How does the venture capital method value a business?
The Venture Capital Method is often used for valuing early-stage companies. We show you how it is done.
2018: Switzerland’s year of Venture Capital
Theoretically, every Swiss invests USD 147.6 in startups, while every Brit invests USD 39,4 and every German only USD 27.7. It is quite impressive how big the small country is in business.
Venture Debt vs. Venture Capital II
In the second part of the series, we take a closer look at the difference between Venture Debt and Venture Capital. Click here for the first part of the series about “What is Venture Debt?”
Venture Debt vs Venture Capital
When comparing venture debt with venture capital, it is essential to bear in mind that venture debt is mostly a topic for mature (ventures) companies, which make a continual profit, whereas venture capital (equity) is for still early-stage companies. (Fuse3, 2017)
Note:
Startup Valuation is always a challenge but we created a free tool for that!
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Venture capitalists and entrepreneurs are intimately connected; meaning they succeed or fail together. The venture capitalists often take a seat on the company’s board of directors in order to make the potential return match the risk. On the other hand, a venture debt lender does not take on the same risks as the VC; they are hedged. A lender’s returns are linked to fees, interests and warrants (equity kicker). VCs provide a higher portion of the whole capital mix between equity and debt. VCs are an appropriate choice to attain a venture of the ground when a huge amount of capital is required. The most important drawback of the venture capital is that it can be dilutive leading to losing significantly of ownership of the founders. However, Venture debt has very limited dilution for the company’s founders, which is why owners choose venture debt after raising equity capital from VCs. (Edgington, 2017)
What is Venture Debt?
As an early stage startup, your most prominent concern is probably access to capital and securing the first 18 months. You do not want to see the fruits of your early work dying before they hit the market. You demand supplemental forms of financing that provide your company with the required capital at a reasonable cost.
Venture debt is an essential part of any entrepreneur’s toolkit to respond to this demand – but is it suitable for early-stage? We gathered in this 4 part series critical and general information on venture debt. We would like to give you an overview of this rising alternative to traditional Venture Capital by answering the most frequently asked questions we received during the last months.
So what is Venture Debt?
Venture debt is a form of debt financing for venture equity-backed companies that lack the assets or cash flow for traditional debt financing, or that want greater flexibility. Patrick Gordon, Kaufmann Fellows.
Venture Debt is provided by banks, finance companies and funds and is generally structured as a three to a four-year term loan with warrants for company stock – enabling an equity kicker and serving as collateral to protect the downside.
Note:
Startup Valuation is always a challenge but we created a free tool for that!
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The expected returns on venture debt capitals usually range from 12–25% in monthly repayments in association with loan interest and equity returns. (IPFS, 2016) Lending to early-stage companies is riskier than the interest rates. Therefore, lenders also take warrants while lowering the rates. (Denning, 2017)
Venture debt is an attractive option to finance business because it amounts to less equity dilution and it does not require valuation and is, therefore, a fast alternative. (Trinity Capital Investment, 2018) Furthermore, venture lenders need no board seats, and in comparison with equity, the due diligence procedure is less time consuming – because they are collateralised in the first rank with equity.
There are generally three types of venture debts:
- Growth capital is structured as a term loan and can be used to replace an equity round or provide additional working capital
- Accounts receivable financing allows revenue generating startup companies to borrow against their accounts receivable items
- Equipment financing is structured as a lease and is used for the purchase of equipment. (Alex Erhart, 2016)
In our next article, we will compare venture debt and venture capital and their differences.
Invest Europe: Key findings 2017
Invest Europe published its annual report on investment and fundraising for the European private equity and venture capital industry. The report covers activity on over 1,250 firms, directly verified by fund managers using the European Data Cooperative (EDC). The EDC holds data from over 3,000 European private equity firms on 8,000 funds, 64,000 portfolio companies and 250,000 transactions since 2007. The research is recognised by coverage in the Financial Times.
The investment market is booming
Findings in the report paint a delightful picture of the Investment development in Europe. Fundraising reached €91.9 billion, surpassing 2016 by 12% and the highest level since 2006. Pension funds provided 29% of all capital raised, followed by funds of funds (20%), family offices & private individuals (15%), sovereign wealth funds (9%) and insurance companies (8%).
Private equity hits ten-year high
Simultaneously Private equity investment in European companies hit a ten-year high at €71.7 billion, a 29% year-on-year increase. Almost 7,000 companies received investment, of which 87% were small and medium-sized enterprises (SMEs). Divestments (measured at cost) increased by 7% to €42.7 billion. This is the third highest level of the past decade, with around 3,800 European companies exited in 2017. Venture capital investment increased by 34% to a ten-year high of €6.4bn, surpassing 2008’s amount by 13%. Nearly 3,800 companies were venture-backed, an 8% increase.
