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Lakestar - NOAH15 London

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Keynote by Dr. Klaus Hommels, CEO of Lakestar at the NOAH 2015 Conference in London, Old Billingsgate on the 12th of November 2015.

Published in: Economy & Finance

Lakestar - NOAH15 London

  1. 1. L A K E S T A R 
 
 
 THOUGHTS ON THE ECOSYSTEM
 
 
 DEVELOPMENTS IN LATE STAGE FINANCING AND M&A MARKETS LONDON, NOV 2015
  2. 2. L A K E S T A R 2 RECAP: TECH INVESTMENTS & EXITS M&A: ACROSS SIZES AND GEOGRAPHIES EUROPEAN DISCONNECT TO NEW-AGE M&A?
  3. 3. L A K E S T A R 3 MORE CAPITAL BEING INVESTED 12.1 14.2 17.7 22.7 20.6 27.7 27.4 33.5 37.6 0 10 20 30 40 50 60 70 80 5 10 15 20 25 30 35 40 Q3 2013 Q4 2013 Q1 2014 Q2 2014 Q3 2014 Q4 2014 Q1 2015 Q2 2015 Q3 2015 Venture capital investments ($bn) per quarter Source: KPMG, CBInsights, Q3 2015
  4. 4. L A K E S T A R 4 + MORE $100M ROUNDS 7 16 24 32 24 41 47 61 68 0 10 20 30 40 50 60 70 80 5 10 15 20 25 30 35 40 Q3 2013 Q4 2013 Q1 2014 Q2 2014 Q3 2014 Q4 2014 Q1 2015 Q2 2015 Q3 2015 Venture capital investments ($bn) per quarter Number of $100m+ financing rounds Source: Ernst&Young, KPMG, CBInsights, Q3 2015
  5. 5. L A K E S T A R 5 MORE “UNICORNS” $13bn $21bn $153bn $103bn $137bn $304bn $457bn 4 8 23 31 43 79 127 0 20 40 60 80 100 120 140 $0 $50 $100 $150 $200 $250 $300 $350 $400 $450 $500 2009 2010 2011 2012 2013 2014 2015 YTD Aggregate value ($bn) and number of “Unicorns” Aggregate Value Number of Unicorns Source: Ernst&Young, KPMG, CBInsights, Q3 2015
  6. 6. L A K E S T A R RECAP – IF YOU REMEMBER LAST NOAH: LATE STAGE ROUNDS DRIVEN BY A-TYPICAL / NON-TECH INVESTORS 6 100% 100% 100% 100% 100% 167% 158% 164% 173% 474% Seed/Angel Series A Series B Series C Series D/Later Median round size per stage (indexed 2010) 2010 2015 Source: Preqin Private Equity Spotlight, 2015
  7. 7. L A K E S T A R 7 LARGE LATE STAGE ROUNDS CREATE UNUSAL DYMANIC IN EXIT MARKETS •  Aggressive late-stage funding rounds have partially replaced IPOs •  Aggressive round pricing leads to: •  Some IPOs have been “pulled” as expectations could not be met •  Frequently, IPOs are priced below the company’s last private funding round •  Founders got “burned” due to adverse share allocation following aggressive investor pricing
  8. 8. L A K E S T A R 8 AGGRESSIVE LATE-STAGE FINANCING HURTS FOUNDERS IMAGINE THE FOLLOWING EXAMPLE Series E Round at $2bn valuation •  $250m investment •  $2bn post-money valuation •  1x participating liquidation preference •  Anti-Dilution rights Exit at $1.5bn valuation •  Sale/IPO at $1.5bn valuation •  Anti-Dilution kicks-in •  1x participating is distributed first to Series E 25.0% 19.8% 62.5% 49.6% 12.5% 30.6% Post Series E Effective Exit Distribution Founders Others Series E Founders Series E
  9. 9. L A K E S T A R 9 Series E Round at $2bn valuation •  $250m investment •  $2bn post-money valuation •  1x participating liquidation preference •  Anti-Dilution rights Exit at $1.5bn valuation •  Sale/IPO at $1.5bn valuation •  Anti-Dilution kicks-in •  1x participating is distributed first to Series E 25.0% 19.8% 62.5% 49.6% 12.5% 30.6% Post Series E Effective Exit Distribution Founders Others Series E Founders Series E - $75m + $270m AGGRESSIVE LATE-STAGE FINANCING HURTS FOUNDERS IMAGINE THE FOLLOWING EXAMPLE
  10. 10. L A K E S T A R 10 MORE OF EVERYTHING, BUT … LARGE EXITS 100% 25% H1 2014 H1 2015 Volume of $1bn+ Tech M&A (H1 2014 indexed) Volume of $1bn+ M&A of venture- backed companies significantly down in 2015 Source: Ernst&Young, KPMG, CBInsights, Q2 2015
