The European venture and growth ecosystem, continues to increase in both scale and quality and has now established itself as a major asset class. Its total value has increased to over $600bn, making it bigger than the major European mid-cap indices. Capital deployed in 2021 appears on track to exceed $60bn+, albeit it is still mainly sourced from outside Europe. Increased quality is demonstrated by the inaugural 2020 vintage of our T100 European Venture Growth Index, which has increased in value by 1.8x in its first year (based on the last post-money valuations achieved), and already achieved some major exits. The dynamic of the power law curve (i.e. performance being mainly driven by a small set of outliers) differentiates the asset class over others and we believe requires a different mindset to traditional investment. Encouragingly the evidence seems to suggest that this mindset is transitioning in Europe from novelty to reality.
- In this ScaleUp Views, we publish the full T100 universe of venture and growth companies we have identified and the detail of the inaugural 2020 vintage of the T100 European Venture Growth Index. The 2020 vintage tracks a simulated portfolio of investments in the T100 companies which completed substantial funding rounds in 2020. It has performed strongly in its first year and now stands at 1.8x on paper, which is twice the returns of the S&P500, Nasdaq and FTSE250 (albeit, this is somewhat of a crude comparison given the liquidity mismatch and differences in risk profile). The vintage has already achieved strong value creation via multiple liquidity events (e.g. Cazoo, Babylon Health, UiPath and Lilium), aided by buoyant public market demand for growth assets
- In addition to the level of returns, the scale of the European asset class is beginning to make it difficult for asset allocators to ignore. The total combined value of VC-backed European companies now exceeds $600bn, which is bigger than the total market cap of major European mid-cap indices such as FTSE 250, CAC 60 and FTSE MIB (Italian Mid and Large Cap index). The record $28bn that was deployed into venture and growth companies in full-year 2020 has already been exceeded in H1 2021 with $32bn invested. At this pace, over $60bn of capital deployment could be achieved over the full year
- Value created was $90bn in 2020 and in 2021, there has already been $244bn of value creation on new capital rounds at higher valuations or exits. Much of this value creation comes from a relatively small number of outliers; in fact, the top 30 companies accounted for c.$200bn (or over 80% of value creation). Major contributions to performance have been made by Klarna, UiPath, Checkout.com, Cazoo, Hopin and Celonis, almost all of which form part of the T100 2020 vintage
- We believe the generational mindset shift which may have enabled this value creation is becoming more pervasive across the entire ecosystem. In particular the millennial generation is producing entrepreneurs and employees who seem increasingly mission driven and global in outlook and identity. Technology has enabled them to collaborate at much greater intensity to discover market opportunities, develop disruptive products and services, and market them globally. The wider European investment community appears to have lagged in gaining exposure to these dynamics but there are signs that this is beginning to change
- Finally, an important development in the asset class has been the evolving nature of the investors. Historically, European VCs provided most of the capital, despite the smaller scale of the overall market for venture and growth companies on the continent; the make-up of investors and the ultimate capital backing them has started changing with strong inflow growing interest from non-European corporates as well as crossover investors
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Introducing the Lazard T100 Index
As anticipated in our previous edition of ScaleUp Views, the Lazard VGB team has been working intensely since last year to assemble and review data from both private and public databases to identify what we believe to be 100 of the most interesting European private companies (highlighted in this color thorughout the publication) as well as set up Europe’s first simulated index of selected venture and growth equity asset companies. The companies in our simulated portfolio have benefited, and we expect in many cases may continue to do so, from venture and growth financing. We have undergone a rigorous selection progress that involved us meeting and assessing hundreds of potential targets, following which we refined the list down to the names mentioned in this document.
...with our initial universe of T100 companies...
Given the number of venture and growth deals in FinTech (100) and SaaS (108) that have taken place since the start of 2020, these sectors form the bulk of our T100 list of companies as well as our inaugural index vintage. Building on the historical growth, these sectors are showing what we believe to be sound business models and have paved the way for new entrants to benefit from an established ecosystem. InfraTech, defined as technology platforms which are transforming infrastructure and operate in verticals like Mobility, Delivery, AgriTech and CleanTech, and certain areas of Consumer, have also seen a recent increase mostly driven by next-generation logistics for InfraTech and online sales via e-commerce in Consumer.