PE investments by industry
Companies focused on consumer goods and services in Europe received 15% more private equity investment compared to last year, representing 24% of the total. Almost equalling this were business-to-business products and services, increasing by 51% to account also for 24% of the total. The technology sector (ICT) reached a ten-year investment high, with 17% of the total, a year-on-year increase of 6%.
Geographical Distribution of the Investments
France and Benelux-based companies received 27% of private equity investments in 2017. Close behind was the UK & Ireland with 26%, followed by DACH-based companies (20%), Southern Europe (13%), the Nordics (9%) and CEE (5%).
6 Trends in LegalTech
The new generation of lawyers has high expectations about what technology can do for them. With life cycles of innovation getting constantly shorter, we are surrounded by new disruptive technologies and this is not different in the legal world. According to research from Thomson Reuters Legal, 579 “lawtech” patents were filed worldwide in 2016, up from just 99 in 2012. The expansion in Legal-Startups and patent filings are driven by interest for quicker and less expensive approaches to legal services.
In honor of the Legal Tech Conference taking place in Vienna today, we are highlighting 6 legaltech trends, which could make a big impact in the work of lawyers as well as the experience of their clients.
#1 – Robotic Lawyers
The most interesting case of a robotic lawyer is ROSS, an artificially intelligent legal research assistant built on IBM’s Watson supercomputer. Capable of handling ‘natural language’ legal questions, for which ROSS will return cited legal answers and topical readings from legislation to case law and secondary sources instantly, many legal heavyweights in the US are already using it, such as Latham & Watkins LLP.
#2 – Intelligent Legal Research and Document Analysis
Legal research is very costly for law firms. Therefore, advanced analytics programs, some of which use artificial intelligence and machine learning technology, are already proving to be invaluable for law firms, which handle and generate loads of documents. Most legaltech startups to date have focused on making this procedure and all this material more manageable.
Companies such as Justis and Ravel Law (which was acquired by Lexis Nexis) are already using advanced analytical algorithms to make the research task more manageable.
#3 – Big Data Analytics
Big data has already caused a big impact in various industries, and it is not different for the legal world. Many tools are already helping improve the search process and give lawyers data-driven tools to research through millions of documents. Using big data can also lead to a greater degree of efficiency and transparency, which everyone will benefit from. Reducing the time it takes for lawyers to complete research and casework, will lead to improved access to the justice system.
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#4 – Automated Legal Assistance
Many firms are already using packaged legal solutions instead of custom-tailored solutions for every client. For example, Wevorce users can have access for around USD 800 to a pre-packaged divorce plan that suits their needs together with pre-filled divorce forms. We can also find startups such as Bright Advise, where users only need to submit a question and a professional will be in touch with them shortly after.
#5 – Writing of Documents
Writing legal documents, together with legal research, are the tasks that most likely cause a strain on lawyer’s finances and time. Some startups are already automating those tasks using various programs or services. Many services like Ironclad may help create, fill, and manage contracts in an effective way.
#6 – New business models and payment methods for lawyers
The search for new business models or at least for the possibility of expanding their own business model will also play a greater role in the future for lawyers. An example would be to use data and smart algorithms to predict what a client might need and actively approach it.
All those trends, while impressive and likely to ease the workload and research of many lawyers, are still far from being an everyday reality. Legal advice is still a very personal job, clients often seek reassurance in face-to-face advice. The reality of an artificial intelligence lawyer might have to wait some decades but today the increasing presence of automated processes will start replacing associate-level lawyers and help firms save money and time managing documents and handling research.
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If you are interested in getting to know more about this topic and how we can help your firm be more efficient, please contact our Partner and Head of Legal Alexander Rapatz.
The Austrian Startup Ecosystem – Strong as Ever!
Note: You can read this article in German at DerBrutkasten.com.
For a long time, thinking about self-employment and entrepreneurship wasn’t a priority in Austria with high entry barriers (investments). Luckily, times have changed. Digitization has dramatically lowered these barriers. Today, anyone can come up with a good idea at the kitchen table and use it on their laptop, and soon after, business life begins. High investments in machinery and factories are no longer necessarily needed.
Beginning and end of the first VC funds
Only a few years ago, almost all initiatives within the Austrian startup ecosystem were run by the state. We experienced a market failure. The veterans of the venture capital scene Gert Reinhard Jonke (Venture Capital Funds), Michael Tojner (then venture investor behind BWIN), PONTIS Ventures and later Gamma Capital Partners had either already developed further, could no longer put together new funds, or have simply missed the advent of a new founder era. Startups in Austria were not completely at the beginning, but they needed new pioneers.