  11. 11. L A K E S T A R 11 RECAP: TECH INVESTMENTS & EXITS M&A: ACROSS SIZES AND GEOGRAPHIES EUROPEAN DISCONNECT TO NEW-AGE M&A?
  12. 12. L A K E S T A R 55% 5% 3% 27% 23% 14% 8% 19% 11% 11% 53% 71% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% <$100m $100m-500m $500m-$1bn >$1bn TECH M&A DEALS: BY VALUE AND COUNT 12 2014: by exit volume 2015: by exit volume 2015: by number of exits >$1bn <$100m Source: Ernst&Young, PWC, Q3 2015
  13. 13. L A K E S T A R 55% 5% 3% 27% 23% 14% 8% 19% 11% 11% 53% 71% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% <$100m $100m-500m $500m-$1bn >$1bn 13 2014: by exit volume 2015: by exit volume 2015: by number of exits Median deal value <$70m >$1bn <$100m TECH M&A DEALS: BY VALUE AND COUNT Source: Ernst&Young, PWC, Q3 2015
  14. 14. L A K E S T A R 55% 5% 3% 27% 23% 14% 8% 19% 11% 11% 53% 71% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% <$100m $100m-500m $500m-$1bn >$1bn 14 2014: by exit volume 2015: by exit volume 2015: by number of exits >$1bn <$100m TECH M&A DEALS: BY VALUE AND COUNT Source: Ernst&Young, PWC, Q3 2015
  15. 15. L A K E S T A R 55% 5% 3% 27% 23% 14% 8% 19% 11% 11% 53% 71% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% <$100m $100m-500m $500m-$1bn >$1bn 15 2014: by exit volume 2015: by exit volume 2015: by number of exits >$1bn <$100m TECH M&A DEALS: BY VALUE AND COUNT Focus on Structural M&A (versus Momentum M&A) Source: Ernst&Young, PWC, Q3 2015
  16. 16. L A K E S T A R 16 “IF YOU LOOK AT THE LAST THREE YEARS, WE’VE AVERAGED AN ACQUISITION EVERY OTHER MONTH” TIM COOK, APPLE
  17. 17. L A K E S T A R 17Source: Preqin Private Equity Spotlight, 2015 EXAMPLES / QUOTES, ETC •  GOOGLE ACQUIRED 55 COMPANIES OVER THE LAST 24 MONTHS •  AT GOOGLE, ONLY APPROX 2.5% OF FIRST CONVERSATIONS LEAD TO AN ACQUISITION / ACQUIHIRE •  IN 24 MONTHS GOOGLE TALKED TO >2,200 COMPANIES, WHICH IS 90 PER MONTH “
  18. 18. L A K E S T A R 18 Do facebook with number of acquisitions here •  ON AVERAGE OVER THE LAST 5 YEARS, FACEBOOK ACQUIRED A COMPANY NEARLY EVERY MONTH •  IN ORDER TO MAKE THIS POSSIBLE, FACEBOOK TALKS TO HUNDREDS OF COMPANIES EVERY YEAR
  19. 19. L A K E S T A R 19 0% 10% 20% 30% 40% 50% 60% 70% 80% USA EU UK Canada France Germany Sweden Other STRUCTURAL M&A (ACQUISITIONS BY CORPORATES, <$1BN) US + EUROPEAN STRUCTURAL TECH M&A # OF DEALS BY ACQUIRING REGION As % of total number of sub-$1bn deals Source: Ernst&Young, Q3 2015 report and Global M&A Report
  20. 20. L A K E S T A R 20 0% 10% 20% 30% 40% 50% 60% 70% 80% USA EU UK Canada France Germany Sweden Other STRUCTURAL M&A (ACQUISITIONS BY CORPORATES, <$1BN) US + EUROPEAN STRUCTURAL TECH M&A # OF DEALS BY ACQUIRING REGION As % of total number of sub-$1bn deals Of EU, 40% from UK and only 7% from Germany Source: Ernst&Young, Q3 2015 report and Global M&A Report
  21. 21. L A K E S T A R 21 EU AN D G ERMAN Y STRONGLY INFERIOR IN RELATIVE TERMS (RELATI VE TO GD P) STRUCTURAL TECH M&A ACTIVITY WEIGHTED BY REGION’S GDP (# OF DEALS PER UNIT OF GDP) 32.5 27.5 26.3 22.8 10.6 3.9 2.7 USA UK Canada Sweden France Germany EU Average: 18 deals per trillion USD GDP Source: Ernst&Young, Q3 2015 report and Global M&A Report, public sources
  22. 22. L A K E S T A R MOST ACTIVE STRUCTURAL TECH ACQUIRERS OVER LAST 5 YEARS (US + EUROPE) 22 Google Yahoo Facebook IBM 3DSystems Twitter CiscoSystems Groupon Microsoft Oracle AppleInc. Autodesk Zynga eBay AxelSpringer Intel Salesforce Siemens Amazon Intuit Trimble VMware AOL BlackBerry Dell Qualcomm Avnet j2Global CitrixSystems Xerox NuanceCommunications HexagonAB DassaultSystemes Samsung Ametek IMSHealth Tripadvisor Nokia Blackboard LinkedIn SAP HP AdobeSystems LexisNexis HomeAway Synopsys IAC Symantec SoftwareAG QuestSoftware ElectronicArts European companies seem disconnected from M&A market Source: Ernst&Young, CB Insights, KPMG, public sources, Statista
