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Atomico + Slush + Dealroom + Tech.eu

Written on September 15, 2016 by Yoram Wijngaarde

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Last year, Slush and Atomico published an impressive piece of research titled the State of European Tech. The presentation was viewed over 170,000 times. Soon it is time for the 2016 edition! Dealroom will be core data partner this year, along with the great people at Tech.eu.

Apart from Dealroom data, an important part of the report is a survey. If you are a founder, entrepreneur, investor or tech employee in Europe, your voice will be very important. All it takes is 5 minutes. Start the survey now!

Your contribution is highly appreciated! Thank you.

Unleash UK’s tech scene onto Europe (don’t Brexit)

Written on May 27, 2016 by Yoram Wijngaarde

Mattias Ljungman, Partner at one of Europe’s largest VC funds Atomico, made yet another important case for the UK to remain in the European Union. He is clear that staying in the EU does not mean “more of the same”, and instead gives the UK “a once-in-a-lifetime opportunity to shape Europe’s future […] into what we want it to be.”

I couldn’t agree more. This is a time of rapid technological change (artificial intelligence, self-driving cars, …). And London is in a unique position as the epicentre of European tech (although other’s are catching up). On a global scale, London is arguably taking a strong second place, behind Silicon Valley.

One could be forgiven for taking London’s leadership position for granted, given the City’s long-standing importance in world financial markets. In the case of technology however, it is not about bankers pushing around capital from their Bloomberg computer screens (to put in bluntly). Rather, it is about companies which deliver tangible benefits to consumers across Europe and beyond. The innovation and creativity are happening inside the UK, but it needs easy access to Europe’s markets and free-flow of skilled labor to be competitive.

Silicon Valley, which had the benefit of a single USA market, is shaping our daily lives immeasurably (think of Google, Apple, Amazon, Facebook, Netflix, and so forth). Imagine what the UK can do, too, if it remains in one of the the biggest single markets in the world (500 million people).

Proponents of a Brexit should ask themselves what they want UK’s tech sector to be in 10-20 years: a global leader such as the City’s financial sector, or a follower alongside other players who are benefitting from big open markets.

A digital VC market

Written on November 1, 2015 by Yoram Wijngaarde

For the last five years or so there has been a lot of buzz about software-driven innovation in the venture capital industry. Innovations such as AngelList syndicates, crowdfunding, and digital M&A marketplaces play an increasing role. The USA is leading this development, predominantly in seed stage investing.

But by and large, today’s VC industry remains “business as usual”. We’ve recently seen the launch of so called “quantitative funds”, but this an incremental change; not a game-changer for capital markets as a whole. In this post I will argue why such change hasn’t happened yet, why it would be beneficial, and what is required to make change finally happen.

Let’s for a moment look at the public stock market. Today, public stock markets are fully electronic, but they used to have an open outcry system. Traders used shouting and hand gestures to communicate pricing and give buy/sell orders (remember that brilliant movie Trading Places?). It took most stock markets an awful long-time to finally switch to electronic trading platforms. The New York Stock Exchange only converted as late as 2006! A notable exception is the London Stock Exchange which converted early on in 1986.

What took Wall Street so long? The answer is that financial markets were held back by special interest groups wanting to keep open outcry in place, as it gave many people very lucrative jobs, and kept the market opaque enough to maintain higher margins for insiders. The eventual catalyst to convert came in the form of a new special business interest. High frequency traders and the hedge fund industry created a new revenue stream: providing “VIP” services to hedge funds (high-speed access stock to exchanges), combined with  increased volumes from high frequency trading would eventually dwarf the old market making industry by revenues.

So what could be a similar catalyst for change in the venture capital and private equity industry? The following special interests could play role, ranked by order of likely influence:

  • Young but big private companies that are not ready to go public due to their high investment requirements and short financial history
  • Fund managers, who traditionally invested via venture capital funds as LPs, require more flexibility to invest and divest
  • Blockchain technology could help create a global clearing and settlement system that is both global and decentralised at the same time
  • The advent of crowdfunding

is a digital VC market useful? There would be huge efficiency agains for sure. There’s a potential to create combine the best attributes from public market and private market investing. Here’s what a true digital venture capital market could look like:

  • Electronic transfer of shares
  • An electronic ledger for clearing and settlement, possibly using blockchain technology (but not necessarily)
  • Standardised financial and operating reporting (1)
  • Widely syndicated deals become the norm, individual large bets the exception
  • Self-reporting: no obligation to file, but a strong incentive
  • Global access to company data on request, as and when needed (qualified investors only, not the entire general public per se)


Note 1 : Accounting standards exist of course, but for private companies these are once a year occurrences, and not much good for VC investing. Here we are talking about a standardised set of quarterly management reports including basic VC-style KPIs. This is inevitable as data acquired through artificial intelligence would otherwise overshadow self-reported figures and companies loose control over their reporting.



