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European VC enters mega-fund land as Atomico closes on $820 million

Europe’s ever-growing startup ecosystem is prompting venture capitalists to raise ever-larger war chests.

The latest is Atomico, the London-based firm created by Skype co-founder Niklas Zennström, whose team on Tuesday unveiled a final close on $820 million for its fifth fund, a record-setting haul on the heels of a historic year for the European venture market.

Atomico’s new fund marks the largest for an independent venture firm based in Europe, which saw an all-time high of $11.2 billion in VC fundraising industrywide last year, according to PitchBook data. And the typical fund is getting bigger, with the median size rising to an unprecedented $105 million, a trend that is fueling larger funding rounds for startups in Europe and the US alike. European firms Northzone Ventures and Balderton Capital raised $500 million and $400 million funds respectively in late 2019.

For Atomico, the new vehicle is $55 million bigger than its predecessor, Fund IV, which in 2017 hauled in $765 million in the aftermath of the UK’s historic referendum to leave the European Union. The early-stage firm has backed companies like mobile-game developer Supercell, artificial-intelligence specialist Graphcore, and payment platform Klarna.

Atomico partner Hiro Tamura said that despite the bigger fund size, the firm’s strategy remains the same as its fourth fund, albeit serving a European VC market that is more crowded than in past years.

“There will be more competition and there will be more people vying for similar returns,” Tamura said. “I think we will continue to occupy what I think is a very effective zone for us, that is Series A and late venture rounds.”

Atomico acts as lead investor in Europe with a remit that also extends to the US, where it acts as a co-investor. Its new fund, first announced in 2018, also will write checks for Series B and C deals.

Tamura said Atomico’s strategy is to bet on startups in both business and consumer markets, including investments related to payments platforms and deep tech. Its new fund has already started to deploy capital, investing in startups such as diagnostics provider Kheiron Medical, employee-retention specialist Peakon and sales-software platform Automation Hero.

 

Read More – www.pitchbook.com

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10 big things: Blue Apron, HQ Trivia move on to Plan B

Blue Apron set out to transform the way people eat. HQ Trivia wanted to build the future of TV. Both companies financed their dreams by raising a lot of money from some of venture capital’s biggest names. And for a while, both companies seemed on the brink of breaking through.

But startup life can be fickle. Gradually, the early success gave way not to failure, but to what’s in some ways worse: irrelevance. And when the next-big-thing buzz wore off, both Blue Apron and HQ Trivia were confronted with the realization that their original plans for supremacy might need a major adjustment.

Blue Apron is publicly seeking a buyer, and HQ Trivia has apparently risen from the dead after a raucous, live-streamed funeral. The existential angst emanating from a pair of former Silicon Valley darlings is one of 10 things you need to know from the past week:

1. Cooks and questions

I’ve written before in some length about the turbulent times at Blue Apron, a company that encapsulates the venture capital world’s brief infatuation with meal-kit delivery startups. This week, along with its Q4 earnings, the company announced it is evaluating strategic options, including a potential merger or outright sale.

Once valued at $2 billion by VCs, life has gotten much tougher for Blue Apron since a 2017 IPO. The company has never turned an annual profit—although it did cut its losses by nearly half from 2018 to 2019, dropping from $122.1 million to $61.1 million—and revenue has been steadily shrinking.

In addition to revealing new financial numbers and plans to sniff around a sale, Blue Apron also announced the closure of a fulfillment center this week. The combination was enough to send the company’s stock price plummeting even further. It closed Friday with a market cap of less than $40 million, meaning its valuation has declined by more than 98% from its VC-backed high point.

If Blue Apron is able to find a buyer, two obvious options might be an established grocery chain or a larger food-delivery company. Those were the routes taken by some of Blue Apron’s former rivals in recent years: Fellow meal-kit startup Plated sold itself to Albertsons, while Home Chef was acquired by Kroger and Maple was gobbled up by Deliveroo.

Talks of an acquisition were also at the root of HQ Trivia’s recent drama.

The startup burst onto the scene in 2017 with its joke-filled, live-streamed trivia games, where users could win money by correctly answering an increasingly difficult slate of questions. The next year, it raised $15 million in a round reportedly led by Founders Fund, valuing the company at $100 million, according to PitchBook data.

