Our M&A team led a lighthouse M&A transaction for Blockpit, the Austrian expert for legally compliant reporting for digital asset trading to acquire its German competitor CryptoTax. With this acquisition of its biggest and larger European competitor, the company intends to drive international expansion into the US and other markets globally in 2021.
We are proud to have closed the following deals during the last weeks: Health-Tech pioneer myBioma has secured a six-figure investment from renowned investors, which was also doubled by the COVID-19 relief fund of the Austrian Promotional Bank (Die Austria Wirtschaftsservice Gesellschaft mbH – AWS) and also the award-winning RegTech platform for Business KYC (KYB), kompany has secured a follow-up funding of €6 million, which was their largest single investment round to date.
Health-tech pioneer myBioma has raised a six-figure follow-up investment from renowned investors, which is to be doubled by the COVID-19 relief fund of the AWS. The next step is for the founders to draw international attention to themselves.
Venionaire Capital enters new strategic partnership with startup300 AG in the new Dealmatrix, offering startup valuation calculator after a pivot. Beta users will foreseeably be able to use the new service from August onwards.
There are various ways to value a startup depending on their stages of development. We prepared an overview to help you distinguish between different valuation models so that you can choose the method that best fits your company or investment case.
‘The Startup Rating model by Venionaire Capital’ is a proprietary model for investors, which may be applied across different stages, without limitations of pure qualitative or financial models. The model adjusts the average valuation you have calculated or observed from the market and makes it transparent how much you should over- or underpay compared to an average valuation in order to make a fair deal.
Following the first introduction to the pre-revenue startup valuation, in this article we review the other well-known model for pre-revenue startups: the ‘Berkus Method’, named after its inventor, Dave Berkus, a well-known Californian angel investor.
The Venture Capital Method is often used for valuing early-stage companies. We show you how it is done.
Raising capital is always difficult – on average Startups get rejected over 100 times before they close a sufficient seed-round (to be clear: Investors not FFF). It’s obvious that this process wastes a lot of times for founders, as they should be working on their products, services, technologies, and clients.
Having raised money for a lot of startups and SMEs in different stages over the last years, we have discovered a pattern which will make you successful in fundraising.
Our playbook in 7 steps
1.) Build relations
Build relations in times you are not running for an investment. Investors / Fund-Managers like to get to know founders and follow their progress early. This helps them to understand your business better and it will build trust in your management capabilities.
2.) Set a Schedule
Set yourself a timeframe (e.g. 2 weeks for Research, 3 weeks for approaching, 4 weeks for first-round calls and 2 months moving forward) and be realistic about it. Fundraising takes about 3 to 6 months. Set your self a strategy for your fundraising and stick to it. Investors will understand that you do not want to waste time – therefore it’s ok to communicate a timeframe and be transparent about it.
3.) Be prepared.
Make sure you have a good FAQ for all your fundraising partners prepared and all relevant documents – legal, financial, KPIs, technology, roadmaps, strategy papers, research, etc. – arranged in a data room, ready to be shared.
Professional investors need to be efficient as well, so make their lives as easy as possible and show them that you are prepared to raise funds now.
4.) Manage your process.
You will need to manage involved team-members, Business Angels and consultants – and maybe press (if you run transaction PR to increase visibility). Therefore you should use a professional software tool to manage your fundraising funnel, tasks, documents, reports, including a growing investors database – all in one place – like foundersuite.com.
5.) A good storyline
Make sure you have a good storyline for your campaign. Investors like traction, momentum, numbers (does not always have to be revenue) and it is important to support your fundraising campaign with a strong story which gets repeatedly updated during the process. Launch successful press releases of achieved milestones, partnerships or new alliances you have been able to close.
Drip this information – piece by piece – and communicate with your audience.
6.) Be realistic about your valuation
Some startups slam doors by calling for ridiculous valuations – this is simply stupid. You should know in which area your company should be valued, but it is always to signal that you are open for negotiations. Valuations and terms play together like a swiss-clockwork and you will have to find a good balance between them.
7.) Ask for more
Make sure you ask for more than money. It’s important to understand that early-stage Investing is not like calling a bank loan. The right investor will bring your company up to speed and be worth a fortune. His reputation can even be the underlying asset, which opens doors for next rounds and exits. Ask investors, why you should work with them instead of their competitors. All the best for your fundraising!
Finally, if you need advice or simply additional (professional) resources for fundraising – we are always happy to look at your deal and see if we can be of value for your venture.