Behind closed doors: investment platforms vs. proprietary dealflow

Written on March 15, 2015 by Yoram Wijngaarde

A year ago I wrote a post titled “Proprietary dealflow isn’t dead and for good reason”. But with the rapid emergence of online investment platforms, how much is left of the rationale for keeping an investment opportunity behind closed doors?

Too many investors: the winner’s curse  
According to conventional wisdom, a hyper competitive auction-style process may drive up the asking price so much that only the last “fool” will invest. But what if investment platforms make it possible to invest a smaller amount in a single deal? Then, total demand in $ terms does not change that much, so the bidding price is much less affected. Even if the price would go up somewhat, investors receive compensation in the form of diversification: they get to make more smaller bets, instead of fewer bigger bets (just like public market investing).

Compensation for time spent on due diligence
Another underlying argument for keeping a deal private, is that due diligence is a time-consuming and costly process. To justify spending time on an investment opportunity, investors generally like to have some degree of upfront certainty that they can invest if they decide to make an offer. But what if more company transparency and better online due diligence tools, can make this process less time consuming? And if an investment platform allows for smaller bets on a single deal, it would justify doing less due diligence on a single deal (again, comparable to public market investing).

What really drives private equity and venture capital returns?
Investment returns for funds with a 3-5 year investment horizon are basically driven by: the price paid at entry, and the price at exit (plus some dividends in between). Deal access (networking) will become less of a differentiator, and also price paid (negotiation) increasingly will become market-driven. In the end, investment performance will be mainly driven by picking the right deals: making better “yes/no” investment decisions than others, but based on the same information access (once again, like stock picking).

At dealroom.co we let the client decide which investors they give dataroom access. So it is up to them to cast the net wide or narrow. But the market is noticeably moving into the direction of wider not narrower. Investment platforms are an unstoppable force, that will require a slightly different mind-set from professional investors. The main thing holding back an even more rapid advance of investment platforms right now is the problem of adverse selection, which is ultimately a problem of not enough transparency. Innovation can ultimately solve this. I plan to write another post about this soon.

Also see: Proprietary deal-flow isn’t dead and for good reason


FinTech and the corporate finance profession

Written on February 26, 2015 by Yoram Wijngaarde

Corporate finance can be broken down in two different areas: deal origination and deal execution.

Deal origination (pitching investment ideas, networking, providing actionable market intelligence) is increasingly taken over by data providers, using SaaS business models, especially around early stage companies and reporting on past events. What such SaaS models are not capturing yet, are deeper insights and forward-looking information on larger companies.

Deal execution is where the fees are made: creating marketing materials (IM or investment deck), finding potential investors, soliciting offers, managing the due diligence process, and deal negotiation. Part of the reason why deal fees are often so high is that bankers need to be compensated for (a) time spent on deal origination and (b) executing deals that do not result in a completed transaction. FinTech is now making it possible to significantly reduce these costs (a) and (b). And of course, it will no longer be needed to spend $100,000 on an online dataroom.

Then, what is left of corporate finance, after it’s been stripped off the costly and least efficient processes, are the more value-added human involvement such as: creating marketing documentation, tactical advice, negotiation. In summary, then, corporate finance seems ideally suited to be disrupted by FinTech. Customers stand to benefit through lower costs, more control and higher service levels. This disruption is likely to take place with early growth stage companies first, and mid-market companies second.

Funding marketplaces or VC data analytics: why not both?

Written on November 11, 2014 by Yoram Wijngaarde

Finally, FinTech is arriving to the world of VC, private equity and corporate finance, spurred by at least three major trends.

1) Venture capital firms have started to embrace software to become more efficient

2) The traditional lines between LPs and GPs are blurring. The type of investors is diversifying: corporates, super angels, investor clubs, micro funds, SWFs, …

3) Growth trajectories of tech companies are shortening, creating a need for real-time actionable data and intelligence

Many promising tools for VCs have been launched in response to this. In particular we’ve seen the emergence of two types of software models:

(a) marketplaces as platform for funding (many-to-many

(b) tools to discover and track startups (one-to-many)

Screenshot 2014-11-11 15.14.37

a) Marketplaces as a platform for funding

Marketplaces are in theory a logical way of matching supply and demand for startup investing. Marketplaces bring transparency, market discipline (the invisible hand), and create a level-playing field. Once critical mass is reached, marketplaces tend to grow stronger and stronger thanks to positive network effects. Taken to the extreme, they could eliminate proprietary deal-flow, although I have expressed some skepticism about proprietary deal-flow completely disappearing.

