How to build a tech titan
October 22, 2018
To become a billion-dollar company, having a strong focus on technology is a must. While looking at the list of today's most prominent tech giants, it is clear that the most valuable businesses lie in the US and Asia. However, as the number of billion-dollar companies multiplies, Europe is establishing itself as a hub and catching up with its neighbouring continents. The recent $8 billion listing of luxury ecommerce startup Farfetch is just one of the success stories to come out of Europe, and there are several other recent examples as well.
While Europe has its fair share of unicorns, the continent still lags behind the likes of US and Asia when it comes to establishing what boutique investment banking firm GP Bullhound refers to as "tech titans."
This niche category describes those companies which are valued at $50 billion or more and have achieved this in a relatively short amount of time. This differs from giants like Apple or Amazon, which are by far the most valuable tech companies but have taken several decades to reach their current heights. GP Bullhound has identified six tech titans—Facebook, Uber and Tesla from the US, and Baidu, Ant Financial and Didi Chuxing from Asia—that fall into this category.
Although Europe is attracting attention from investors, the continent remains, so far, titan-less. But how exactly do you create a tech titan? This is the question that Alessandro Casartelli (pictured), director at GP Bullhound, has been pondering and according to him, the answer is quite simple: ambition.
That lack of ambition partly explains why Europe remains in third position. The fact that Europe has 40-plus (depending on definition) separate countries produces boundaries which aren't present in the US, such as differing languages and regulations. And while one could argue that Asia would experience a similar problem, in this particular context it appears to be aiming higher than Europe.
In order to surpass these barriers, Casartelli noted that it's important to think global and to embrace risk, pointing to the success of Spotify.
"The key thing that I found when speaking with Spotify was that at multiple times in the history of the company, they had several moments where they had to decide if they wanted to bet the whole company on the next decision and say, 'If it doesn't go well then the company will go bust, but if it does we'll achieve global domination.'
"It's not embracing risk for [risk's] sake, but having a management team, investors and a board that is able to support those big bets is the culture than you need. It's a very competitive sector and globally competitive, and in some areas it's winner takes all. That's why companies need to take big risks and stay ahead of the curve."
One thing which is striking when looking at the world's tech titans is the high level of funding they have received, particularly in Asia. According to PitchBook data, the US companies identified by GP Bullhound as tech titans raised more than $16 billion in venture capital and in Asia, over $50 billion was secured by the three companies. When looking at Europe, three of the contenders for the titans' club—Spotify, Adyen and Delivery Hero—have raised under $5 billion combined. It is clear that European businesses need to ramp up funding efforts if they wish to attain titan status at the same pace as the US and Asia.
Yet this push in funding might not be too far away. An increasing amount of funding has been flowing into the continent, and deal sizes on average are becoming larger. This year has seen six mega-rounds, defined as those above $200 million, for a total of $2.4 billion, including fundraises from the likes of Revolut, which bagged a $250 million Series C. With a few months left to go, 2018 might surpass last year, in which eight mega-rounds worth nearly $3 billion total took place in Europe. Notable deals from 2017 include Deliveroo's $482 million Series F and Improbable's $502 million round led by SoftBank.
However, Casartelli warned that companies shouldn't take this increase in capital for granted: "European companies are already attracting more capital, but it doesn't happen overnight. There's a virtuous circle where you get capital which, if deployed properly, brings success and produces good returns which then brings new investors and more capital because they can see that you deliver. As long as companies in Europe deliver on their promises of good returns, they'll receive more capital, putting them on the path to becoming titans."
"Spotify is the top candidate to be Europe's first tech titan, but there are others which could follow," Casartelli predicted. "Adyen has very good prospects, and Farfetch, because they are changing how luxury items are bought and they're changing that business model. I would say that Europe will have a tech titan in less than 10 years, probably less than five. If these companies mentioned maintain their rate of growth, there is a really good chance."
While Europe has its fair share of unicorns, the continent still lags behind the likes of US and Asia when it comes to establishing what boutique investment banking firm GP Bullhound refers to as "tech titans."