Co-founder Rus Yusupov, who previously co-founded Vine, took to the pages of The New York Times to proclaim HQ Trivia’s “ambitions to essentially build the future of TV.” But instead, viewers slowly began to drift away, and funding dried up.

On Valentine’s Day, Yusupov reportedly sent a memo to workers announcing that a planned acquisition had fallen through and that HQ Trivia would cease operations that day. That night, HQ Trivia broadcast what was purportedly its last episode ever, replete with f-bombs, spraying champagne, complaints about high-priced dog food, and statements from host Matt Richards like, “Why are we shutting down? I don’t know. Ask our investors.”

But Monday morning brought a twist. Yusupov tweeted that after a “busy weekend,” he’d found a new buyer for HQ Trivia that wanted to keep the company up and running. Employees and fans are surely trying not to dwell on a succeeding tweet from Yusupov admitting that it’s “[n]ot a done deal yet.”

No matter what happens, we haven’t heard the last of the story. The Hollywood Reporter indicated Friday that The Ringer is planning a new podcast charting the trivia company’s rise and fall.

Today, neither Blue Apron nor HQ Trivia is where they hoped they would be back in 2017. One could go so far as to say recent events at the companies have been disastrous. But the fact remains that both have been more successful than, I don’t know, 97% of all startups that get up and running. Creating a sustainable company is really hard. Almost everyone fails. And almost everyone fails long before the point of making national headlines or reaching a unicorn valuation.

And who knows: Maybe new ownership is all Blue Apron and HQ Trivia need to mount wholesale turnarounds. The past week, though, brought plenty of reason for pessimism.

Grocery shopping may very well be transformed in the coming years, and a new future of TV may be built. But I don’t think Blue Apron and HQ Trivia will be the ones doing it.

Read More – www.pitchbook.com

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Optiv confirms ‘temporary’ UK closure and turns attention to M&A

Security giant says it is still committed to European expansion

US-based MSSP Optiv has confirmed what it called a “downsizing” of its UK operation, claiming the move is temporary as it turns its attention to M&A.

CRN reported yesterday that Optiv was in the process of shutting down in the UK, keeping on a handful of staff to continue any outstanding customer transactions.

 

In a statement Optiv called the move “temporary”, insisting that it still has plans to build a presence in Europe and has looked at 40 European businesses to acquire before deciding it “simply couldn’t justify the high valuations of these companies”.

“After a comprehensive strategic review, we’re temporarily downsizing our London-based organic operations,” Optiv said.

“We remain committed to serving the European market, clients, partners and prospects,” it added, claiming it could acquire “once European valuations right-size”.

Optiv’s CMO had previously said that the firm looked at acquiring the likes of SecureData and SecureLink, opting against making a bid because it thought the pair were overvalued.

SecureData was bought last year for a multiple of 20 times its EBITDA.

Micky Patel – partner at August Equity, which sold SecureData to Orange – told CRN earlier this year that the multiple was achieved because SecureData was unique in that it was a cybersecurity service provider that had scaled.

A panel of private equity investors also told delegates at CRN‘s Channel Conference MSP that they believe high multiples are here to stay.

 

Read More – www.channelweb.co.uk

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Yahoo Japan and Line set to merge

Japan’s biggest search engine and messaging app are set to merge under a deal agreed by their parent companies.

Yahoo Japan is the country’s biggest search engine, and has e-commerce and online banking subsidiaries.

Line is the country’s dominant messaging app, and is also popular in Southeast Asia and Taiwan.

Analysts say the merger will help the companies compete with Japan’s other online giants.

Yahoo Japan has long offered a diverse range of services but has lagged behind many of its competitors, said Seijiro Takeshita, from the University of Shizuoka.

“This will be a very big headache and threat to the players like NTT Docomo and Rakuten,” he said.

Big in Japan

While Google is the predominant search engine in the US and Europe, Yahoo is Japan’s most popular search engine.

More than 50 million people visit Yahoo Japan’s website every month.

Yahoo Japan is no longer linked to its US namesake, which sold its remaining stake in the company in 2018.

Line, which is owned by South Korean company Naver, has roughly 80 million users in Japan and a similar number in Southeast Asia and Taiwan.