  23. 23. L A K E S T A R 23 RECAP: TECH INVESTMENTS & EXITS M&A: ACROSS SIZES AND GEOGRAPHIES EUROPEAN DISCONNECT TO NEW-AGE M&A?
  24. 24. L A K E S T A R EUROPE’S DISCONNECT: WE THINK DIFFERENTLY 24 Valuation 127 “Unicorns” USD 457 billion
  25. 25. L A K E S T A R EUROPE’S DISCONNECT: WE THINK DIFFERENTLY 25 Market Cap USD 434 billion Valuation 127 “Unicorns” USD 457 billion ≈
  26. 26. L A K E S T A R 26 REASONS FOR STRUCTURAL M&A – THE MICRO VIEW 57% 20% 12% 6% 3% 2% Innovation / R&D Talent / Tech Talent Channels / Market Access Geographic Expansion Consolidation / Cost Reducation / Market Share Defensive Vertical Integration / Supply Chain Survey across US: “Why tech M&A?” (as % of deals) Source: PWC Acquiring Innovation
  27. 27. L A K E S T A R 27 “WE BUY COMPANIES WITH REALLY SMART PEOPLE […], WE TAKE THAT TALENT AND PUT THEM TO WORK ON PROJECTS THAT ARE IN LINE WITH APPLE’S OWN STRATEGY” TIM COOK, APPLE
  28. 28. L A K E S T A R 28 •  “NASDAQ LACKED PRIVATE MARKET EXPERIENCE WHICH IS WHY WE ACQUIRED SECONDMARKET” •  BILL SIEGEL, PRESENT CEO OF SECONDMARKET, WILL LEAD THE EXPANDED NASDAQ PRIVATE MARKET BUSINESS TBU
  29. 29. L A K E S T A R 29 •  "I HAVE BEEN INSPIRED BY THE LAPKA TEA M’ S IMP RESSIVE DESIGN SEN SIBILIT IES — A COMBINATION OF BEAUTY, F ORM, AN D STORY. ” (JOE GEBBIA) •  “W E’ RE EXCI TED TO HAVE THE LOCALMIND TEA M JOIN US AND LEAD THIS N EXT WAVE OF S OC IAL PRO DUCTS” (BR IAN CH ESKY)
  30. 30. L A K E S T A R 30 Do facebook with number of acquisitions here “WE HAVE NEVER ONCE BOUGHT A COMPANY FOR THE COMPANY. WE BUY COMPANIES FOR EXCELLENT PEOPLE” MARK ZUCKERBERG
  31. 31. L A K E S T A R 31 Largest 500 “Family / Mittelstand” Companies in Germany: EUROPEANS NEED TO WAKE UP Median Market / Asset Value: Median Age of Employees: Average # of Acquisitions per year: USD 600m* 53 years 0.10 29 years 27 (270-times) *0.95 revenue multiple across industries of German Mittelstand Source: Creditreform, NYTimes, Wikipedia, Wirtschaftsblatt, MarktundMittelstand, Deloitte
  32. 32. L A K E S T A R 32 Multi-year studies show tangible evidence: lack of innovation kills slowly STRUCTURAL M&A AS A WAY TO BETTER TALENT: WHY IS IT IMPORTANT? 100% 88% Average loss of operating profit due to disengaged / non- innovative employees is approx. 2% per year (or 12% over 6 years) Year 1 Year 6 Source: TWRCC, KPMG, Harvard Business Review
  33. 33. L A K E S T A R 33 Median Market / Asset Value: Annual change in asset value due to disengaged / non- innovative employees Change in Value after 5 years: USD 600m Δ: -2% Δ: -$69m “NOTHING TO LOSE” Largest 500 “Family / Mittelstand” Companies in Germany: *0.83 revenue multiple across industries of German Mittelstand Source: Creditreform, NYTimes, Wikipedia, Wirtschaftsblatt, MarktundMittelstand
  34. 34. L A K E S T A R 34 Change in Value after 5 years: Δ: -2% Δ: -$69m “NOTHING TO LOSE” •  In general terms, with $69m between 5 and 15 young startups could be “acquihired” •  Thus, 5 to 15 chances to truly make a difference •  “Rule of thumb”: $1 million per senior tech person Median Market / Asset Value: USD 600m Largest 500 “Family / Mittelstand” Companies in Germany: Source: Creditreform, NYTimes, Wikipedia, Wirtschaftsblatt, MarktundMittelstand, CBInsights, EY Annual change in asset value due to disengaged / non- innovative employees
