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ARE US AND ASIAN INVESTORS BUYING CONTROL OF EUROPE’S TECH FUTURE?

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ARE US AND ASIAN INVESTORS BUYING CONTROL OF EUROPE’S TECH FUTURE? 1
  • US and Asian investors provided 76% of all the capital invested in European late stage tech in the last 12 months, and stand to benefit most from Europe’s unprecedented success in tech

Europe has created an unprecedented number of tech companies these last ten years.  Early stage money, once so hard to come by, is now 25% of US levels, an astonishing statistic given how young the European tech industry is.

Yet it is later stage money which is so crucial to creating global winners, and where so much of the real value is generated. By the time a tech companies achieves a $1B exit, late stage investors usually own-most of the equity.

While European tech has come very far in terms of early stage money available, later stage money remains elusive for most growth companies; US tech attracts 4x the early stage money available in Europe, but 10x the late stage money.

Surprisingly, according to a recent Magister Advisors analysis, what little late stage money that is available is mainly provided by US and Asian investors.  While it’s no secret international capital has been flowing to Europe in greater amounts, surprisingly over half of all late stage rounds were driven by US or Asian capital.

The impact is even greater when we look at total amount, rather than number of rounds.  US and Asian investors have driven 76% of all the capital invested in European late stage tech. The largest rounds creating the biggest tech companies are driven disproportionately by international interest.

chart1

The implications are clear:

  • European tech has ‘come of age’ the last five years, attracting more money from international investors overall; all signs point to this growing even more over the coming five to ten years
  • Because of the lack of European late stage investors, the most promising European tech players have mainly been funded by overseas capital. While this is a huge validation of the quality and attractiveness of European tech competitors, it is also a huge indictment of the ‘local’ tech investment marketplace.
  • Put simply, the quality of available ‘demand’ (companies looking for funding) far outstrips EU capital ‘supply.’. There are far too few late stage EU investment funds in Europe to fuel the next generation of winners.
  • European investors have started responding. 1/3 of all $400m later stage European tech funds have been raised since the start of 2016, but the evidence shows its still far short of the available quality supply.

chart2

While the imbalance is slowing changing, we expect the number of European success stories deserving of late stage funding will double in the next years.  We cannot see how the gap can be filled quickly enough by the still sub-scale European late stage sector, so unless something changes fast we expect over 80% of all capital for these companies to be driven by investors outside the EU.

Europe is now a proven laboratory for creating world-class start-ups capable of competing internationally.

However, the huge value created this seismic trend looks set to flow mainly to investors outside Europe.

Put bluntly, Europe is in the process of creating unprecedented value which the rest of the world can capitalise on.

 

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Current cryptocurrencies unlikely to last, Bank of England governor says

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Current cryptocurrencies unlikely to last, Bank of England governor says 2

By David Milliken

LONDON (Reuters) – No existing cryptocurrency has a structure that is likely to allow it to work as a means of payment over the long term, Bank of England Governor Andrew Bailey told an online forum hosted by the Davos-based World Economic Forum on Monday.

“Have we landed on what I would call the design, governance and arrangements for what I might call a lasting digital currency? No, I don’t think we’re there yet, honestly. I don’t think cryptocurrencies as originally formulated are it,” he said.

Bitcoin, the best-known cryptocurrency, hit a record high of $42,000 on Jan. 8 and sank as low as $28,800 last week, far greater volatility than is found with normal currencies.

“The whole question of people having assurance that their payments will be made in something with stable value … ultimately links bank to what we call fiat currency, which has a link to the state,” Bailey said.

The BoE, like the European Central Bank, is looking at the feasibility of issuing its own digital currency. This would allow people to make sterling electronic payments without involving banks, as is currently possible with banknotes, and would in theory help avoid the volatility that renders bitcoin impractical for commerce.

Bailey said the appropriate level of privacy for digital currencies was likely to be hotly debated and was potentially underrated as a challenge in setting one up.

“This is a big one that is coming on to the landscape, the whole question of a privacy standard for transactions made in any form of digital currency, and where the public interest lies,” he said.

