which may exhibit similar potential are:
- Dice is transforming the ticketing experience for live music events with its app which helps consumers discover events of interest, connect with friends with mutual interest and the ability to attend virtually as well as in person.
- Lillydoo, which is a digitally native brand in premium diapers and baby care, seeking to provide a high quality alternative to industry incumbents. It has focused on building significant brand reach using digital marketing and a subscription-based model.
Yes, Europe can do software after all...
As the global software market aggressively moved to software-as-a-service (SaaS) models over the past decade, Europe somewhat gained a reputation for missing the boat. In fact of the over $250bn of significant exits (measured as >$250m) in SaaS since 2015, only a small handful of them were a European company.
There has however been a significant gear change in the last few years with the emergence of several European SaaS companies which look promising. The first to emerge was UiPath, but this has been swiftly followed by the likes of Snyk, Mirakl, Collibra and Celonis all of which are rapidly scaling globally.
...often enabled by world class data science expertise...
Activity has been particularly strong around companies which are enabling enhanced use of data and applying AI to drive better business outcomes. This seems to be driven by entrepreneurs tapping into the strong academic talent in data science in Europe, combined with solid expertise in IT integration and bringing it together into solutions which have global appeal.
Many of these entrepreneurs have experience operating in the US market which they are leveraging as well as taking advantage of the lower cost of engineering talent in the region compared with the US.
...with enhanced data analytics well represented in the T100
The focus on making better use of data is also reflected in the T100 companies in the SaaS sector:
- UiPath believes it is the market leader in robotic process automation software, which enables businesses to automate manual tasks with software robots.
- Collibra provides enterprises with a cloud based data intelligence platform which connects data previously held in silos in different IT systems and enables insights to be derived to seek to optimise processes, increase efficiency and drive innovation.
- Mirakl provides a marketplace SaaS platform to businesses, enabling them to adopt a marketplace business model. This can allow them to fully leverage digital channels, widen their product proposition and leverage data to increase monitisation potential relating to their customers.
- ReceiptBank offers a remote working tool for accountant and bookkeepers with more than 10,000 already subscribed to its product. The software helps automate and manage a lot of the manual tasks that accountants need thefore unlocking a lot of efficiencies and cost savings.
- ContentSquare sells a SaaS based predictive analytics platform that can be used by digital businesses to understand how its users are interacting with their websites or apps and how to optimise them for increased revenue and/or less churn.
- LeanIX is a SaaS solution that helps enterprise map out and maintain all of their SaaS and legacy software that they are using and accelerate rollout of new solutions.
- Thunderhead is a software platform for marketeers that is defining the developing customer journey orchestration space, allowing companies to significantly enhance their ability to capture, analyse and personalise online and offline touchpoints with a prospective customer in real time to optimise engagement with / conversion of customers.
- Platform.sh is a low-code/no-code SaaS platform which enables to easily build and maintain apps and websites. It gives business decision makers much better flexibility to innovate quickly and explore new ideas.
Healthcare has also increasingly come of age in Europe, with some strong life sciences exits...
The European healthcare sector remains led by life science or biotech companies which are developing new therapeutics. While the scientific expertise in life sciences has always been world class in Europe, historically there have been many frustrations that the region was good at scientific discoveries, but bad at commercialising them into world class therapeutics. There are however good signs that this is finally changing.
Investment in the Healthcare sector more than doubled from 2017 to 2019, with over $5bn invested in 2019. This growth was driven by a more than doubling in average round sizes from $26m in 2017 to $59m 2019, while the deal count remained relatively stable. The sector gained significant momentum from some high profile exits such as BioNTech and CureVac, which have both completed Nasdaq IPOs with strong after market performance.
We plan a dedicated index for life sciences…
Given the highly specialist nature of investments in life sciences, we have opted not to include these companies in the T100. Instead, we intend to launch a separate index of the life sciences vertical in due course. We are however including companies within the Digital Health and Med Tech verticals of Healthcare within the T100.
...and focus on digital health and med tech in the T100
The initial cohort of Healthcare companies are:
Digital health saw strong investment activity in 2019...
The Digital Health space first rose to prominence in 2017 in Europe, with the potential to use digital platforms and AI becoming a key theme of some earlier stage venture investments. In 2019 this led to a record year in terms of funds raised with almost $1bn invested into digital health companies including large raises for Babylon Health, Doctolib and DocPlanner.
...which has eased in 2020 as the crisis has delayed some digital penetration
Despite being in some ways a beneficiary of the Covid-19 crisis, the market for digital health companies has been a little more subdued in 2020 with total capital invested down c47%, albeit much of this is due to the very tough comparator of 2019 which included the $400m Babylon raise.
