Hamburg Fergal Mullen doesn’t want to show off. “I personally find it difficult to bring all of these together: For us, 2020 will be a very successful year of records. On the other hand, we are of course aware of how much suffering the year brings, ”says the founder of Highland Europe.
The venture capital investor based in Geneva is behind German success stories such as Finanzcheck, Adjust and GetYourGuide and European hopefuls such as the Wolt delivery service and the neo-food manufacturer Huel. His latest fund, a good 700 million euros, is full, explains Mullen to the Handelsblatt – after only nine weeks of looking for funding. He is thus launching one of the largest European funds of the year.
And the investor has even more success stories to offer. He made seven new investments with a total of 200 million euros in 2020, more than in any previous year. In addition, its existing companies in the portfolio have received inflows of 730 million euros from other donors.
In spring, at the beginning of the corona crisis, nobody in the start-up scene would have hoped for such a year. But the entire start-up scene can now look back on a successful year. Several European investors are currently compiling their respective annual statistics for the industry from data from the service provider Dealroom.
The unanimous result: 2020 broke the previous year’s records in the financing rounds for European start-ups. According to the forecast of the data provider Pitchbook, at least 38 billion euros will flow into European start-ups this year – probably even more. This means that the total at the end of the year will be at least slightly above the previous year’s level, which was a high of 37.2 billion euros.
The relief in the scene is great. “The nuclear winter that many feared in the spring did not occur when it came to start-up financing,” says Uwe Horstmann from the Berlin early-stage investor Project A. Like almost all of his colleagues, he is optimistic for 2021. “Despite Corona, the European start-up scene is and will remain in an upward spiral,” says Horstmann.
The optimism of the start-up financiers is spurred on by the good prospects for exits if they resell their company shares or go public at the end of the fund’s term. They expect valuations to continue rising – and with it their potential gain.
The one billion euro takeover of the beverage supplier Bottle Post by the Oetker Group only a few weeks ago showed that even very traditional family businesses are now ready to buy start-ups for a lot of money, even if they still have high start-up losses. And the rise of the Berlin foundation Delivery Hero in the Dax proves that the German stock exchange now offers prospects for companies founded with venture capital.
The main reason for the loose money in the start-up world, however, is the general glut of money in the low interest rate environment, which makes alternative investments attractive. “Fundamentally nothing has changed: there is still a lot of liquidity among investors,” says EY expert Thomas Prüver.
In addition, contrary to what was feared in the spring, investors from Asia and the USA will remain very active in Europe despite travel restrictions. In the meantime, video conferencing deals have become the norm. “US investors have finally arrived in Europe. You can almost feel the pressure to invest money. That even overcompensated for the corona effects in part, ”says Project A partner Horstmann.
In the coming year, European investors could even increasingly close the gap that they have so far often left to financiers from North America or Asia: larger rounds of financing for growth.
The German investor HV Capital, for example, has brought the former Delivery Hero manager Alexander Joël-Carbonell into the team to help develop the area of growth financing. The aus The investor that emerged from the Holtzbrinck Group does not only want to get involved with very young start-ups, but also want to get involved in growth phases with its recently announced 535 million euro fund.
On Friday, the Berlin investor Target Global also announced a new fund with up to 400 million euros for growth financing in Europe. “The paralysis has long been overcome, creativity is returning to the start-up scene. 2021 will be even better, ”said Target boss Yaron Valler, who is invested in Auto1 and Wefox, among others.
The increasing valuations of the start-ups don’t worry him: “The high valuations are justified on the basis of the fundamental data. There is no bubble, ”he said.
Money for the digital undertaker
Highland boss Mullen has focused on growth rounds in the double-digit million range since it was founded in 2007. However, the European funds also contain a large proportion of money that comes from other continents. US pension funds, foundations and asset managers invest their money in European start-ups through them.
About a third of Highland Europe does not come from Europe. This helps: The company cooperates with the US early-stage investor Highland Capital Partners, which was founded in 1987 and currently manages around four billion US dollars.
Mullen is therefore concentrating on his home continent: “We have a clear strategy: investing in growth in techs in Europe,” he says. He invests in both business software and consumer models. The Irishman founded his company in Geneva in 2007 and has also been represented in London since 2012. The current fund is the fourth in the company’s history – and the largest.
Mullen takes the technology area broadly. For example, in July he invested money in the British start-up Farewill. Its boss Dan Garrett has an unusual mission: “Farewill was founded to make death easier for everyone,” says the website.
Farewill is a digital undertaker: From wills to funerals, everything can be booked online at fixed prices. However, the deal did not come about because of the deadly Covid 19 disease, stresses Mullen. Rather, Farewill is a sign that digitization will reach all areas of life even after the pandemic – for consumers and in companies.
So there are many investment opportunities. “Various sectors have even benefited from Corona,” confirms Klaus Hommels, founder of the Lakestar fund, who closed his latest fund for 680 million euros in 2020 shortly before the outbreak of the pandemic. Because: The pandemic is accelerating digitization.
The megatrends are intact
The big investors therefore unanimously consider the trends of 2019 and 2020 to be stable: German providers of management software for companies such as Signavio and Celonis benefit. The area of digital health is supported by the new health awareness.
In addition, fintechs, i.e. start-ups from the financial sector, are still considered promising. Even the mobility turnaround is still promising, despite currently empty airports, says EY expert Prüver. Air taxis, for example, will continue to be a major focus of investors in 2021, as well as topics such as batteries and ridesharing – also against the backdrop of climate protection. “Start-ups that were interesting for financing before Corona will remain so afterwards,” says Prüver.
The big exception in Highland Europe’s portfolio is GetYourGuide. The mediator of travel experiences was thwarted by the travel restrictions. But Mullen is holding on to the company and has also participated in a current convertible bond for bridging finance. “It is clear that the Covid-19 crisis is ending. It’s just a matter of time. With our funds, however, we are oriented towards a period of four to six years, ”he says.
HV Capital, an investor behind travel providers such as the long-distance bus operator Flixbus and the cruise portal Dreamlines, reacts in a similar way. “We don’t see any structural problems in this area. There are no reasons why a company like Flixbus should not be at least as high as before after the pandemic, “hopes the new HV partner Joël-Carbonell,” hopes the new HV partner Joël-Carbonell.
Many even see the survival strength of badly hit start-ups like GetYourGuide and Flixbus as a sign of the resilience of the European start-up scene. Investor Hommels, who has been campaigning for an independent European tech scene for years, sees the success of instruments such as short-time work as a plus point for Europe. Ironically, the state interventions, which were much criticized from the USA, now guaranteed stability, he emphasizes.
“Five years ago the scene would certainly not have been part of the rescue package,” says Oscar Jazdowski, head of the Silicon Valley Bank in Germany. This time it is completely different – especially since the long-announced future fund of the federal government is to start in 2021. The federal government wants to provide ten billion euros for growth investments in start-ups. The fund has been considered secure since the budget discussions ended a few days ago.
However, banker Jazdowski is already warning the scene of too much euphoria: In 2021, corporations could cut their budgets for software projects and investments in start-ups. It is also unclear how sustainable new preferences are from consumers who have ordered more food online, for example.
More: Start-ups emerge stronger from the crisis