The beginning of the startup ecosystem 2.0
With Start Europe and later Pioneers Festival, the potential of the Austrian startup ecosystem and the need to catch up internationally became very clear. The most well-known early drivers of today’s startup ecosystem Speedinvest, i5Invest, Hansi Hansmann, Stefanie Pingitzer, Selma Prodanovic and our company (Venionaire was established in 2012) had initially a hard time to attract the attention from media, politics, and society. Even in 2015, it was too early to convince institutional investors on a larger scale, with many still licking their wounds from the dotcom bubble. Today, there are again efforts to address these investors, whether it will succeed to convince them this time is still uncertain.
Private initiatives are getting stronger
In addition, Austria hadn’t enough successful startup founders, who could support the ecosystem as mentors and investors after their exit. All of this has changed dramatically in recent years and the ecosystem has developed greatly – the number of investors has multiplied, established companies are regularly working actively with startups, and some government initiatives have done an excellent job creating a market that adapted the dynamics of the private sector. Above all, the commitment of institutional investors should be promoted so that Austria’s investment power will be further expanded. Especially in the field of high technology is still hidden potential that could be exploited through investments and technology transfer centers. The current strength of the scene can still be expanded!
In the next segment of this article, we present you an overview of the startup ecosystem in Austria from an investors perspective. This list was inspired by Bernhard Hauser’s blog and is build on his content. If an important player is missing, we are very happy if you shoot us a quick email.
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Business Angel Networks (private sector)
Mergers of Business Angels are not a new invention. They offer Angels several benefits, such as sharing experience, co-investing, or better dealflow. Networks, which (also) operate in Austria in alphabetical order:
- aaia
- eQventure Beteiligungsgesellschaft
- European Super Angels Club (ESAC)
- IECT – Hermann Hauser
- PRIME CROWD
- Startup300 (Linz)
- Tyrolian Business Angels (TBA)
Business Angel Network (public)
Venture Capital Fonds
- 3TS Capital Partners
- Allinvest
- Apex Ventures
- ARAX Capital Partners
- aws Gründerfonds (Staatliche Förderbank – AWS)
- B&C Innovation Investments
- Capital300
- CleverClover
- Dellbruck Ventures
- ecos private equity
- EXF Alpha (Venionaire Investment; European Super Angels Club)
- Fiedler Capital
- Kapa Ventures
- Michael Grabner Media
- OÖ Hightechfonds (LAND Oberösterreich)
- Pioneers Ventures
- PUSH Ventures
- red-stars.com
- Round2 Capital Partners
- Scheuch Family Foundation
- Speedinvest
- tecnet Equity (LAND Niederösterreich)
Corporate Venture Capital
- A1 – invests opportunistically (no own fund yet)
- UNIQA Ventures – invests opportunistically (no own fund yet)
- KELAG – invests opportunistically (no own fund yet)
- APA – invests opportunistically (no own fund yet)
- Kurier – invests opportunistically (no own fund yet)
- Seven Ventures – Media for Equity
- Constantia New Business
- Russmedia
Acceleratoren
- Agro Innovation Lab
- Factory1 (KAPSCH Trafficom)
- ElevatorLAB (Raiffeisen Bank International)
- GreenStart (Klima und Energiefonds)
- Match Maker Ventures
- WeXelerate
Company Builder / Incubator
- Accent
- Akostart (University / University of Applied Science OÖ)
- Blue Minds Factory
- Build!
- Cast
- CELIAN VENTURES
- INITS
- Institute of Science and Technology Austria — Cube
- Sciencepark Graz
- Speedstart Studio
- tech2be
- UT11 (Up To Eleven)
- Werkstätte Wattens
- Zentrum für angewandte Technologie
Startup Zentren bzw. Innovation-Hubs
- Lake Side Park (Klagenfurt)
- Factory300
- Talent Garden (Eröffnung 2018, geplant)
- WeXelerate (Grand Opening, Nov. 2017)
Training and Coaching for Investors / Startups
Article Part 4: The Future of Artificial Intelligence – WALL-E or Terminator?
In cooperation with Venionaire Capital, DerBrutkasten.com publishes a four-part article series on the subject of artificial intelligence. We are concentrating on the economic aspects of how AI works to the current research and the future of artificial intelligence.
The fourth and last article will concentrate on how the artificial intelligence will turn out in the future.