While usage by patients of digital platforms is no doubt up strongly over the past year, beyond telemedicine there has been a delay in terms of continued penetration of the healthcare industry as attention has been diverted to the short term priorities of dealing with the crisis.
Our T100 digital health companies look strongly positioned as the crisis eases
As the Covid-19 crisis hopefully eases during the course of 2021, there are a number of businesses which look strongly positioned to benefit including the following within the initial T100 cohort.
- Babylon Health has developed an AI platform for healthcare which uses historic medical data combined with a growing dataset of live patient data in order to make decisions about triage, causes of symptoms and future predictions of health. The platform is in use by parts of the NHS in the UK to make healthcare more efficient and improve patient outcomes and is now scaling with healthcare providers and insurance partners in the US.
- Doctolib provides a healthcare SaaS platform to practitioners to help them attract patients, manage their consultations and provide a digital service for care. The business has scaled rapidly in France and is now expanding into other European markets.
- Docplanner provides a healthcare platform that enables patients to find and book local physicians and a scheduling platform to physicians which can streamline their workflow. The business was founded in Poland and has rapidly scaled into other global markets including Italy, Spain, Mexico and Brazil.
MedTech has had a record 2020 driven by some very large deals...
Similar to Digital Health, the market for investment into the MedTech vertical grew strongly from 2017 to 2019 from $206m to $871m, primarily due to a sharp almost 3x increase in average deal size from $31m to $89m. The market has remained strong in 2020, with deal sizes increasing further and total investment surpassing the 2019 total.
...often linked to provision of more mobile, localised advanced care
A key theme of investments in the Med Tech vertical has been technologies and software platforms which can localise the provision of the best medical care, materially improving patient outcomes whilst not incurring extra cost.
This trend is well represented in our initial T100 cohort companies:
- LumiraDX has developed a point-of-care diagnostic testing platform which seeks to deliver accurate & fast testing of patients on a highly mobile device which can be used in clinics, whilst meeting laboratory standard testings. Its cloud based software platform can integrate with patient data and provide diagnostic based self-care plans which lowers cost and seeks to improve patient outcomes.
- Congenica provides a software platform to healthcare organisations in order to analyse and interpret genomic data of patients in order to improve patient outcomes. It has established its position as what it regards as the leader in genomic analysis of rare disease and inherited cancer and is expanding into somatic cancer, wellness and through partnerships with pharma companies.
- Quanta Dialysis has developed a smaller, simpler and more mobile dialysis system for patients with kidney disorders. This can allow patients to be treated in their own homes rather than needing to go to dedicated clinics, improving patient quality of life and lowering cost. The system is commercially available in the UK and approval is pending for allowing sales in the US.
Technology transforming infrastructure has led to huge value creation in the US...
We define the InfraTech sector as technology platforms which are transforming infrastructure, which includes verticals like mobility, delivery, agritech and cleantech. By this definition 4 of the top 10 US VC-backed deals and 5 of the top 10 European VC-backed deals in the second half of this year were in the Infratech sector.
The sector has also enjoyed significant exits including Uber’s $67bn IPO and Lyft’s previous $22bn IPO in 2019, which are the number 1 and the number 6 largest exits of VC-backed companies on record. This year the sector has also been a beneficiary of the current trend of SPACs, with Arrival and ChargePoint most recently getting acquired by SPACs.
...and its now taking hold in Europe too
In Europe the sector saw a 2.3x increase in funds raised in 2019 over 2018 from $1.7bn to $3.9bn, almost all driven by a doubling in the average deal size from $45m to $89m. Deal sizes have been increasing further in 2020, which will have largely offset a slightly lower deal count. There has also been the M&A exit of Flaschenpost this year, the German drinks delivery company, which sold for $1.2bn, which placed it as 3rd exit in Europe by size of the second half of 2020.
We have identified 3 clear trends emerging from the initial cohort of Infratech companies, namely SpaceTech, Energy Transition, and Next-generation logistics.
Low earth orbit has heralded a new space age...
The SpaceTech vertical not only includes hardware focused businesses, such as rocket launches and satellite manufacturing but also the software layer and rich data that is harnessed and sold to enterprises and consumers via constellations of satellites as well as by spatial technology.
Globally, the vertical is at an all-time-high for capital injected, with around c.$5bn in 2020, up almost 2x on 2019. The key dynamics driving this are primarily around the new opportunities that have opened up in low-earth-orbit (LEO) from launch platforms like SpaceX and Arianespace, which can enable the launch of satellites at a fraction of the cost of prior generations.