As discussed in our previous iteration of ScaleUpViews, the index is geared towards establishing a point of reference for potentially promising companies in Europe that we believe may be institutionally attractive. Consequently, mid and late-stage make up most of our index with a particularly strong representation from ‘growth’ companies with an established presence in their sectors and with strengthening unit economics to hopefully attract the next stage of “late-stage” capital.
...and the first vintage year of the index
A total of 54 T100 companies have completed 90+ equity deals since 2020 with capital raised in excess of $19bn. We construct the vintage by simulating an equal weight investment into the 60+ investment rounds completed in 2020. From a timing perspective for simplicity, the index assumes all rounds happened on the same date in mid-year, 1st July 2020.
There were 7 companies which completed multiple distinct rounds in 2020. In these situations, the index simulates an investment in both rounds. The result of this is to give a slightly increased weighting to these companies. Given the power law curve in the venture and growth ecosystem, this seems a reasonable assumption as they are more likely to be the fastest growing companies as the priority of an investor is to back their winners.
The 2020 vintage has already seen significant liquidity events...
The index works by updating the valuation of the individual companies at every new funding round or liquidity event. Of our original cohort of T100 companies, c.10 have already achieved or announced a liquidity event and c.20 have gone on to do further funding rounds.
FinTech, SaaS and Consumer have all been strong contributing sectors to this first vintage, and the pipeline of value creation continues to be very strong, with several of our constituents having announced or being reported to be considering a SPAC or IPO. Liquidity events included:
- Cazoo’s $800m SPAC at an implied $6bn+ equity value to existing backers
- Babylon’s $575m SPAC at an implied $4.2bn equity valuation
- UiPath’s $1.3bn NYSE listing with a $28bn market cap (up 20% from its IPO*)
*As of 01/07/2021
...and some assets have increased in value materially...
Major funding rounds included:
- Hopin’s $400m+ Series C at a $4.5bn+ post money, a 3x uplift from the previous post money in December 2020;
- Klarna’s $1.3bn 22nd primary private round at a $45.5bn+ post money, a 1.5x uplift from the previous post money in March 2021
Clearly there will be instances where companies within a T100 vintage do not achieve the growth or margins expected at the time of investment, which may lead to a negative impact on their value. It is also possible that valuations in certain sectors or verticals could be inflated at the time of the investment round and such valuations may moderate over time, also impacting negatively on the value of the investment. It is worth noting that it is a characteristic of the asset class that in these instances it can take longer for a valuation event to happen which captures the reduced valuation than the sometime faster pace of upward revisions to value. Also it is also possible that upward revisions could move back down again in the future.
Hence changes to the index to reflect any reductions in value may lag the changes from upward valuation movements.
…resulting in performance ahead of some public market indices
In terms of performance, despite the lag caused by the sporadic nature of new valuations for companies, the index started to see a material uplift to 1.52x in March driven by some major deals which included, Cazoo’s exit, Hopin’s Series C and Klarna’s 22nd primary round.
There has been further progress since March with the index level now at 1.8x, with other major deals announced including:
- Babylon’s SPAC mentioned above,
- ContentSquare’s c.$500m Series E at an announced $2.8bn post money valuation led by SoftBank,
- Tractable’s $60m Series D at an announced $1bn post money valuation led by Insight; and
- ManoMano’s $355m Series F at an announced $2.6bn post money valuation led by Dragoneer
To put this into some context (with the caveat that both the frequency of valuation events and underlying liquidity of the investments is very different), major European and US public equity indices (SP500, FTSE 250) have increased in value by half the amount in the same period from June 2020 to July 2021.
Venture and growth is now an established asset class in Europe...
We believe that the European venture and growth ecosystem has been transformed over the last 5 years, from a localised market with sporadic successes, to an established and growing asset class. This remarkable transformation has largely been fueled in our view by a sustained rise in interest from institutional investors in deploying a meaningful amount of capital in the asset class.
However, in addition to the strengthening investor sentiment, there appears to be a more fundamental shift towards the venture & venture growth ecosystem, which has attracted an ever-growing share of graduates and academic talent as millennials and GenZ continue to choose startups over corporations at a higher rate than ever before.
Surpassing major European midcap indices in scale...
