The End of the Artisan VC?
By Keith Teare • Issue #27 • View online
Another Venture firm announced plans to become a publicly listed company this week. Nic Brisbourne’s Blackrock-backed Forward Partners is the fund in question. So, can VCs become publicly listed companies?
Contents
- Public Listings for VCs?
- Google will win against accusations of anti-trust behavior
- FTC under pressure
- Trump, Social Media and the 1st Amendment
- SPACs and IPOs
- Startup Founders
- Africa
- Startup of the Week
- Tweet of the Week
Editorial
It is a little early to call it a trend, and it seems to be primarily focused in London, but more VC firms are choosing to become public companies, following a trend that private equity has understood for quite a while. The latest is Nic Brisbourne’s Forward Partners, a UK-based seed-stage investor. They are following in the steps of Draper Espirit, which has been public for some time.
I am very self-interested here. I firmly believe that the venture model is going to be disrupted by a scalable, data-driven venture-tech approach and that a public listing-based asset class will be a big part of the disruption.
Why? It really comes down to the venture model and why a company structure with liquid stock is a better mousetrap.
Venture is a bit stuck in a 19th Century artisan model, and that is being kind. Superstar individuals are the unit of account looked at by LPs.
But, as stated in the Financial Times piece by Richard Waters
It’s time to stop talking about venture capital. It’s not that risk capital for new growth companies is on the wane — far from it.
Rather, the term, which conjures images of enterprising investors seeking out visionary young founders in their garages, fails to capture a powerful new reality.
Capital formation in the growth sectors of the digital economy has entered a new realm. Just about everything has changed: The nature of the capital that is fuelling growth in technology and digital markets, the suppliers of that capital, and the companies that are benefiting from this deluge of cash.
In short, a new private finance system has emerged from the old VC model, and a new and more diverse group of financiers has the whip hand over what has become an important engine for the future of business.
The extent of the transformation is clear from the latest half-yearly investment trends. The sheer scale of the private markets is one striking feature. The $139bn put to work in the first half in the US (sic, it was in the 2nd quarter) was nearly as much as the whole of last year, according to figures from CB Insights — and the 2020 figure was itself an annual record.”
Financial Times, Richard Waters
Great investors like those on Forbes Midas list do well as representatives of the artisan approach but are they the last of the dinosaurs?
With startup innovation becoming global and enormous, and with the three asset classes within venture becoming more clearly differentiated (seed, venture, and growth), the way to play the game is changing. The time is ripe to evolve how startups are funded and to significantly expand who gets to own their stock.
Forbes Midas List
Gené Teare in Crunchbase recently noted:
Global venture capital funding in the first half of 2021 shattered records as more than $288 billion was invested worldwide, … That’s up by just under $110 billion compared to the previous half-year record that was just set in the second half of 2020.”
Crunchbase News
It is quite likely that venture will reach $500 bn invested this year.
But only qualified investors inside venture funds get access to the value created via these investments. There is no reason this has to remain true. Both the venture funds and the companies would benefit from a new model. But the main beneficiary would be regular people.
Let us dive into that statement.
Why would funds benefit? Today venture fund managers spend a long time raising capital, often years, Then they deploy the capital into illiquid startups, again over many years. Then some of their investments exit, a small percentage. Most stay private and illiquid for a long time and contribute to the “net asset value” or NAV of the fund.
The lengthy work and the lack of liquidity make the seed and venture asset classes very unattractive compared to more liquid approaches.
What if funds took their capital, at least in part, from a public company? LPs, as well as investing directly into fund managers, could invest in a public vehicle, that itself invested capital via fund managers.
Fund managers could raise capital quickly from the public entity. Net asset values would be reflected in the public market stock of the company, and be liquid. Every part of the ecosystem would benefit.
But even more significant would be the ability of Robinhood, E*Trade, and other investors to buy the stock of the public company and share in the innovation premium. It would transform innovation from only an artisan sport into a means of regular investors owning the companies that the artisans pick. Such a public company would offer investors access to the best private companies, acting like an ETF or Index fund might.
So, well done Nic Brisbourne. I hope to be able to do something big with venture tech and create a public vehicle to make this happen.
More in this week’s video
Public Listings for VCs?
The new world of venture capital
Richard Waters, FT
The traditional model of private finance for start-ups overtaken by the rush of new investors
It’s time to stop talking about venture capital. It’s not that risk capital for new growth companies is on the wane — far from it.