The app itself is perhaps best known for cartoonish stickers, a feature which its competitors have also adopted.

In recent years, Yahoo Japan’s parent company, Softbank, has bet billions on primarily Asian-based tech companies.

The deal could also make it a dominant player in the payments market in Japan.

Softbank already has its own payment service PayPay.

With this deal, it will scoop up Linepay, which is used by many of its competitors.

“I think there will be a lot of game-changing issues that will go on,” said Mr Takeshita.

 

Read More- www.bbc.co.uk

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Virgin Galactic wins space tourism race to float on stock market

Sir Richard Branson beat Elon Musk and Jeff Bezos by listing his venture in New York.

 

Publicity-hungry billionaires must have a space venture, and here’s Sir Richard Branson’s: Virgin Galactic is now a stock market-listed company with a $2.4bn valuation. Actual space tourists won’t depart until next year, but Branson has beaten Elon Musk and Jeff Bezos in getting his business floated in New York.

Galactic, despite the whizzy-looking planes, is quite a simple financial bet. It’s a punt that multimillionaires can be persuaded in droves to part with $250,000 – the price of a ticket to ride from New Mexico to 50 miles above the Earth’s surface and back. Galactic is projecting revenues of $590m and top-line earnings of $270m in 2023, by which time it expects to have flown 3,242 passengers. Who are they all supposed to be?

The marketing pitch is that a trip on Galactic makes for a more entertaining holiday for the super-rich than a tootle around the Med on a floating gin palace. A Philip Green-style cruiser costs $500,000 a week to hire, apparently. And a private island comes in at $230,000 a week, according to Branson’s crew, who presumably have the inside track on Necker’s rental rates. Thus Galactic, according to the grim prose in the listing documents, “offers a unique value proposition relative to comparably priced ultra luxury travel and transportation experiences”.

 

Read More – www.theguardian.com

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A buyer for British Steel is welcome but what’s Jingye’s strategy?

It’s hard to see why the Chinese firm wants to take over a loss-making business in a tough market.

 

Half the woes for steelmakers in Britain derive from dumping into world markets by Chinese producers, or so we have been told for a couple of decades. So it is a strange sort of rescue for British Steel that ownership should pass to a little-known Chinese conglomerate, Jingye, offering a vague promise to invest a large sum.

Any buyer is better than none, of course, since the effects of irreversible closure of the Scunthorpe steelworks would be appalling. Top of the list would be 4,000 jobs, with another 20,000 in the supply chain. Then there would be the huge environmental clean-up costs.

Jingye counts as a more credible owner than Greybull Capital, the private equity outfit that took British Steel into administration. Yet it is still hard to understand why a Chinese group, which is only the world’s 37th largest producer of steel, wants to own a loss-making producer on the other side of the world.

 

Tata Steel couldn’t make financial sense of what it called its “long products” business, so gave it away to Greybull for £1 in 2016. Industry conditions haven’t notably improved for high-cost European producers since then. The price of iron ore, of the two key raw materials, is high. And complaints about energy and environmental costs, the other half of the industry’s troubles, are constant.

Perhaps Jingye wants overseas assets to balance the volatility in its home market. Or perhaps it calculates that a purchase of British Steel will open up opportunities to export to the UK some of its current products. But those theories are speculative. This £50m purchase may just be a hopeful punt in which the downside risks are deemed tolerable.

 

Read More – www.theguardian.com

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These firms are keying 2019’s record rate of add-ons

Private equity firms are living in the age of the add-on.

Through the first nine months of the year, add-ons to existing portfolio companies accounted for 68% of all private equity investments in the US—the highest annual rate on record—according to PitchBook’s 3Q 2019 US PE Breakdown. With deal multiples spiking across the broader buyout market, this inorganic growth is one of the few ways left for investors to find the potential for value creation to which they’ve grown accustomed.

As with every investment trend, some firms have embraced the strategy more fully than others. In ascending order, here’s a look at the six investors who have been most active in the US add-on market during 2019, according to PitchBook data, along with a rundown of the sorts of deals they’ve been getting done:

T-5. Insight Partners—30 add-ons

Until earlier this year, Insight Partners was known as Insight Venture Partners. That’s reflective of how the firm differs from most of the other firms on this list. Instead of focusing almost exclusively on buyouts and other private equity deals, Insight operates across a much broader segment of the private investment spectrum. It’s just as well known for its venture deals (or perhaps more so) as it is for conducting control investments.