Having grown more than 10x over the last five years, venture and growth as an asset class has now, based on our calculations, surpassed major European indices in terms of market capitalization (with the caveat there is a liquidity mis-match between the two asset classes). We estimate the current valuation of venture & venture growth companies in Europe to be $600bn+, this is calculated by taking the last post-money valuation achieved by companies within our defined universe of venture and growth, higher than the market capitalization of several indices including FTSE250, French CAC 60 and MSCI Germany Mid Cap index.
Companies across all major sectors in the asset class continue to grow and seek to challenge industry incumbents, supported by increasing investor confidence and the potential freedom to pursue growth for longer before pursuing exits. Private and public capital markets remain highly interested in venture and growth companies, including an unprecedented interest from SPACs, a healthy amount of activity in traditional IPOs and continued interest from private investors.
Small % accounts for most of the value created...
Consistent with the trend in 2020, a smaller number of companies in % terms across all sectors continue to attract an outsized proportion of capital and create the majority of value. The top 4% companies by market cap (calculated as 2021 post money valuation) of venture and growth companies now account for more than half of the combined market capitalization of the broader venture and growth ecosystem in Europe. Additionally, the top 4% also continue to drive value creation across the asset class—capitalisation of the top 4% of companies has more than doubled from 2020 to 2021.
The power law that has historically been the guiding beacon of VC investors has been at play yet again in the European venture and growth asset class. A select few companies have accounted for a disproportionate share of value creation, with the top 30 companies (the top 4%) accounting for over 80% of the value created in 2021 so far. While these companies are spread across various sectors, the concentrated value creation in a select few is of key importance for investors contemplating investments in European venture and growth companies.
...with a broadening of which sectors are creating outliers...
Another important development in our view in the European venture and growth ecosystem has been the diversification of sectors for the outlier companies. While consumer and healthcare sectors have historically been major sources of the outliers (the consumer sector accounted for more than 50% of the combined valuations from 2016 to 2019), the broader rise in European FinTech as well as the blooming SaaS sector have contributed to the diversification, as both sectors continue to outpace Consumer and Healthcare. Notably, FinTech now accounts for c. 30% of the valuations of top 4% venture and growth companies.
...from some strong performers in FinTech and SaaS
In addition to our T100 list, several other established companies have continued to build on their success and expanded scale (along with their capitalisation in public and private markets). Companies like Spotify, HelloFresh, Farfetch, Delivery Hero and Northvolt have had massive success in their aggressive expansion and have created remarkable amounts of value for their investors. These companies may also have paved the way for others to follow by seemingly increasing customer acceptance and appetite for disruptive businesses in their respective sectors as well as investor appreciation of European venture and growth companies as a source of value creation.
Crossover investors have now become strong players...
Historically, public market investors have shied away from European venture and growth deals, with European venture and growth-oriented investors accounting for the largest pool of capital for the asset class. However, there has been a steady rise in crossover investors leading investment rounds in Europe over 2020 and 2021.
...seeking early exposure to the potential next generation of large public companies
Some U.S. investors may be looking at Europe to generate alpha, as in certain cases Europe may be perceived by some investors as providing attractive valuations when compared with certain US counterparts, but with potentially equally compelling outlooks and possible paths to VC value creation.
Crossover investors, in particular, have become more active in Europe (e.g. Tiger Global, BlackRock, RA Capital, Coatue). While in 2019 only 2 made the top 15 investor league table, now, as at the half year, 4 of these (all from the US) are part of the top 15, with the number 1 overall being Tiger Global. These investors appear to be utilizing venture & growth investments as an avenue to exposure to long term disruption and place bets on the potential giants of the future. Additionally, investing in companies disrupting incumbent business models also serves as a possible hedge against an investor’s positions in the incumbents as well as potentially giving those investors insight into tomorrow’s possible trends and innovations that are attracting significant sums of funding today.
The first half of 2021 has seen an impressive increase in capital deployment…
The European venture & growth ecosystem continues on a strong trajectory, with capital investment in virtually all sectors at an all-time high.
Although the asset class witnessed only a modest increase in 2020, 2021 has seen an aggressive acceleration of capital deployment as well as deal counts, with total capital invested in first of 2021 now materially higher than the whole of 2020. Total capital invested in venture & growth companies in H12021 is up by 166% compared with H1 2020 and up 100% compared with H1 2019.