Rather, the term, which conjures images of enterprising investors seeking out visionary young founders in their garages, fails to capture a powerful new reality.
Capital formation in the growth sectors of the digital economy has entered a new realm. Just about everything has changed: The nature of the capital that is fuelling growth in technology and digital markets, the suppliers of that capital, and the companies that are benefiting from this deluge of cash.
In short, a new private finance system has emerged from the old VC model, and a new and more diverse group of financiers has the whip hand over what has become an important engine for the future of business.
The extent of the transformation is clear from the latest half-yearly investment trends. The sheer scale of the private markets is one striking feature. The $139bn put to work in the first half in the US was nearly as much as the whole of last year, according to figures from CB Insights — and the 2020 figure was itself an annual record.
Startups IPO. Why shouldn’t VCs list publicly?
This week impact VC firm Forward Partners announced its intention to list in London, joining the likes of Draper Esprit, Augmentum Fintech, and Eurazeo in the small world of VC firms listed on a European stock exchange. The aim is seemingly to make it easier for individual investors to get exposure to VC, while making it easier for the firm to access a larger pool of capital. But is it a good move? And is there a trend here?
The idea of a VC firm being listed is not exactly new.
American Research & Development, the very first modern VC firm founded by Georges Doriot right after World War II, was publicly owned. But as a listed closed-end investment company, it was prohibited by regulators from rewarding its employees with equity stakes or options in either the firm itself or their portfolio companies. This lack of incentives for senior dealmakers was ultimately reflected in subpar performance.
The idea of listing VC firms has recently resurfaced within a new context, but this time, the goal seems to make sure retail investors can more directly participate in the VC game.
For a while, the focus was on portfolio companies going public.
Because there were fewer and fewer IPOs, VCs’ outsized returns seemingly benefited institutional investors and high net-worth individuals more than middle class households. But the fact that the IPO engine is speeding up again doesn’t seem to be solving that imbalance. Retail investors can now buy shares in the likes of Uber, DoorDash, Adye and Deliveroo, but so much more money is still made on inaccessible private markets. Why not offer retail investors the opportunity to become shareholders of VC firms themselves?
Venture capital is changing and a public listing will help unlock the transformation — City A.M.
Nic Brisbourne is the CEO of VC firm Forward Partners
In 2013, I started Forward Partners with a single mission: to give more start-up founders their best shot at success. Since then, we have built a portfolio we are immensely proud of, and packed with ambitious, growing businesses operating in the hottest technology sectors. We have proven our approach to investment works, growing net asset value to £103 million with an investor return of 25 per cent. Our model — which offers more than money by supplying capital with capability — has been widely adopted across the venture capital industry.
But a lot has changed in eight years. East London’s Silicon Roundabout started as an insider joke. Once the underdog of tech ecosystems, it has now become a world-leading centre for technology innovation and business growth, bigger than the next three markets combined in terms of deals.
Today, VCs must compete for stakes in the most exciting businesses — and money alone is not enough to win. Some firms — us included — have built the capability to provide growth support on a non-for-profit basis to supercharge the growth of our portfolio companies in order to live up to the changing market.
Forward Partners to float on AIM — Private Equity Wire
Forward Partners, a London-based venture capital firm, is to to seek admission of its shares to trading on AIM, a market of the London Stock Exchange (Admission).
Founded in 2013, Forward Partners is a well-established and respected London-based venture capital firm, specialising in supporting high growth, early-stage technology businesses. It brings together venture capital provider Forward Ventures, equity-free revenue-based financing through Forward Advances and highly specialised growth support from Forward Studio. This model supports founders to build stronger businesses and meet strategic goals faster — ultimately aiming to provide better outcomes for companies and investors alike.
Becoming a public company will enable the Group to progress its vision for the future of early-stage venture capital, by offering innovative funding options for founders alongside specialist support.
The Group secured early commitments from investors pursuant to the Company’s IPO fundraising, including BlackRock1 and Draper Esprit plc, which have each indicated they would like to subscribe for GBP15 million and GBP2 million worth of ordinary shares in the Company, respectively.
www.privateequitywire.co.uk • Share
Google will win against accusations of anti-trust behavior
36 states, DC sue Google, alleging antitrust violations in app store
The attorneys general of 36 states and Washington, D.C., sued Google Wednesday, alleging the company’s control over its Android app store violates antitrust laws.
The antitrust lawsuit, led by Utah’s Sean Reyes ® and New York’s Letitia James (D), is the third filed by states against the Silicon Valley giant.
