Atomico's Need-to-Know, 7 June 2017 - Essential Information for Founders and VCs

1. 7 June 2017
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Atomico Need-to-Know

2. This is a regularly-updated collection of things we
(@atomico) found interesting and important in tech and VC
land, but that didn’t necessarily get the attention they
deserve. We think of them as our hidden little gems. We’ll
add to the collection over time, so bookmark the page and
keep coming back for updates or to dig into the archive.
Lovingly put together by @twehmeier & @stephen2206
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3. ● Blue Apron’s IPO is likely to be seen as a bellwether for the food delivery industry
given that it’s the first listing of a company not applying the pure online
marketplace model, such as Just Eat or Grubhub.
● Alfa’s listing was the UK’s largest tech IPO since 2015 (Sophos). The listing was
oversubscribed (⅓ of investors reportedly didn’t get an allocation) and shows that
there is strong public market investor demand for tech investments.
● Delivery Hero’s timing will be seen as further evidence of the current perceived
attractiveness of the European public markets for new listings. For largest
shareholder, Rocket Internet, the IPO is also
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What do you need to know?
Why does it matter?
Key questions
● Blue Apron, the NYC-based mealkit delivery company, has filed its S-1 to move
forward with its IPO. To come in ahead of its last round valuation of $2B, it will
need to raise at >2.0x annualised 1Q revenue of $980M ($245M x 4) . Company
has raised $194M + $100M debt.
● On LSE, Alfa Systems, a software provider to the financial asset management
industry, IPO’d, closing its first day up around 30% at 418p and a valuation of
~$1.7B. The company was founded in 1990 and had bootstrapped. Its founders
still owned around 90% at listing
● In other news, Delivery Hero confirmed its plans to IPO and raise up to €450M in
primary, with an undisclosed sum of secondary shares also to be sold, while Boozt
IPO’d on the Swedish NASDAQ exchange and hits an EV of $500M
IPO Update: Blue Apron, Alfa Systems, Delivery Hero, more
Source: Greg Bettineilli (Twitter), Telegraph
● How will public market investor demand hold up over the summer in the US and on
European exchanges?
● In Europe, will we continue to see appetite from small- and mid-cap companies
(recent examples: Next Games, Remedy, Boozt) to use the dedicated markets
such as NASDAQ First North and AIM as a preferred route to funding?

4. Delivery Hero to IPO; Purplebricks breaks £1B mark
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Source: https://www.ft.com/content/5a079e3c-4a95-11e7-919a-1e14ce4af89b; S&P CapitalIQ Platform
Delivery Hero set to be next large European tech IPO Purplebricks up >4x post-IPO to break £1B valuation
Boozt (Swedish fashion ecom) IPOs, hits $500M EV

5. ● WSJ ran a feature around a growing sentiment in board rooms and
amongst public market investors that corporate leaders need to
understand changing digital landscape. The article comes after Ford
fired its CEO, Mark Fields, a 28yr veteran of the company, and
replaced him with former head of their Smart Mobility division (Jim
Hackett)
● Ford’s share price had fallen 40% since Fields took over 3yrs ago,
with one factor being investors’ concern around the changing auto
landscape. Fields had put out plans, but many believed they weren’t
fast or radical enough for shareholders
● Other CEOs to have been fired recently where digital changes are
considered to be a major factor include leaders at Barnes & Noble,
GNC, and 3 of the 6 major Hollywood studios (Paramount, Sony,
Fox)
● Most interestingly, the WSJ pinpointed a critical issue: even if there
is appetite to bring in talent, there is a shortage of viable candidates
and also real difficulty to convince leaders to turn their back on the
perceived more attractive options in tech startups/scale-ups
● If large corporates open a more aggressive front in the ‘war for tech
talent’ what impact will it have on salaries, churn and general talent
flows?
● Will already heightened levels of non-tech M&A of tech startups
reach new highs?
“Ten years ago, innovation was based on
features and functions. Now it’s about your
business model and transforming your
industry. Before, companies could
innovate by acquiring tech startups. But
the top disrupters now grow so quickly and
capture so much market share, they
become too valuable to buy or are
unwilling to sell.”
William Ruh
Chief Digital Officer
GE
● Corporates are very much awake to the digital transformation
coursing through their industries. But even where they have
recognised a need to change from within, it’s hard to be able to bring
in the right talent to build the type of ‘DNA’ needed to run with a
‘move fast and break things’ mindset
● Potentially increases liquidity potential for portfolio
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What do you need to know?
Why does it matter?
Key questions
The message from Wall Street to big co. CEOs: ‘Disrupt
Your Industry, or Else’
Source: https://www.wsj.com/articles/wall-street-to-ceos-the-future-is-now-1495791003
“The real challenge is coming up with
viable candidates. There's not a really deep
bench of people coming up. A lot of
younger talent gravitated to Silicon Valley
and social media.”
--Unnamed Movie Exec
Incumbents recognise they need the right talent...
...the problem is a) finding talent & b) convincing them to join