Total deal count in the asset class has also seen a strong rise in 2021, with a 39% increase from H1 2020 and 25% increase compared with H1 2019. While the deal count has increased consistently, the growth in capital investment has outpaced increase in the deal count, highlighting the consistent acceleration in average deal sizes across all sectors, now north of US$100 million.
The work we have done with the T100 index has given us an insight into hundreds of companies. We have witnessed top line growth now also supported by strengthening unit economics and a focus on sustainable margin creation across sectors, a sign to us of increasing maturity in the asset class. We expect that the work we will continue to do with the T100 will provide a useful “temperature check” for the asset class.
... with global exits at unprecedented levels...
Global exits in 2021 have seen a significant rise, both in terms of deal count and value realised by exits. The US continues to lead the way for both amount of VC-backed exits ($376bn, up 35% from full-year 2020) and count (120, up 166% from the previous year to date). Europe has also experienced a wave of positive exits—$80 billion exit valuation vs $15 billion in FY20, up more than 400% and c. 4x the prior peak for exits in 2018 (for which the major contributor was Spotify).
...and particularly strong exit performance in Europe
The number of European exits in the asset class was up 90%+ in H1 2021 compared with H1 2020. We believe that this material increase can be attributed to
- Tremendous growth in global capital markets activity (from both traditional IPOs and SPACs)
- The strong pipeline of later stage European private companies as a result of a continued growth of the last 5 years in the ecosystem; and
- Multiples being at an all-time-high across most sectors.
Valuations of exit transactions have also seen a similarly large increase in 2021, with a substantial rise in valuations across IPOs, M&A transactions as well as SPACs.
SPACs have been a key catalyst for exits...
While H1 2020 saw a higher number of exits via M&A, H1 2021 has witnessed a huge rise in the number of exits from SPACs.
SPACs emerged from relative obscurity to be the leading exit vehicle for venture and growth companies in Europe in little over a year. The rise of SPACs, both within and outside of Europe, has been a key driver of increased volume of exits; exits via SPACs accounted for c.US$34 billion in valuation in 2021. Notable SPAC exits in Europe include Babylon Health, Cazoo, eToro, Lilium, LumiraDx, Nexters and Rockley Photonics.
...and the IPO market has also been strong...
While SPACs have caught the limelight, IPOs have been steadily growing under the radar. 2021 IPO volumes have already matched FY2020 and 2x FY2019. Notable exits include the likes of Darktrace (up 100% since its IPO in April), Deliveroo (down 20% from its IPO in March 2021), Auto1 (flat on its IPO price in February) and UiPath (up 20% from its IPO in April) highlighting the growing public market appetite for venture and growth companies.
In addition to value creation pre-exit, venture and growth companies in Europe have seen a remarkable price appreciation post IPO. On average, IPOs from 2020 are up 122% and exits from the first half of 2021 are already up by 30%, signalling public market appreciation for the asset class in addition to an ever-increasing backing from private investors. Notably, as a general matter European IPOs of European founded businesses have performed better on average than their U.S. counterparts over the last three years. Although a third of European founded businesses have opted for a U.S. listing, most of which have been in Life Science, with a few notable exceptions i.e. Spotify, Farfetch, Cazoo and UiPath in recent years.
M&A now the less preferable exit route
In spite of record European M&A activity, M&A as an avenue for exits has been overshadowed by a significant rise in IPO and SPAC exits. While there have been a few notable M&A exits (e.g. Depop, Humio, Inivata and BrandWatch, as well as the announced deal by Visa to acquire open banking FinTech Tink for $2.5bn+ — still subject to regulatory approval), there seems to be a clear transition away from M&A for venture and growth companies. This transition, coupled with a simultaneous rise in overall transactions highlights for us the evolution in investment cases, which currently now seem to be more based on public market exit rather than acquisition by a strategic investor. In fact, it seems that some investors are investing on the basis of building a significant long-term position in a company that they expect to go public.
We believe that against the backdrop of the previous class of disruptive companies (such as Netflix, Spotify, Zoom, Tesla, etc.) generating enormous value by redefining their business models, there has been an undeniable rise in investors who seem focussed on getting exposure to the next generation of potentially category defining companies, on the basis that it could be a select few which create the bulk of the value again.
In the following sections, we identify some of the key themes by sector which we think may be driving growth and value creation in the venture and growth ecosystem.