This niche category describes those companies which are valued at $50 billion or more and have achieved this in a relatively short amount of time. This differs from giants like Apple or Amazon, which are by far the most valuable tech companies but have taken several decades to reach their current heights. GP Bullhound has identified six tech titans—Facebook, Uber and Tesla from the US, and Baidu, Ant Financial and Didi Chuxing from Asia—that fall into this category.
Although Europe is attracting attention from investors, the continent remains, so far, titan-less. But how exactly do you create a tech titan? This is the question that Alessandro Casartelli (pictured), director at GP Bullhound, has been pondering and according to him, the answer is quite simple: ambition.
Go big or go home
"To become a titan, you need that mindset from day one," Casartelli stated. "You have to want to change an industry, to change the world and to build something that big that it will dominate. Spotify wanted to do that; they wanted to create something that just didn't exist and change the way people consume music which, if you think about it, is massive. Companies like Tesla have completely changed how people perceive cars, and it's that type of company, which reinvents how people live and consume products, that will become a titan. It's about having a larger vision than just creating a company."That lack of ambition partly explains why Europe remains in third position. The fact that Europe has 40-plus (depending on definition) separate countries produces boundaries which aren't present in the US, such as differing languages and regulations. And while one could argue that Asia would experience a similar problem, in this particular context it appears to be aiming higher than Europe.
In order to surpass these barriers, Casartelli noted that it's important to think global and to embrace risk, pointing to the success of Spotify.
"The key thing that I found when speaking with Spotify was that at multiple times in the history of the company, they had several moments where they had to decide if they wanted to bet the whole company on the next decision and say, 'If it doesn't go well then the company will go bust, but if it does we'll achieve global domination.'
"It's not embracing risk for [risk's] sake, but having a management team, investors and a board that is able to support those big bets is the culture than you need. It's a very competitive sector and globally competitive, and in some areas it's winner takes all. That's why companies need to take big risks and stay ahead of the curve."
Capital is king
In order to fulfill a company's ambition, there is one key ingredient: capital. While Europe is seeing an ever-increasing amount of money pour into its businesses, it remains far behind the US and Asia. Casartelli explained: "European leaders really do need more capital to maintain existing customers and grow in home markets, but also to expand internationally. Companies like Deliveroo and Zalando are competing against others like Amazon and Uber, so they will need more capital to keep up the pace to reach that titan status."One thing which is striking when looking at the world's tech titans is the high level of funding they have received, particularly in Asia. According to PitchBook data, the US companies identified by GP Bullhound as tech titans raised more than $16 billion in venture capital and in Asia, over $50 billion was secured by the three companies. When looking at Europe, three of the contenders for the titans' club—Spotify, Adyen and Delivery Hero—have raised under $5 billion combined. It is clear that European businesses need to ramp up funding efforts if they wish to attain titan status at the same pace as the US and Asia.
Yet this push in funding might not be too far away. An increasing amount of funding has been flowing into the continent, and deal sizes on average are becoming larger. This year has seen six mega-rounds, defined as those above $200 million, for a total of $2.4 billion, including fundraises from the likes of Revolut, which bagged a $250 million Series C. With a few months left to go, 2018 might surpass last year, in which eight mega-rounds worth nearly $3 billion total took place in Europe. Notable deals from 2017 include Deliveroo's $482 million Series F and Improbable's $502 million round led by SoftBank.
However, Casartelli warned that companies shouldn't take this increase in capital for granted: "European companies are already attracting more capital, but it doesn't happen overnight. There's a virtuous circle where you get capital which, if deployed properly, brings success and produces good returns which then brings new investors and more capital because they can see that you deliver. As long as companies in Europe deliver on their promises of good returns, they'll receive more capital, putting them on the path to becoming titans."
Europe's first titan
As mentioned, there are a few tech companies in Europe which could achieve titan status, with Spotify leading the pack. The company's global ambitions and high levels of growth could propel its nearly $30 billion valuation forward toward $50 billion."Spotify is the top candidate to be Europe's first tech titan, but there are others which could follow," Casartelli predicted. "Adyen has very good prospects, and Farfetch, because they are changing how luxury items are bought and they're changing that business model. I would say that Europe will have a tech titan in less than 10 years, probably less than five. If these companies mentioned maintain their rate of growth, there is a really good chance."
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