…unlocking valuable new data and communications services
This has led to the potential for businesses which can generate new forms of data for a multitude of applications and provide enhanced communications services. There has been a renewed government interest in making sure that they too are positioned to benefit from the new commercial and strategic possibilities of low earth orbit.
This dynamic is still in its early innings and we believe that further momentum over the coming years is likely. Within the initial cohort of T100 the following SpaceTech companies are included:
- OneWeb is working to provide fast and reliable internet access to everyone, everywhere via a constellation of Low Earth Orbit (LEO) satellites. OneWeb is selling internet access wholesale to sectors spanning from Maritime and Aviation to Enterprises and Governments.
- ICEYE seeks to provide timely, reliable and actionable information via its proprietary constellation of small satellites that use synthetic-aperture radar (SAR) technology to generate two- and three-dimensional images to sectors such as maritime, disaster management, insurance, finance, security and intelligence.
The energy transition has accelerated in 2020...
During 2020, the energy transition theme of moving away from a fossil fuel charged economy to alternative energy solutions gained significant momentum. In many ways this has been a long time coming given the first wave of ‘cleantech’ investment in the late 00s had mixed results and struggled to drive a fundamental shift. However, in recent years, the cost of cleaner energy solutions has reduced to a point where they have become economically viable in their own right at the same time as consumer desire and demand to make the transition has grown materially.
...with electrification of transportation being a common thread...
The transition to Electric Vehicles (EVs) is currently the most prominent driver of this transition, both in the commercial and passenger vehicle space. There has been a surge in both interest and capital driven by the perfect storm that has seen government embarking on stricter measures to fine corporate polluters, consumers becoming more comfortable adopting the technology, and new and more creative solutions to make this transition smoother both on the consumer and corporates alike.
Well-funded companies in Europe which are driving the transition to EV include Northvolt (EV batteries), Lilium (electric air taxis), Arrival (electric buses) and Forsee Power (battery systems for electrified commercial vehicles).
...and micro-mobility is having a resurgence
Another major theme of 2020 has been a resurgence in investment in last-mile mobility players like scooter and bike sharing with Tier and Voi both completing large fundraises in recent months in addition to Bolt, the ride hailing platform also completing a large raise and entering the scooter market. After a wave of hype when several Chinese and US players entered the European market in 2018, the market has rationalised with major cities regulating the sector and some of the European players proving out more sustainable business models.
Our initial cohort of T100 companies in the energy transition and mobility verticals are:
- Forsee Power is driving energy transition by manufacturing and designing smart and modular lithium-ion battery systems for applications in both heavy vehicles (bus and tracks, rails, marine) and light vehicles (e-scooters). The company has presence across Europe, Asia and North America with 3 production sites and 3 repair and maintenance centres.
- Octopus Energy is a provider of renewable energy services, currently serving close to 2m customers across the UK, Germany and Australia and currently growing at c.80k householder per month. The company’s tech focused approach to energy services also allows it to licence its proprietary CRM system, Kraken, to the likes of Eon and other large energy companies.
- Ilke Homes is seeking to pioneer the creation of economic, robust and sustainable homes with its modular housing approach, which allows for a reduction of construction waste by 90%. Its Yorkshire factory has a current capacity of 2,000 homes a year and is able to produce homes from start-to-finish in just seven days, with six homes coming off the production line a day that require 20% less energy to heat once installed.
- Onto is a digital platform offering electric vehicles (EVs) as a service, providing a flexible and easy path to consumer adoption of EVs. It radically reimagines the experience of acquiring a new car with consumers paying an all inclusive monthly fee and retaining total flexibility as to length of contract.
- Dott is a green micromoblity provider with the vision to seek to make micromobility accessible for all. The company has developed multiple partnerships with local authorities in each city and from day one has made the decision to take care of all operations in-house to seek to guarantee safety, quality and reliability to its users, a decision that it believes hass resulted in superior unit economics and better customer service.
- Lillium is looking to connect cities and regions emissions-free at compelling prices and with no significant infrastructure required thanks to its plans for a vertical take-off 5-seater electric jet. It believes that London could be linked with Oxford and Cambridge with a less than a 30-minute flight.
- Virtuo seeks to be a hassle-free, fully digital, premium car rental platform that provides its users the choice of renting a Mercedes A class or GLA in a fully contactless manner. You reserve, pay and unlock the vehicle all from the Virtuo app, and the vehicle is then either collected at one of their locations or delivered in front of your doorstep.
Winners in food delivery now look positioned for the public markets...
The final vertical within InfraTech worth noting is companies driving the next generation of logistics services. The vertical saw initial momentum in 2016 and 2017 with companies primarily in the food delivery space like Deliveroo, Picnic and HelloFresh completing what at the time were very large investment rounds and a total of $678m invested into the vertical.