According to a quote from Stephen Hawking in The Guardian, Artificial Intelligence will be “either the best, or the worst thing, ever to happen to humanity”. The growing computer performance and Big Data enable machines to become even smarter. In an open letter, therefore, numerous industry leaders, such as Elon Musk or Hawking, call for the prevention of artificial intelligence and the control of the systems.
Musk believes that AI could become an existential threat to people and emphasized the need for legal requirements. Other AI skeptics are worried about the labor market. AI, according to the apprehension, will at least provide a new wave of mass unemployment in the short to medium term.
Joe Lobo, “chief botmaster” at the Startup Inbenta, has a more positive idea of the future of work and artificial intelligence. In a Forbes podcast he explained how technologies create new jobs and people can use their skills for new opportunities. So far, the development showed that AI systems complement human workers more than replace them. AI skeptics and enthusiasts, however, agree that jobs will change and new forms of employment will arise.
Whether advocates or adversaries, it is certain, in AI will be further invested and researched. In the end it is in our hands whether we end up with a terminator or a Wall-E.
However, to an artificial superintelligence it is in any case still a long way, as we described it in the second part of our series. In the third part, we also showed that the research and development of artificial intelligence was not a linear process, but had to repeatedly record ascensions and declines. The economic impacts of AI, which we dealt with in the first part, are equally interesting for start-ups and early-stage investors.
For the whole article click here.
The top 15 AI Deals in Europe
The marketplace for artificial intelligence (AI) technologies is thriving. Beyond the hype and the intensive media attention, the numerous start-ups and internet companies racing to acquire them, we can observe that private companies are increasing their investment and adoption to these technologies.
To complement the article series on artificial intelligence we would like to outline the 15 biggest deals on artificial intelligence start-ups in Europe.
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1. Kreditech
Location: Hamburg, Germany
Funding Amount: USD 162.590.000
Webpage: kreditech.com
Provider of a lending as a service (Laas) based credit-scoring platform designed to improve financial freedom for the under-banked by the use of technology. The company’s lending as a service (Laas) based credit-scoring platform identifies and scores individuals online, decides and instantly pays out loans, based on 15,000 data points, providing banking products (instalment loans, microloans, credit cards, electronic wallets) to customers in emerging markets.
2. BenevolentAI
Location: London, United Kingdom
Funding Amount: UDS 100.000.000
Webpage: benevolent.ai
Provider of artificial intelligence technology intended to transform the process of pharmaceutical research and development. The company’s self-learning artificial intelligence and machine learning capabilities focuses on the disease areas of inflammation, neurodegeneration, orphan diseases and rare cancers as well as Judgment Augmented Cognition System (JACS), enabling human health, bio science and information technology sectors to analyse vast quantities of scientific information for the advancement of scientific discovery and applying it to real world problems.
3. Alteryx
Location: Broomfield, Colorado
Funding Amount: USD 85.000.000
Webpage: alteryx.com
Alteryx is the leader in self-service data analytics
4. Blue Yonder
Location: Karlsruhe, Germany
Funding Amount: USD 75.000.000
Webpage: blue-yonder.com
Provider of Big Data analytics and predictive applications. The company offers a cloud-based scalable platform with machine-learning algorithms. The enterprise’s platform automates decision-making in real time and supplies precise forecasts. It is also used in dynamic pricing and in customer analyses.
5. Darktrace
Location: London, United Kingdom
Funding Amount: USD 64.000.000
Webpage: darktrace.com
Provider of cyber threat defense systems designed to detect and respond to previously unidentified threats. The company’s cyber threat defense systems include detecting emerging cyber-threats and to proactively defend against in-progress cyber-attacks, enabling clients to defend against evolving threats that bypass all other systems.
6. Arago
Location: Frankfurt am Main, Germany
Funding Amount: USD 55.000.000
Webpage: arago.co
Provider of information technology automation services. The company develops artificial intelligence software for banking and telecommunication sectors. Its products include AutoPilot, CloudPilot, DocMe, BuildMe and MARS-O-matic and its services include WebFarm and CloudFarm.
7. Blippar
Location: India, Turkey, United States, United Kingdom
Funding Amount: USD 54.000.000
Webpage: blippar.com
Provider of augmented reality software for smartphones. The company offers a platform that enables users to turn images into interactive Web experiences, through image-recognition technology.
8. Cambridge Quantum Computing
Location: Cambridge, United Kingdom
Funding Amount: USD 50.000.000
Webpage: cambridgequantum.com
Provider of tools for the commercialization of quantum computers. The company provides cryptography, financial, medicinal, biotech and big data services.