It focuses on the Google Play Store’s policy of charging app developers a 30 percent commission on digital content or subscription purchases.
The complaint alleges that Google shut-out potential competitors in Android app distribution through exclusionary contracts, technical barriers and “misleading” security warnings.
A lawsuit that ignores choice on Android and Google Play
Our response to state attorneys general lawsuit against Google Play.
We built Android to create more choices in mobile technology. Today, anyone, including our competitors, can customize and build devices with the Android operating system — for free.
We also built an app store, Google Play, that helps people download apps on their devices. If you don’t find the app you’re looking for in Google Play, you can choose to download the app from a rival app store or directly from a developer’s website. We don’t impose the same restrictions as other mobile operating systems do.
So it’s strange that a group of state attorneys general chose to file a lawsuit attacking a system that provides more openness and choice than others. This complaint mimics a similarly meritless lawsuit filed by the large app developer Epic Games, which has benefitted from Android’s openness by distributing its Fortnite app outside of Google Play.
Here’s more detail on how this lawsuit gets it wrong:
FTC under pressure
Lina Khan’s FTC, back on its heels, eyes a big swing at tech
Watch out, Uber Eats. Lina Khan, the Federal Trade Commission’s new chair, is taking charge of the agency’s Democratic majority to broaden the FTC’s ability to regulate new industries and challenge potentially anticompetitive conduct.
On Thursday, during the first of the FTC’s new public meetings, commissioners cast a series of votes that signaled a desire to tighten the screws on emerging and digital sectors, as members of the public, consumer advocates and industry lobbyists begged the commission to tackle issues such as food delivery apps, right to repair, facial recognition and more.
Trump, Social Media and the 1st Amendment
Trump’s lawsuits against big tech are just another fundraising tool
Donald Trump announced he’s filing lawsuits against Facebook, Google, and Twitter. | Michael M. Santiago/Getty Images
The cases likely won’t hold up in court, but that doesn’t really matter.
Donald Trump filed lawsuits against Facebook, Twitter, and Google on Wednesday, accusing the companies of violating his and other conservatives’ First Amendment rights. But winning these lawsuits seems to be beside the point for Trump.
SPACs and IPOs
Behind The Hype: Are SPACs A Good Route To Exit?
The popularity of special purpose acquisition companies, or SPACs, has exploded in the last year. While they have been around for many years, it is only in the last couple that their use has accelerated.
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According to one report, globally 200 SPACs raised $64 billion in 2020, just under the $67 billion raised by 194 initial public offerings in the same year.
SPACs and Europe
What about SPACs in Europe? To date, U.S.-based investors have led the way when it comes to SPAC deals, thanks in part to tighter investment regulations and fewer potential sponsors in Europe, but that doesn’t look like it will remain the case.
Ian Osborne, one of the pioneers of SPACs in the U.S., is reported to be planning to list a European-based shell company on the Euronext, joining the likes of ex-Credit Suisse CEO Tidjane Thiam and French billionaire Xavier Niel, both of whom recently launched SPACs.
Elsewhere, executives at a number of European exchanges, including Frankfurt, expect to see a surge in SPACs in the next couple of years.
SPAC activity in the U.K. has been hampered by listing rules that require trading in a listed company to be suspended when it announces an acquisition intention. However, this is currently under review as part of the Financial Conduct Authority’s consultation into SPACs, due to be completed in the summer of 2021.
Should the FCA amend the trading suspension rules, it could propel SPAC activity in the U.K. forward.
Nextdoor’s SPAC investor deck paints a picture of sizable scale and sticky users
The SPAC parade continues in this shortened week with news that community social network Nextdoor will go public via a blank-check company. The unicorn will merge with Khosla Ventures Acquisition Co. II, taking itself public and raising capital at the same time.
Per the former startup, the transaction with the Khosla-affiliated SPAC will generate gross proceeds of around $686 million, inclusive of a $270 million private investment in public equity, or PIPE, which is being funded by a collection of capital pools, some prior Nextdoor investors (including Tiger), Nextdoor CEO Sarah Friar and Khosla Ventures itself.
Notably, Khosla is not a listed investor in the company per Crunchbase or PitchBook, indicating that even SPACs formed by venture capital firms can hunt for deals outside their parent’s portfolio.
Per a Nextdoor release, the transaction will value the company at a “pro forma equity [valuation] of approximately $4.3 billion.” That’s a great price for the firm that was most recently valued at $2.17 billion in a late 2019-era Series H worth $170 million, per PitchBook data. Those funds were invested at a flat $2 billion pre-money valuation.