6. 6
What do you need to know?
Why does it matter?
Key questions
● Uber is collaborating with a UK housing developer Moda to reduce
the number of car parking spaces required in their housing
developments
● Uber will offer residents up to £100 credit per month, accessed via
the Moda resident app. Space otherwise used for car parking will
instead be used for fitness centres, media rooms
● This is latest in a series of examples of how Uber is impact town
planning. In Summit (NJ, US), for example, the town chose to spend
$167K on Uber instead of committing to a $15M car park
development
Moda Living is swapping car parks for Uber
Source: http://modaliving.co.uk/uber-moda-living-announce-prop-tech-partnership-reduce-car-ownership-uk-cities/
“Our apartments are for rent rather than for sale so we need
to consider how our customers will live in cities in the future.
Embracing future technology is vital from day one and these
plans for a partnership with Uber would not only give our
customers an affordable ride at the touch of a button – it
would also enable us to design better buildings with
more space for social interaction. Everyone wants a
more frictionless life and Uber’s model fully aligns with our
approach of wanting to drive efficiency and maximise value
for our customers.”
--Johnny Caddick, managing director of Moda Living
● The first order impacts of Uber and other ridesharing services on the
transportation and automotive industries are well-known, but the
second-order impacts outside of those industries are arguably even
more interesting
● Looking beyond the impact on real estate, it’s becoming increasingly
clear that industries as diverse as insurance, energy, media and
retail may also be subject to change as car ownership patterns
● Will such partnerships be reserved for high-end housing, or is this a
model that will eventually trickle down to a broader base of the
population?
● Beyond real estate developers, how can other stakeholders in cities
(businesses, town planners, city authorities) look to this a potential
model for the future to alleviate urban congestion/pollution?

7. ● What are the best ways for founders to seek support in identifying and overcoming
the challenges they’re grappling with at all stages of starting and scaling up?
● What roles should those people inside and around a startup/scaleup (investors,
advisors, employees) play to help its founders with the enormous challenges they
face in building a business?
● When scaling a business, there are challenges at every stage of building the
business. The first step to overcoming those challenges is to deeply understand
them
● As growth continues, increasing management issues surface, including difficulty to
find senior talent/management & organisational design, whereas starting
businesses main concerns are sales and customer acquisition. Another big issue
for founders is making the transition from ‘Founder’ to ‘CEO’
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What do you need to know?
Why does it matter?
Key questions
● Highland Europe, the European growth VC, produced a survey-based study
exploring the challenges facing founders as they both start and then scale their
businesses. The study was conducted in April and is based on the opinions of 173
European company leaders
● According to the study, half of the founders think their own ability to manage a
fast-growing business is the biggest risk they face. Almost as many are worried
about their ability to adapt strategy quickly where needed.
● Getting the right organisational structure and building capacity in terms of senior
talent and professional management are much bigger obstacles than access to
capital for scaling businesses. Interestingly, staff retention was rank lowest in
terms of challenges, indicating high degree of loyalty in Europe
● The survey found high levels of optimism about the prospects of tech, although
respondents from the UK are less confident than those in Europe and the rest of
the world. 47% of UK founders believe they will achieve revenues > $1B versus
69% for founders from other parts of Europe. Other interesting findings: 67% of
founders think their business has unicorn potential. 80% of the founders are
optimistic about the growth prospects of digital tech businesses in general
Highland Europe survey identifies founders as key threat to
scaling successfully
Source: https://www.highlandeurope.com/press/2017/5/29/revealed-founders-pose-the-biggest-risk-to-businesses-scaling-successfully