Nowadays, there are several discussions about a potential tech bubble in the US Venture industry. Valuations of companies like Uber make markets fear that the world is heading towards a crisis similar to the bursting of the dotcom bubble in the first decade of this millennium. But what is actually a “bubble”? There is a wide range of literature about economic crises, but this would dig a little too deep into scientific publications. I personally like the neat and easy definition of Paul Krugman from New York Times:
It is a situation in which asset prices appear to be based on implausible or inconsistent view about the future.
The market has changed
Now that we are settled with the definition of a bubble, we can focus on the question if there is actually one or not. Take a look back: 15 years ago, the internet was just at the beginning of its global commercialization. It was in its strongest growth phase, but was far away from a solid market, ready for trillion dollars of revenue. In 1997, only 2% of the world population had access to the internet compared to 55% or over 4 billion user in 2018. If there was a bubble today under the same metrics, the valuations would need to be 200 times higher than 15 years ago and this is certainly not the case.
These numbers are the key driver for changes in all industries. The landscape of internet based, tech revolution is currently spread over all fields and has in some industries just started to knock on the doors. Nowadays, we have increasingly inexpensive and capable mobile computing devices and internet connectivity, with huge bandwidth and much higher data-storage capabilities. After 15 years of post-dotcom successes and failures, the approaches of startups and investors changed dramatically. Both sides of the market are much more professional nowadays.
Consistent and plausible market
Bubbles behave very much like black swans – they are not predictable if you just look at events in the past. Nevertheless, there are several indicators to which people refer. Let´s see if some of the most commonly used indicators implicate implausibility or inconsistency as described in our definition of a bubble. If you read articles across the venture blogs where people argue for a bubble, you will always see these indicators mentioned:
- Investors put more money in late-stage rounds
- Private company valuations are rising
- IPO Exit ratios are dropping
In fact is, the average amount raised has increased in the last two years. But on the other hand, the number of total deals stayed rather flat. So the money is therefore invested in a small selected group of companies and not strayed to everyone who claims to be next “unicorn” (and there are many of them). This implicates a raise of valuations: otherwise the founders and early stage investors would get diluted too strongly which is actually a good argument against a bubble. Ljungqvist & Willhelm pointed out in their publications that the fragmentation in stakeholder ownership was one of the main factors for the dotcom bubble.
The IPO exit ratios are falling and there simple explanation for that. The attitude of founders has changed dramatically. 15 years ago the main goal was to just build a business and make an IPO at whatever costs to get rich as fast as possible. Now, companies have solid revenue streams and significant amount of money on their bank accounts. They want to keep private, expand their business and exploit their opportunities on their own rather than just go public or get bought. They prefer bigger late stage rounds (nowadays also called “Private IPOs”) instead of IPOs.
The companies are in the same stage of development so they need similar amounts of money (low exit ratios) as in the past – they just follow a different strategy nowadays. The same phenomena is the reason for the increased activity in the “Venture Debt” market (i.e. Netflix with a 1bn$ bond emission last year).You also see this if you look at the average time from the first VC funding to IPO/M&A. It has more than doubled from less than 4 years (1997) to 8 years (2014).
Now what is the reason for an investor to put in so much money in these deals? Just consider a PE investor who is struggling to keep up his IRR because of the low interest rates. The average IRR in PE has fallen to 8%-12% p.a. It is plausible for a PE investor to enter a late stage Venture Market. There is a trillion dollar market with plenty proof of markets and an average IRR of 23% in case of an IPO. It just appears that after 15 years the border of late stage Venture and PE are converging, and this is not to be confused with a speculation bubble.
Nevertheless, it has already happened that the valuation of the D-round is higher than the followed IPO. Which would be a contradiction to high IRRs for the investors at a first glance. But as I mentioned in a previous article “your price, my terms”, the deal value often does not equal to the value of the assets. At this point, the effect of Real Options kick in. Especially in Late-Stage rounds, investors accept high valuations in return of specific Real Options which influent the IRR of an investor in case of an IPO. For example a Liquidation Preference would be such a Real Option.
Impact on the European Venture Market
Due to the rising valuations in the US Venture Market many US investors turn to Europe. They want to take advantage from the “Silicon Valley Vortex” – It is no mystery that crossing the Atlantic for European startups will increase their startup’s valuation, sometimes by as much as 3x.
But the raising valuation are just one reason for this shift. European startups are used to the low VC supply in Europe and have learned how to operate under huge pressure with big competition. They understood that in order to survive in a market with low supply and high demand, they have to develop business models which are viable from the very beginning. Furthermore, European startups are confronted with a fragmented and complex market early on, which helps them during their expansion period. This unique attributes of European startups and the recent developments in the US Venture Market has led to an attractive and emerging European startup ecosystem.