Activity subsided strongly in 2018 as both these companies and the market digested that funding and the longer-term economic opportunity became more apparent. This was followed by a huge rebound in 2019 with further large funding rounds for food delivery companies Glovo, Picnic and Deliveroo. These companies have also been strong beneficiaries of the Covid-19 pandemic and while investment activity has again been more muted in 2020, some of these companies could be on a near term trajectory towards public markets.
...with digital disrupters in the freight industry looking positioned for opportunities in the next wave of value creation
At an earlier stage, but with significant promise, funding has been increasing into companies driving digital disruption in other parts of the logistics industry such as freight. Sennder, Forto (previously FreightHub) and Zencargo represent good examples of this dynamic.
The following companies in the Nextgen Logistics vertical form part of the initial T100 cohort.
- Everli is a grocery marketplace that links supermarkets with consumers digitally. Everli is active in both Italy and Poland, it handles the pick-up and shipment (via gig workers) and provides the digital interface that allows its users to browse across different supermarkets. Everli has built a network of more than 25 retailers and has become the e-grocery market leader in Italy.
- Karma Kitchen is a provider of flexible commercial kitchens in a similar format to co-working spaces; the company builds, equips and manage those spaces with the goal of providing users with all they need to run and operate a food and drink business. Users just need to pick a location and time in which they need to work, all the rest is handled by Karma Kitchen for a flat transparent fee.
- Sennder is a data driven digital freight forwarder; it recently acquired Uber’s European freight business and it has partnered with Italy’s largest service distribution network (Poste Italiane) and previously merged with Everoad to build Europe’s #1 digital freight forwarder. the company seeks to offer shippers access to a connected fleet of thousands of trucks and full visibility on transport orders with one click.
DeepTech is now a comparatively smaller sector...
Of all of the sectors in the T100, the one that has showed the least growth in the past five years is DeepTech. This is somewhat surprising as the sector includes the semiconductors, tech hardware and AI software verticals which have all seen historic value creation in Europe, as evidenced by the likes of ARM Holdings, CSR, Dialog Semiconductor and most recently DeepMind.
...largely due to the desired exit path of venture/growth investors changing...
The capital invested into DeepTech in Europe has held up in the $1-1.5bn per annum, however this now looks small compared with the other sectors which are more in the $3-5bn range and small compared with the over $8bn going into InfraTech. In terms of number of deals, this has halved since 2017 from 48 to 24 in 2020, offset by a substantial more than doubling in average deal size from $23m to $51m.
In many ways this appears to be driven by the commercialisation and the exit path for deep technology changing. Whereas previously many VCs were comfortable with selling deep tech business for $300-500m to an established player often pre-commercialisation, this type of exit does not match the amount of capital investors want to put to work.
...but there are still some big potential winners
This has led to funding gravitating to businesses where there is a strong opportunity to build a commercial business in its own right, with key examples including Graphcore, Darktrace and Privitar. The alternative approach is to use the technology to build a full stack business in a given market which can be disruptive to incumbents and hence businesses that would previously have been in the DeepTech sector have gravitated to the InfraTech sector, such as Lilium or Infarm.
The following companies in the DeepTech sector form the initial cohort of T100:
- Ledger is a provider of physical wallets to store crypto assets in what the company regards as a very secure way. The company’s product is managed via an App, which shows the balance of crypto assets held within the wallets as well as any transactions that occur. The company sold more than 1.5m wallets across 165 countries and have secured 100+ resellers globally.
- Rockley Photonics has developed a next generation fully integrated optical chip architecture. It believes its chips and modules have the potential to transform applications across healthcare, wearables, machine vision and hyper-scale data centre connectivity.
- Graphcore has developed a next generation processor specifically designed to enable new standards in machine intelligence computations and AI, which it calls the Intelligence Processing Unit. It has focused on demonstrating a significant magnitude of performance improvement compared with existing processor architectures which are not optimised for AI.
- Konux has developed a software to support the infrastructure management of railroads, in particular in relation to rail switches, which accounts for c.30% of all infrastructure-related delays to the rail sector and is estimated at a €12bn yearly cost to replace and maintain.
Next steps for T100 in 2021...
We plan to announce the final cohort of T100 companies early in the new year and from that point will begin tracking the performance of the 2020 Vintage of the T100 Index. We also plan a series of digital deep dive events which will provide an opportunity to explore individual sectors, verticals and themes in more depth with T100 companies and other industry experts participating in panel discussions, followed by one-to-one meetings and networking.