Robinhood’s Challenge
The entire financial services industry is basically a multi-billion dollar R&D project trying to determine a) every conceivable form of agency risk, and b) every possible norm, agreement, economic equilibrium, or (worst case scenario!) law that can balance it out. This has to be true, since the fundamental function of the industry is for people with money to entrust it to people with expertise, and then hopefully get more of it back eventually. The experts are in a better position than their investors to know whether or not they’ve made a best effort, or overcharged, or otherwise misbehaved. Robinhood, which of course filed its S-1 last week, is a shining example of this.
The investor letter highlights how most of Robinhood’s customers are long-term, buy-and-hold investors; how the company democratized finance by making zero-commission trades available to average investors; how it targets demographics that other brokers can’t or won’t reach. But the Management’s Discussion and Analysis section of the S-1 tells a different story: the core driver of revenue for Robinhood is to acquire customers and then convert them into crypto and especially options traders.
Startup Founders
Y Combinator Launches Co-Founder Matching Platform
We’re excited to announce Y Combinator’s co-founder matching platform is now available for everyone through Startup School, our free online program and community for founders. Anyone actively looking…
The 10 Most Important Lessons I’ve Learned as a Founder-CEO (and VC)
Q: What are the most important lessons you’ve learned in your career? My list: Slow down big decisions, speed up the rest. I’m not the first to say this, but…
Slow down big decisions, speed up the rest. I’m not the first to say this, but boy it’s correct. You may think you only have 24 hours, or 5 days, or a week to make a huge decision. But it’s OK to slow those 1 or 2 big decisions a year down. Just speed the rest up. That VC will still want to fund you. That BigCo will still want to buy you. That partnership can still happen, even if you need another week.
Wait and find a truly great co-founder. I’ve done so, so much better when I had a great co-founder. But when I’ve had one that wasn’t as committed … that led to mediocre outcomes. At best. And a lot of pain. No matter how smart they were. A bit more here.
Make your first customers wildly successful. They teach you how to make the next 10, 50, 100 wildly successful, too. Your first customers are your future. You will get more just like them. A bit more here.
The post The 10 Most Important Lessons I’ve Learned as a Founder-CEO (and VC) appeared first on SaaStr.
Africa
Digest Africa Launches the 2020 Index Report with Crunchbase
Digest Africa brings you another edition of our reports in the Digest Africa 2020 Index Report. The report features a breakdown of the startup and investor performance for the year […]
The post Digest Africa Launches the 2020 Index Report with Crunchbase appeared first on Crunchbase.
Startup of the Week
Pleo lands $150m in Series C funding round
Danish fintech Pleo has raised $150 million in its Series C funding round.
The company says the investment is Denmark’s biggest ever Series C round and brings its valuation to around $1.7 billion, making it Europe’s latest ‘unicorn’.
The round was co-led by US-based investment firms Bain Capital Ventures and Thrive Capital with participation from a number of previous investors, including Creandum, Kinnevik and Seedcamp.
Keri Gohman, partner at Bain Capital Ventures, will also join Pleo’s board of directors.
Founded in 2015, Pleo offers company cards and expense management tools for businesses across Europe.
The company secured $16 million in its Series A round in 2018 before raising $56 million in its Series B round a year later to fund its expansion into new European markets.
www.fintechfutures.com • Share
Pleo becomes Denmark’s eighth unicorn with $150m raise | Sifted
Fintech Pleo has raised $150m at a $1.7bn valuation, giving Denmark its eighth unicorn. It also means Pleo has reached the milestone valuation faster than any other Danish company, taking just over six years.
The company offers company cards and automated expense reports for employees, aiming to help staff make work purchases while giving employers visibility. It works as a subscription model, starting at £6 per user.
“A large number of companies that come to Pleo do so because they are still heavily reliant on manual, decentralised, paper-based processes,” says CEO and founder Jeppe Rindom.
Updating employee spending has become even more critical during the pandemic — during which Pleo has seen its customer base grow by over 125%. The company is now used by 17k companies across Denmark, the UK, Sweden, Germany, Spain and Ireland. It’s aiming to increase the number of users to 1m by the end of 2025.
Tweet of the Week
Wise direct listing values fintech giant at $11 billion in big win for post-Brexit London
Wise shares opened at £8 a share Wednesday morning, giving the company a market value of £8 billion ($11 billion).