One of the hurdles for marketplaces is the adverse selection problem: the best companies often won’t list themselves on any platform because they enjoy already plenty of love and attention from VCs eager to invest. Secondly, professional investors do not like the idea of investing in companies via platforms. VCs and angels like to take the initiative. They generally don’t like the idea of being pitched or passively being fed deals.

b) Tools to discover marketplaces

Some data analytics tools have been created to discover and track winning tech companies. These services were built on top of free sources like CrunchBase but massively improved them. Using data-crawling technology to filter out the noise and find growth is a great value proposition. Such tools sit much better with what VCs want, allowing them to be be in the driver’s seat, be the hunter so to speak. It allows them to discover “hidden gems” (= proprietary deal-flow), as well as filter out the noise (= low quality businesses).

There are caveats however. Firstly, there are negative network externalities: more users make the product less valuable (aka “congestion”). Secondly, private company data is not easy to find and often stale. And the public data that can be crawled is fairly easy and cheap to find, making it harder to justify a subscription fee. Indeed, many VCs have built their own in-house technology at low cost.

This begs the question: why not both?


So where does dealroom.co fit into this?

Dealroom’s model is a little different: we’re neither a marketplace nor a data provider, but a hybrid.

Killing the adverse selection problem: we track the growth of all companies, not just the ones seeking capital. The way we organised our data is very much about finding context and connecting the dots. For example, if company A is raising capital, what other activity is there in this space, and how does their performance compare with their peers?

Avoiding negative network effects of data: we realise that data is power, but data is also ubiquitous and therefore not that valuable by itself. So we decided to offer most of our data for free, and also enable the crowd to further improve our data. Company data can be edited by its founders and investors requesting editing rights. The owner of the data has control over who can view it (all dealroom.co users, or only invited parties). Why would companies publish their own company data? Improving the data we have on your company improves its ranking in our recommendation algorithm. And those who have growth to demonstrate, have an incentive to display it.


Corporate Finance in the FinTech era

Written on October 29, 2014 by Yoram Wijngaarde

Today we are witnessing banking activities being disrupted, vertical by vertical. Instead of banks sitting on technology and using it to their own benefit, FinTech is about giving the end-user the power of technology, via user-friendly products.

Is the corporate finance industry (incl. venture capital, private equity, investment banking advisory) ready for FinTech? And if so, what would that look like?

So far corporate finance has gone through two major phases and it is about to enter a third major phase:

– Until 1980s: personal relationship based finance

– From 1980s until now: balance sheet driven finance

– Next up: technology driven finance (= FinTech)


Finance 1.0: relationship based finance

Until roughly the early 1980s, finance was dominated by Wall Street based and London based firms, and business revolved largely around personal relationships. These firms were mostly partnerships, led by a handful of power brokers who today still have famous banks named after them (although most names disappeared during the industry consolidation that came with Finance 2.0). Bankers of this era were seen as a major catalyst for industrial and technological progress. One of these power brokers was John Pierpont Morgan, founder of JP Morgan.


He was super connected in both the business and political world. He played a major role in the formation of US Steel and General Electric (he also invested in the Titanic). Governments had close relationships with him and other brokers as they were seen as crucial to finance deficits caused by  wars.

JP Morgan has some great quotes attributed to him. My favorite JP Morgan quote is: “A man generally has two reasons for doing a thing. One that sounds good, and a real one”. But a more relevant quote is: “A man I do not trust could not get money from me on all the bonds in Christendom”.

This type of “old-fashioned” relationship based finance lasted until about the 1980s.

Finance 2.0: balance sheet based finance

Then, in the early 1980s, a new type of finance emerged: balance sheet driven finance, or Finance 2.0. This change came because of a “perfect storm” of de-regulation and financial innovation.

De-regulation enabled the formation of mega banks and also allowed banks to take more risks using their own balance sheet. Instead of competing for business based on personal relationships, banks used their balance sheet to “muscle” their way into profitable business opportunities. In this “pay to play” game, the bigger you were, the better for you. This of course incentivised industry people to chase mega deals (“elephant hunting”), thus paving the way for mega buyouts, such as the iconic $25 billion leveraged buyout of RJR Nabisco by KKR in 1989. Such mega-deals required large amounts of finance, involved high arrangement fees for participating banks. De-regulation almost immediately also led to the first bailouts, during the Savings & Loan crisis between 1989 and 1995.