8. ● [From the study directly]: ]Will progress in AI become explosively fast once AI
research and development itself can be automated? How will high-level machine
intelligence (HLMI) affect economic growth? What are the chances this will lead to
extreme outcomes (either positive or negative)? What should be done to help
ensure AI progress is beneficial?
● The advance of automation will have profound impacts on society and the
economy. It will impact every field, including not only blue collar roles, but also
many important white collar knowledge worker roles previously considered
‘untouchable’. It’s vital that public policy adapts, but before that can happen, it will
be critical to try to anticipate the change that lies ahead.
● Predicting when breakthroughs will happen is notoriously challenging, e.g. many
thought machines would not win at Go for many years to come right up until
DeepMind’s AlphaGo proven them wrong, but such exercises are still useful to
drive awareness of the change that is coming and to influence policy agendas
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What do you need to know?
Why does it matter?
Key questions
● Five leading AI researchers published a survey of 466 leading machine learning
researchers exploring their forecasts for when machines would exceed human
performance against a long list of significant milestones, including for when
machines would achieve “high-level machine intelligence” (HLMI).
● This is achieved when unaided machines can accomplish every task better and
more cheaply than human workers. The aggregate forecast gave a 50% chance of
HLMI occurring within 45 years and a 10% chance of it occurring within 9 years.
● Forecasts for full automation of labor were much later than for HLMI: the mean of
the individual beliefs assigned a 50% probability in 122 years from now and a 10%
probability in 20 years. Interestingly, Asia respondents were much more bullish in
their forecasts than North Americans.
● Researchers predict AI will outperform humans in many activities in the next ten
years, such as translating languages (by 2024), writing high-school essays (by
2026), driving a truck (by 2027), working in retail (by 2031), writing a bestselling
book (by 2049), and working as a surgeon (by 2053).
When will AI exceed human performance?
Source: https://arxiv.org/pdf/1705.08807.pdf
Each milestone is for
AI to achieve or surpass human
expert/professional performance.
The circle represents
50%-probability of this milestone
being achieved, with the Line
representing intervals from
25%-75% probability
When will AI exceed human expert performance?

9. “The balance of power in
technology is shifting. China,
which for years watched
enviously as the West
invented the software and
the chips powering today’s
digital age, has become a
major player in artificial
intelligence, what some think
may be the most important
technology of the future.
Experts widely believe China
is only a step behind the
United States.”
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Respondents from Asia see faster timeline to HLMI New York Times highlights Chinese national AI drive
Source: https://arxiv.org/pdf/1705.08807.pdf
https://mobile.nytimes.com/2017/05/27/technology/china-us-ai-artificial-intelligence.html/
“Beijing is backing its artificial
intelligence push with vast sums of
money. Having already spent
billions on research programs,
China is readying a new
multibillion-dollar initiative to
fund moonshot projects,
start-ups and academic research,
all with the aim of growing
China’s A.I. capabilities”
“Respondents from different regions had
striking differences in HLMI predictions.
The survey found a gap between the two
countries with the most respondents in
the survey: China (median 28 years) and
USA (median 76 years)”

10. Acquiror Target Target desc. Amt Comments
First Data CardConnect Payment processing software $750M
CardConnect had gross payment volume of $26B across a base of 67,000
merchant customers, generating $156M in net revenue and EBITDA of $38M.
$750M represents 4.8x net revenue and 19.7x EBITDA. CardConnect builds out
First Data capabilities in managing and retaining merchants, such as
ERP-integration
Vista Equity
Partners
Xactly
Software for employee
compensation (salary)
management
$564M
Vista Equity is taking Xactly private, two years after it IPO’d on NYSE. The $564M
price represents a ca. 17% premium to its peak market cap as a public company
of $484M. Deal done at ~5.9x LTM revenue of $95.5M
Snap Placed
Location-based offline sales
attribution technology
$125M
Analytics is a critical component in trying to compete with FB and Google for ad
spend. This acquisition will build Snap’s capabilities to be able to ‘close the loop’
between in-app ads and the measured impact in the offline world.
Delivery Hero Carriage Online food delivery in Kuwait n/a
As it preps for its IPO later this summer, Delivery Hero is building out and
consolidating its footprint, which has a strong presence outside of Europe
LinkedIn Heighten
Software to provide useful
intelligence to sales people for the
selling process
n/a
LinkedIn is building out its capabilities to use data-driven intelligence to help
enable more effective commercial/business relationships
Vista Equity
Partners
Lithium
Technologies
Community and social media
management software
n/a
Driven by record levels of dry powder held by tech-focused PE funds, this is latest
transaction in the software space involving an exit to PE
Sberbank DocDoc
Doctor/medical appointment
booking
n/a
Sberbank acquired 80% stake (remainder left with founders/management) in
DocDoc. Sberbank, the Russian national savings banks, has ambitions to use the
acquisition to build a broader platform to support digital health services for its
customers. DocDoc has 31k physicians signed up and 778,000 patients.
M&A wrap up
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