9. Quid
Location: San Francisco, United States of America
Funding Amount: USD 39.000.000
Webpage: quid.com
Provider of a visualization platform designed to offer text-based data analysis. The company’s visualization platform combines search, premium data and high-performance algorithms from news articles, blog posts, company profiles and patents to create visualizations of markets, trends and cultural phenomena, enabling businesses to analyze investment trends, gain competitive intelligence, map innovation as well as make decisions that matter.
10. Rapid Miner
Location: Boston, Massachusetts
Funding Amount: USD 36.000.000
Webpage: rapidminer.com
Provider of data science platform designed to offer predictive analytics built on an open stack. The company’s data science platform allows to build software for real data science, fast and simple, unifies data preperation, machine learning and model deployment, enabling companies to drive revenue, reduce costs and avoid risks.
11. Withings
Location: Issy-les-Moulineaux, France
Funding Amount: USD 33.830.000
Webpage: withings.com
Developer of digital health and wellness smart devices and applications. The company offers software and devices that enable people to monitor and track their personal health data.
12. Nanigans
Location: Boston, Massachusetts
Funding Amount: USD 32.850.000
Webpage: nanigans.com
Developer of an advertising automation software. The company’s online platform offers programmatic media buying, predictive revenue optimization and real-time business intelligence.
13. Graphcore
Location: London, United Kingdom
Funding Amount: USD 30.000.000
Webpage: graphcore.ai
Developer of a processor designed to accelerate machine intelligence learning. The company’s intelligence processing unit emphasizes massively parallel, low-precision floating-point computing and provides higher compute density than other solutions, and the C++ programming framework provides seamless interface to standard machine learning frameworks, with simple integration for existing applications written for Tensorflow, enabling researchers to explore machine intelligences across a much broader front than current solutions.
14. Pyramid Analytics
Location: Amsterdam, The Netherlands
Funding Amount: USD 30.000.000
Webpage: pyramidanalytics.com
Provider of a business intelligence platform designed to simplify the access to information to help organizations optimize their business. The company’s business intelligence platform provides delivers intuitive enterprise level Business Intelligence through an integrated, scalable dashboard and analytic application for all types of business users, providing them with modules that can be accessed through a single, web-based interface.
15. Celonis
Location: New York, United States of America
Funding Amount: USD 27.500.000
Webpage: celonis.com
Celonis offers the most advanced Process Mining tool for analysing & visualizing business processes.
As we might have seen in this article, Europe has a fast growing Artificial Intelligence Industry most of them being in the data analytics market. AI is transforming every industry and process, and Europe is leading the way.
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Article Part 3: The history of AI – From the “AI Winter” to the final breakthrough
In cooperation with Venionaire Capital, DerBrutkasten.com publishes a four-part article series on the subject of artificial intelligence. We are concentrating on the economic aspects of how AI works to the current research and the future of artificial intelligence.
In the first article we described “Artificial Intelligence (AI)” as the ability of a machine to learn and adapt from its own experience. The second article was about the basis concept of AI and in the third part, we will provide an overview of research, trends and leading companies in the field.
Artificial intelligence is often seen as a new world conquered just by brave pioneers from Silicon Valley. In reality, however, the subject had a lot of ups and downs. The breakthrough seemed only a matter of time, but the researchers underestimated the problem that words can have different meanings in different contexts. The US Government cancelled the financing and this this period was referred to as “AI Winter” in analogy to the concept of “nuclear winter”.
Historically, there have always been such drought periods. The result of financial incidences were fewer research activities. Over and over again there were deep and then high phases (“AI Sommer”).
After a difficult situation in the early 1990s, the AI industry was finally recovering in the 2000s. The upturn was supported not so much by governments but by tech companies such as Google, Facebook, Apple, Amazon, Microsoft or the Chinese company Baidu. The basis for the rapidly growing commercial interest are the computer systems that now enable the broad use of AI technologies for the first time.
The search engine giant Google is one of the leading companies when it comes to the topic of artificial intelligence. The main focus of their research (see research.google.com) is Machine Learning, Natural Language Understanding, the entire health care system, the perceptive abilities of machines, robotics and, interestingly, the creation of music and art. Thereby “deep learning” plays a very important role, for example Google’s Alpha Go, which clearly defeated the professional Go player Fan Hui and later Lee Sedol.
The question that is important to investors is, of course, whether the high phase is only a hype or sustainable. In contrast to the past, AI is already being used in everyday life.
For the whole article click here.
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A-1010 Vienna, Austria (EU)
office@venionaire.com
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sfo@venionaire.com
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