Rise of FinTech — a European success story...
The evolution of FinTech in Europe has been one of the major highlights of venture & growth asset class in Europe. Supported by mature financial institutions and markets, progressive regulations as well as a developed digital infrastructure, FinTech companies in Europe have grown rapidly. Some of the major FinTech companies are now valued as highly as many of the major, established banks and they continue to deliver growth.
FinTech companies continue to attract strong capital allocation in venture and growth, accounting for c. 25% of capital raised in 2021. Capital invested in H1 2021 in the sector was up 286% from H1 2020 and up 147% from H1 2019; capital invested in H1 2021 is already materially higher (c50%) than for the full year 2020. Deals in the sector have similarly risen rapidly – H1 2021 deal count was 135% higher than H1 2020 and up 12% from H1 2019.
While both deal count and capital invested have grown substantially (average deal size is now near $200 million), total amount invested has outpaced deal counts, highlighting the ability to capitalize on scale. Exits in FinTech remain muted (eToro the only one in 2021) compared with historical figures, as investors appear to prioritize growth in scale over a quicker exit.
…with payment and digital banking providers continuing to thrive
Innovation in payment solutions (such as Buy Now Pay Later) and digital alternatives to traditional payment methods (such as Account-to-Account transfers) have rapidly advanced popularity and adoption of FinTech companies in Europe. The FinTech ecosystem continues to evolve with payment-related developments in cryptocurrencies, blockchain technology as well as OpenBanking, which present an exciting opportunity to reimagine how payment services are delivered to end-user. Payment-related companies continue to form a major portion of capital raised, with companies like Klarna, checkout.com and Rapyd raising substantial rounds in 2021.
Another major theme in the evolution of FinTechs in Europe has been the shift away from some traditional avenues of financial services distribution to customers. FinTech companies offering innovative and efficient ways of delivering services (digital banks, super-apps) may be redefining how consumers save, spend and invest money. Within digital banking, companies like Starling Bank, Revolut and N26 have attracted major capital investments in 2021.
European software continues its late bloom...
SaaS companies in Europe have experienced a ‘coming-of-age' moment over the last few years, with a marked improvement in investor sentiment around the sector as a whole and particularly for companies that improve business operations using data.
The sector has seen a rapid growth in invested capital and deal count, with Capital invested in SaaS companies in H1 2021 up 103% from H1 2020 and up 101% from H1 2019. Although the deal count in SaaS has grown historically (deal count in 2020 1.4x 2018 levels), the deal count has dropped over the course of H2 2020 and H1 2021, highlighting the rise in average deal size (approaching $200 million in Q2 2021). Data management and analytics providers have been driving a material portion of capital allocated to the sector in Europe and continue to grow in scale.
...with some strong exits proving the investment case
2021 has also been a year of notable exits for the sector with various notable IPOs (Darktrace, Trustpilot, UiPath) and M&A transactions (Brandwatch, Humio, Peakon).
Consumer Sector appears to be recovering…
Companies in the consumer space have recovered strongly from 2020, where the Covid-19 pandemic impelled companies to adapt in short order. Capital invested in the Consumer Sector in H1 2021 is already in-line with full-year 2020 and 2019 with a significant uptick in the deal size, now reaching north of $100m.
Capital invested in H1 2021 was up 121% from H1 2020 and 84% from H1 2019, with the deal count in the sector in H1 2021 33% higher than H1 2020 and 38% higher than H1 2019.
While the consumer space has seen major evolution in capital raise in 2021, exits in the sector remain limited; 2021 notable exits have been focused on a select few and e.g. Cazoo and Depop.
Online marketplaces continue to dominate the sector (Back Market, Casavo, jobandtalent). Capital markets have also been increasingly open to venture and growth stage companies in the consumer space, with SPACs (Cazoo, Nexters) providing an efficient route to exit.
Healthcare sector in Europe seems to have evolved from discovery to commercialization...
Translation of successful therapeutics and technology development into commercial success has been another major theme in European venture and growth companies across healthcare. Pandemic induced demand for tele-health was a major catalyst for various digital health providers and will likely leave a lasting impact on the patient-healthcare provider relationship.