But those control investments are still a major part of its strategy. And this year, it’s led to a spate of add-ons for a number of different portfolio companies, with a seeming focus on deploying new types of software across a range of sectors.

One example is Community Brands, a creator of software for nonprofits and other well-meaning organizations, which earlier this year announced three add-ons in a single day. Another is Enverus, which changed its name from Drillinginfo in August. The developer of software and data analytics for the energy sector has been busy building out its suite of services, acquiring one company that provides maps of the Permian Basin in March and another that makes billing and revenue software for the oil sector in July.

T-5. Harvest Partners—30

Harvest Partners, a New York-based firm that’s been making private equity investments since 1981, has taken a more diverse approach to its add-on activity in 2019, with no single portfolio company dominating its dealmaking.

In recent weeks, it’s been busy with Integrity Marketing Group, a distributor of life and health insurance that Harvest bought into alongside existing backer HGGC in August. (Of note to some, surely, is the fact that the chairman of Integrity’s board is Steve Young, the NFL hall of famer who’s also a co-founder of HGGC). Integrity was already on an add-on binge before Harvest entered the picture, and it’s kept it up in the meantime, acquiring four different insurance marketing companies in October alone, per PitchBook data.

The co-investor relationship with HGGC isn’t rare for Harvest. Some of its other portfolio companies that have been busy conducting add-ons this year are also examples of Harvest investing alongside fellow firms, including recycling specialist Valet Living (which it backs along with Ares Management) and insurance brokerage Acrisure (both Blackstone and Partners Group). That likely lightens some of the sourcing, diligence and dealmaking loads.

 

Read More – www.pitchbook.com

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Thomas Cook’s Nordic business lives on after private equity deal

A trio of investors—including two private equity firms—has teamed up to save Thomas Cook’s Nordic business a month after the British travel company suddenly declared bankruptcy, delisted its shares, ceased operations and stranded more than 150,000 customers.

European buyout firms Altor Equity Partners and TDR Capital, along with Norwegian real estate tycoon Petter Stordalen’s Strawberry Group, are slated to assume ownership of the Ving Group, as the Northern Europe unit is called. The group employs 2,300 people across charter businesses in Sweden, Norway, Denmark and Finland, along with Thomas Cook Airlines Scandinavia.

Strawberry Group and Altor will each buy 40 percent of Ving, while TDR Capital will purchase the remaining 20 percent, though no price was revealed. Following the acquisition, the investors will work to secure approximately 6 billion Swedish kronor (about $618 million) in liquidity and guarantees for the business.

Unlike the larger Thomas Cook Group, which was founded in the 1840s to serve the burgeoning British middle class, Ving has recently proved itself profitable. Some of the Ving units will declare bankruptcy in order to facilitate the redirection of all businesses to a freshly established company created by its new owners, but the company’s sale will ensure 400,000 people who have booked upcoming trips will be able to travel without issue.

“[The deal] secures the business and creates a stable foundation for future development,” Harald Mix, a partner at Altor, said in a statement.

Altor, based in Stockholm, has raised five funds since its creation in 2003. It has invested in more than 60 middle-market Northern European companies, worth a total of €8.3 billion (about $9.25 billion).

TDR Capital, founded in 2002, manages €8 billion in assets and is headquartered in London. It also focuses on mid-market companies, with a preference for growth-oriented investments.

Strawberry Group maintains 11 companies and invests primarily across the real estate, finance, hospitality and art industries. Stordalen is a Norwegian billionaire who, along with his three children, also owns the region’s largest resort chain, Nordic Choice Hotels. The brand operates 180 luxury hotels across five countries.

The buyout of Thomas Cook’s Nordic unit may be one of the more dramatic deals in recent memory, but it fits cleanly into the bigger picture of the region’s PE landscape. Nordic dealmakers such as Altor have maintained a relatively consistent slice of the European private equity pie over the past decade. As of September 30, Nordic PE deal value this year totaled about €26 billion, about 11% of overall European deal value, per PitchBook’s 3Q 2019 European PE Breakdown. Through the past decade, the Nordic region’s deals have largely hovered around that same share of the total.