A second big catalyst for Finance 2.0 was financial innovation: option pricing theory and computerised trading, which led to the growth of the hedge fund industry and “prop trading” activity inside banks. Banks created huge trading floors which often became their main profit centers. As with de-regulation, also financial innovation led to a large bail-out: in 1998 the hedge fund LTCM imploded and threatened to drag the whole stock market in the back hole it had created.

Markets supposedly had become hyper-efficient: electronic trading, seamless global markets, and financial innovation made markets less risky. Or so most of us thought, regulators included. In reality, financial institutions had merely found new ways to take margins through the back-door by underwriting risks others were unable to take, but -as we now all know- risks which eventually re-emerged elsewhere and ended up mostly borne by unsuspecting others (taxpayers, central banks, and less sophisticated market participants). In hindsight, financial markets were characterised by in-transparency, secrecy and complexity nobody fully understood, under the guise of hyper-efficiency and innovation.

Complexity also led to excesses and sometimes super high payouts which from hindsight were not all merit based. We tried so hard to incentivise the financial sector (including investment funds) to work hard in our interest and reward them well for it, but we turned out to have been paying for very mediocre or even bad performance. From hindsight, the financial industry had become imbalanced and rigged, mostly working for the benefit of itself.


Although finance 2.0 and banking 2.0 are today still very much alive, and in fact still a growing industry, we are on the verge of moving to a new era of fintech, or finance 3.0.

Finance 3.0

Today we are witnessing banking activities being disrupted, one by one. Instead of banks sitting on technology while servicing the end users, FinTech is about giving the end-user direct access to technology, via user-friendly products, and free flow of information.


The potential benefits are multitude, but here are a few:

1) Simplification

Peer-to-peer loan businesses are stripping out unnecessary costs by using technology and eliminating branches et cetera thus creating a sustainable competitive advantage. This is very much analogous to the airline revolution where low cost operations have structurally reduced the cost and hurdles of flying.

2) Transparency

Transparency results in the removal of hidden fees, while providing users with real-time information about where their money is and what the service provider is doing for them.

3) Less friction and barriers

De-institutionalisation ultimately means a more open playing field, where historical pedigree is less important and real-time reputation more important. In venture capital we see fragmentation and emergence of smaller funds, micro funds, super angel investors, and entrepreneurs instead of institutional funds.

Seed Stage / Angel Investing

The cost of launching a startup been reduced dramatically. Creating a prototype can be done in a matter of weeks, tested in the market in months, and a company doesn’t need millions to get off the ground. So platforms are ideally suited to micro-fund a company and then invest more as there is proof of concept.

Simultaneously, crowdfunding is potentially making seed investing more viable by enabling small investors to spread risks more. Since seed investing in a startup is like investing in an out of the money option, with very low success changes, spreading bets is valuable. Still, the problems of adverse selection and asymmetric information still need to be solved by these platforms. Future returns achieved by the average crowdfunding investor will be the metric to judge this by: they need to be able to achieve a return at least close to that of the stock market (say 8%+ being realistically attainable for most investors).

How dealroom.co fits into all this: corporate finance

Dealroom’s mission is (1) to help professional investors make the better investment decision based on all the information available and (2) to simplify the process of capital raising for founders of rapidly growing companies.

Furthermore, our platform is built based on the expectation that venture capital and private equity in the future will involve less traditional closed-end GP funds and involve more direct investing by LPs, through syndicates that are lead by investors with good reputations. To enable this, we need platforms where market participants are closely connected, can easily exchange data, and can choose to share investment opportunities, while keeping track of everyone’s activity, reputation and investment performance.


This is what we are working on. John Pierpont Morgan himself said: “Go as far as you can see. When you get there, you’ll be able to see farther.” Exactly what we plan to to do.


4 ways to sabotage your own fundraising process or exit

Written on July 6, 2014 by Yoram Wijngaarde

Fundraising or selling your company is neither an art nor a science. It is a fairly standardised process. But it is important to avoid some common mistakes and stick to a some simple rules that I summarise here. Many of them may seem obvious to you, but I see these mistakes repeated time after time.

1. Don’t over-promise and under-deliver. When you give near term goals and budgets, make sure you can (over-) achieve them. Wall Street has always played this game for years. Beating estimates builds momentum and gets people excited. Also, do not give projections out too soon. Wait as long as you can. Investors are not even that interested in your projections (except to use them against you when you don’t achieve them). What matters more to an investor is your actual historic performance.

2. Valuation: don’t start too high. When it comes naming your price, start slightly below your expectations. This way, hopefully you can attract multiple potential investors, and thus create some competitive tension. Again, this builds positive momentum in the process. Starting too high can result in putting off investors too early. Leave hard-ball negotiating to the very end. Many people are afraid to start low because it anchors low expectations. I think this is a fair point, but unless you have a 1-in-a-million type business, this argument does not weigh against the arguments to start low(-ish).