  35. 35. L A K E S T A R SOME KEY TAKE-AWAYS I 35 1.  The Lack of technical innovation and strong talent can have a significant negative impact on the long-term value of businesses. 2.  Especially firms in the US have understood that structural M&A deals (“acquihires”) are a crucial instrument to attain strong (technical) talent: M&A seems to be part of regular business conduct.
  36. 36. L A K E S T A R SOME KEY TAKE-AWAYS II 36 1.  In Europe, especially among Family- and Mittelstand-businesses, M&A seems to be the exception. 2.  Here, the mindset of structural M&A deals is nascent and still needs to be learnt: DNA-shift needed. 3.  This DNA can only be nurtured in the right ecosystem. Companies need to have presence in the hot-beds of the technology / startup centers: Berlin, London, Stockholm (vs. Bochum or Brighton).
  37. 37. L A K E S T A R THE RIGHT ECOSYSTEM 37
  38. 38. L A K E S T A R
  39. 39. Focus on Leading European Internet companies Covering over 400 companies across 25 online verticals, a broad range of over 500 investors as well as 100+ online-focused corporates Deep understanding of industry dynamics Ability to add value beyond banking advice Facilitates overall process and minimizes management distraction NOAH Advisors is globally well connected and has direct access to virtually all key players in the industry Knowledge of and strong relationships with potential buyers’ key decision makers Proactively finds and unlocks attractive investment opportunities for leading investors Annual NOAH Conference in its 8th year Over 40 years of combined relevant M&A experience Routine execution of M&A and financing transactions with sizes of several billion euros 22 successfully completed NOAH Advisors transactions underline successful transfer of M&A competencies to the Internet sector Entrepreneurial mind-set, focused on growing the business and establishing a reputation for excellence Ability to deliver top results in short time frames Highly success-based compensation structures align interests of clients and NOAH Advisors, and demonstrate conviction to deliver top results Creative deal solutions September 2015 December 2014 September 2014October 2014 May 2014 February 2013 May 2012 April 2011 Sale of a 70% stake in to Exclusive Financial Advisor to Drushim and its Shareholders Sale of 100% of for $800m to Exclusive Financial Advisor to Fotolia and the Selling Shareholders Sale of 100% of for €80m to Exclusive Financial Advisor to Trovit and its Shareholders Sale of controlling stake in to Exclusive Financial Advisor to Facile.it and its Shareholders sold 100% of for $228m to a joint venture between Exclusive Financial Advisor to Yad2 and its Shareholders Growth equity investment from for a 30% stake alongside Softonic’s Founders and Angel Investors at a valuation of €275m Exclusive Financial Advisor to Softonic and its shareholders 150 million growth equity investment from for a 50% stake alongside Fotolia’s Founders and Additional $150 million senior debt financing Total $300 million investment Financial Advisor to Fotolia and its Shareholders have acquired a majority stake in for $350m from Exclusive Advisor to Summit Partners and TA Associates Selected Completed NOAH Transactions Unique Industry Know-How Unmatched Network and Relationships Strong Investment Banking Competence Full Commitment - We Are Entrepreneurs! EUROPE’S LEADING INTERNET CORPORATE FINANCE BOUTIQUE ®

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