Investment in the Healthcare sector was up 22% in H1 2021 from H1 2020, representing over 80% growth from H1 2019. The sector has also seen a rise in the number of deals, which grew 11% in H1 2021 from H1 2020 and up 40% from 2019. Just as the investment has grown, so has the average deal size, which has risen to c. $100m in 2021.
Various successful exits in 2021 were dominated by therapeutics and have helped the sector garner more attention from investors and entrepreneurs, strengthened by supportive capital markets, as highlighted by notable IPOs (Centessa, Immunocore) as well as SPAC driven activity (Babylon Health, LumiraDx).
With Biotech and therapeutics leading the way...
Biotech companies developing therapeutics as well as digital solutions (digital platforms as well as care providers) continue to grow successfully and raise capital. This has marked a notable evolution for the sector and helped accelerate the momentum for companies to commercialize innovations successfully. 2021 has also seen a rise in life sciences investments and exits, dominated by IPOs in the US (e.g. Sana Biotechnology and 23andMe)
InfraTech in Europe has reached an inflection point...
We define the InfraTech sector as a combination of technology-enabled companies operating in mobility, delivery, agriculture and clean energy spaces. The broader InfraTech ecosystem has been among the largest sectors in the global venture and growth sphere and continues to show impressive growth globally with strong tailwinds from increasing investor appetite for ESG as well as the continued digitalisation of legacy industries.
In Europe, the sector appears to have reached an inflection point, supported by notable exits (e.g. Deliveroo, Lilium) and continues to attract a record amount of capital. As a sector, InfraTech has raised the most capital in 2021, accounting for over one third of invested capital. It is worth noting that while a few major transactions (especially Northvolt’s $5.5 billion capital raise in June 2021) have skewed the scales in favour of InfraTech, the sector has been among the largest in European venture & venture growth since 2019.
Investment in the sector has seen a strong rise in 2021, with the total capital raised already up 65%+ in 2021 from all of 2020. Capital invested in the sector in H1 2021 was up almost 6x the investments in H1 2020 and 2x the investments in H1 2019. Deal counts in the sector have also risen steadily. H1 2021 deal count was c. 240% higher than H1 2020 and c. 65% higher than H1 2019.
...with mobility and next-generation logistics as key drivers.
Next-generation logistics companies (e.g. Deliveroo, Sennder, Glovo) and companies directly or indirectly addressing advancements in mobility (Northvolt, Flixbus, Volocopter) have been driving the growth for the InfraTech sector. Quick-commerce companies, in particular, have ballooned across Europe and local startups have emerged across major European countries to execute technology-driven logistics business models, as expansion across different countries has proved challenging.
The increase in volume reflects an interest from investors to uncover regional leaders in next-generation logistics as well as companies that are on a mission to facilitate the energy transition.
DeepTech remains smaller but we believe is showing signs of life...
While the DeepTech sector historically contributed a major portion of successful European technology exits (ARM, DeepMind, CSR etc), capital investment now seems to be directed towards other sectors probably as a result of changing investor approach towards exits, albeit a rise in SPAC has helped improve investor sentiment.
Consistent with the broader venture and growth asset class, European DeepTech has seen a substantial rise in capital investment and deal counts in 2021. Capital invested in the sector in H1 2021 was up 40% as compared with H1 2020 and by 110% as compared with H1 2019; 2021 capital invested is already around 80% of capital invested for the full-year 2020. Similarly, H1 2021 deal count was 27% higher than H1 2020 and 17% higher than H1 2019.
Despite strong growth 2020, DeepTech is now the smallest sector in terms of capital investment, deal count and exits (few notable exits – Rockley Photonics, WaveOptics), highlighting shifting investor sentiment towards other sectors with clearer exit strategies. Nevertheless, several DeepTech companies have attracted investor capital in 2021 with innovative approaches to commercialising research. Aglie Robotics, Oxbotica, Faculty and Isotropic have completed their first large venture financing rounds in 2021, while several others continue to fund expansion with large growth raises (Ledger, Graphcore, Konux, Immersive Labs, etc.)
Next steps for T100 and ScaleUpViews...
We will continue to track the performance of our inaugural vintage of T100 companies as well as establishing a new vintage every year. Additionally, we propose to continue providing periodic updates on the venture and growth ecosystem and to explore the underlying themes in greater detail. Finally, we will provide an opportunity to a number of our subscribers to explore in more depth individual sectors, verticals and themes relating to the T100 companies.