(Reporting by David Milliken, editing by Tom Wilson and Alistair Smout)

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EU sustainable investment rules need better corporate data – banking report

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EU sustainable investment rules need better corporate data - banking report 3

By Simon Jessop and Kate Abnett

LONDON (Reuters) – European Union rules aimed at defining sustainable investments should help reduce “greenwashing” by businesses, but better quality corporate data is needed to ensure they work effectively, a banking report said on Tuesday.

The sustainable finance rules will classify investments that can be marketed as sustainable, a move aimed at steering much-needed cash into low-carbon projects to deliver the bloc’s climate goals.

From January to August 2020, 26 of the region’s biggest lenders tested the EU framework across a range of core banking processes, including retail banking, trade finance and lending to smaller companies.

As the main providers of finance to companies across the EU, the ability of the banking system to track and report on whether corporate activities are sustainable or not could prove crucial in assessing the rules’ success or otherwise.

The lenders broadly welcomed the regulations as they seek to align their businesses with the transition to a low-carbon economy, the report by the United Nations Environment Programme Finance Initiative and the European Banking Federation found.

However, they also raised a number of issues, many of which were data-related and could require a phasing in of reporting requirements.

While many large companies are already required to disclose certain environmental and social information by law, the bulk of smaller and mid-sized banking clients are not, hampering banks’ assessment of their alignment with the rules.

Concerns over the quality, detail and standardisation of data is also an issue when looking at banks’ lending overseas, something that would be made more complex as other regions launch their own regulations.

The banks who tested the EU rules called on regulators to seek global alignment of regulations, and for better tools to manage data from clients, such as a centralised EU database.

While under no compulsion to lend to activities that can be classed as sustainable, banks see sustainable finance as a growth area that is likely to take on more importance in coming years should policymakers tighten environmental legislation.

With more investors globally looking to become shareholders of companies with a good record on managing environmental risk, banks are also likely to look to reduce their exposure to environmentally or socially harmful activities over time.

The European Commission is expected to finish the section of the rules covering climate change in the coming months, before they take effect in 2022.

(Reporting by Simon Jessop and Kate Abnett; Editing by Pravin Char)

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Bitcoin, crypto inflows hit record last week – CoinShares

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Bitcoin, crypto inflows hit record last week - CoinShares 4

By Gertrude Chavez-Dreyfuss

NEW YORK (Reuters) – Investment flows into cryptocurrency funds and products hit a record $1.31 billion last week after a few weeks of small outflows, as investors took advantage of the decline in bitcoin and other digital asset prices, according to the latest data on Monday from asset manager CoinShares.

Total assets under management (AUM) in the industry slipped to $29.7 billion as of Jan. 22, from an all-time peak of $34.4 billion on Jan. 8. At the end of 2019, the total AUM was just $2 billion.

Grayscale, the world’s largest digital currency manager, posted assets under management of $24 billion last week, down from $28.2 billion on Jan. 8. CoinShares, the second largest crypto fund, managed assets of $2.9 billion in the latest week, also down from $3.4 billion on Jan. 8.

“We believe investors have been very price conscious this year due to the speed at which prices in bitcoin achieved new highs,” said James Butterfill, investment strategist, at CoinShares.

“The recent price weakness, prompted by recent comments from Secretary of the U.S. Treasury Janet Yellen and the unfounded concerns of a double spend, now look to have been a buying opportunity with inflows breaking all-time weekly inflows,” he added.

Bitcoin dropped to a low of $28,800 on Friday, after scaling an all-time peak of $42,000 on Jan.8. It was last down 0.5% at $32,124.

About 97% of inflows went to bitcoin, the data showed, with Ethereum, the second largest cryptocurrency, posting inflows of $34 million last week.

So far this year, volumes in bitcoin have been considerably higher, trading an average of $12.3 billion per day, compared to $2.2 billion in 2020.

Glassnode, which provides insight on blockchain data, said in a report on Monday that bitcoin’s net unrealized profit/loss (NUPL) was getting close to exceeding the “belief” range and moving into the “euphoria” range.

Previously, when NUPL entered this range, it signaled a global top in bitcoin’s price.

(Reporting by Gertrude Chavez-Dreyfuss; Editing by Richard Chang)

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