 

Read More – www.pitchbook.com

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China-driven M&A in North America is nearly MIA this year

North American M&A activity involving Chinese buyers has fallen off a cliff this year. That’s not a complete surprise, but it’s not often you see such swift drop-offs without something alarming going on. China-driven M&A is on pace to fall by more than 90% from its 2016 peak, according to PitchBook’s 3Q 2019 North American M&A Report.

Just over $20 billion worth of North American M&A deals with Chinese acquirers have been consummated this year through 3Q, which would have been a blip in 2016, when $298.5 billion changed hands. Combined M&A value figures treaded water over the past two years, at least comparatively, and a few big deals were executed. In the background, though, volume slid very quickly, from 696 deals in 2016 to 496 in 2017, then to 274 deals last year, and finally, to only 73 so far this year:

US-based companies and Chinese acquirers have more or less ceased doing business, at least for now. Some of that is collateral damage from the trade war, but more of it is likely related to The Committee on Foreign Investment in the US. The CFIUS has effectively blocked several major transactions, mostly on national security grounds.

The list of affected sectors is broader than aerospace and semiconductors—reviews are now triggered for energy, transportation, healthcare and even financial services companies. Taken together, the regulatory territory covered by CFIUS reviews is quite extensive. The market is now very aware of the penalties involved, thanks to high-profile deals being scuttled by regulators—including some completed deals that had to be unwound after the fact. It would be interesting to track all of the broken deal fees and legal expenses involved in the deals that didn’t make it into the chart above.

It isn’t clear that an end to the trade war would lead to an immediate recovery in the M&A market. Activity would pick up to some degree with an agreement, but most of these cross-border cancellations boil down to those security concerns, many of them well-founded. As long as Donald Trump remains in office, China remains communist and we continue to give each other the side eye, it may be radio silence on the M&A front for a while.

 

Read More – www.pitchbook.com

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Flying cars’ next stopover could be on Wall Street

Flying cars may soon descend on Wall Street.

China’s EHang, a maker of autonomous and remote-piloted flying passenger vehicles, has filed for an IPO on the Nasdaq, seeking to break a barrier for its industry.

EHang is unprofitable and its revenue has been declining this year, according to its SEC filing. The move also comes amid a setback for Chinese-manufactured drones, after the Trump administration said on Wednesday that the US Department of the Interior would stop using unmanned vehicles and related technology made in China, citing national security concerns. It wasn’t immediately clear whether the department had previously been employing EHang’s technology.

Like other so-called flying-car developers such as Germany’s Lilium, EHang is positioning its one- and two-seat vehicles as a mobility answer to the traffic congestion that plagues big cities. It also is taking aim at commercial applications like grocery or parcel deliveries.

Last year saw a new high in VC capital raised by drone and aerial makers, which gathered about $460.9 million across 71 deals, according to the PitchBook Platform. Among the bigger venture rounds of late were North Carolina-based PrecisionHawk’s $75 million funding in January of last year led by ClearSky and China-based SZ DJI Technology’s $75 million deal in 2015 from Accel and other investors.

If its IPO is completed, EHang would become the first VC-backed flying passenger-vehicle startup to go public, according to PitchBook data.

Led by software engineer Huazhi Hu, EHang has raised more than $95 million in venture capital since it was founded in 2014, according to its filing, which lists GGV Capital and Zhen Partners as top shareholders with stakes of 10.8% and 7.6%, respectively. EHang is also developing unmanned drones for industrial uses.

The startup currently does flight testing under the supervision of China’s aviation authorities and has delivered 38 passenger-grade autonomous aerial vehicles for testing and training.

EHang’s losses have been growing as its sales are falling. It lost about 37.6 million Chinese yuan (around $5.3 million) in the first six months of the year, up from a loss of 26.5 million yuan in 1H 2018, according to its filing. The company’s revenue doubled in 2018 to around 66 million yuan from the previous year. Through June 30, revenue dropped to 32.4 million yuan compared with 38.4 million yuan in 1H 2018.

 

Read More – www.pitchbook.com