3. Never, ever, think that you can “fool” an investor. No serious VC will invest until they understand the key issues just as well as you do. Some investors occasionally fool themselves, and you might be on the lucky end of that, but do not think that you can ever fool them. Does your business face some major challenges? Are there painful dependencies in your business? Certain KPIs are exposing a weakness in your business? Do not brush them aside. Every business has its issues, and that’s ok! Demonstrate you are aware of risks, and can be realistic about them. Analyse them and be thoughtful. Some founders, when confronted with tough questions, sometimes have a tendency to act like politicians, dancing around the elephant in the room without giving a straightforward answer which makes them sound disingenuous. This is an opportunity to demonstrate your integrity.

4. Analytics! It makes sense to start measuring many KPIs early on so that you have lots of data to choose/cherry pick from and to share. Do you understand the behaviour of you users? Is the growth your company is experiencing sustainable? Cohort data is an example of user retention data that many VCs value greatly. It basically means monitoring your customers’ behaviour  over time (repeat visits, repeat purchase, etc). If your company is growing very fast now is mainly a function of your ability to attract new users very quickly, but whether you can build a real business over time will depend on your ability to retain users.

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Image: Beastie Boys, Sabotage


VC software: platforms vs. discovery tools (the hunter vs. the hunted)

Written on January 7, 2014 by Yoram Wijngaarde

Recently I read a post by Li Jiang from Silicon Valley-based venture capital firm GSV Capital describing the venture capital ‘stack’ discussing software to support the value-chain for VC firms:
discovering >> identifying >> screening >> evaluating >> investing >> holding/managing and >> exit

One can clearly notice an increased sense of urgency with VCs to use more software to support their work, also here in Europe. The market has responded: many promising tools for VCs have been launched. And this, by the way, fits also with the trend towards “de-institutionalisation”: smaller VCs with leaner operations and more skin-in-the-game.

In particular we’ve seen the emergence of two types of software models:
(a) marketplace type platforms (many-to-many)
(b) big data discovery tools (one-to-many)


Marketplace type platforms are a logical way of matching supply and demand for startup investing. Marketplaces bring transparency, market discipline, and a level-playing field. Once critical mass is reached, marketplaces tend to grow stronger and stronger thanks to positive network effects. Taken to the extreme, they could eliminate proprietary deal-flow, although I have expressed some skepticism it would ever go this far.

One of the hurdles for marketplaces is the adverse selection problem: the best companies often won’t list themselves on any platform (this applies to angel rounds, series-A, follow-on rounds and exits). Granted, this emotional barrier has become becoming lower now that being listed on an M&A platform is an increasingly accepted practice (just like having your CV on LinkedIn doesn’t mean you are looking for a job). However, I expect that some of the best investment opportunities will continue to be done off-market (also see footnote 1 for an analogy with real estate portals). Moreover, platforms do not fully fit with the DNA of investors. VCs and angels like to take the initiative. They generally don’t like being pitched or being fed deals.

Enter, data discovery tools. Using data-crawling technology to filter out the noise and find growth is a great value proposition. Such tools sit much better with what VCs want, allowing them to be be in the driver’s seat, be the hunter. It allows them to discover new “hidden gems” (= proprietary deal-flow) in the best case, or worst case be able to filter out the noise (= low growth businesses). Private company information is not easy to find however, almost by definition, especially for B2B companies. In addition, negative network externalities can also occur, where more users make the product less valuable (“congestion”). Indeed, many VCs are looking to add in-house built technology on top of outsourced technology to maintain a competitive edge, similar to the way many hedge funds work (see footnote 2).

Marketplaces and discovery tools are of course completely complementary and likely to be used in combination.

So where does dealroom.co fit into this?

Dealroom is neither a marketplace nor a data provider. We provide information but based on a crowd-sourced model. We add a layer of curated information through in-depth research. VCs are primarily looking for growth/traction. And those who have growth to demonstrate, have an incentive to display it. For these high-potential companies, Dealroom acts as a fiduciary making sure the information gets seen by the right parties only. In order to filter out noise, our research team pre-qualifies companies based on basic size and growth metrics, using a mix of publicly available data sources and the proprietary information we receive directly from the companies.

1) There is an analogy with online real estate portals. They also bring transparency and market discipline, but many of the best properties are very often only available off-market for an initial period and gone before they are ever seen online. Indeed, when recently looking for a property, I noticed that a majority the best properties listed online had already been rented out. It is bait-and-switch practiced by nearly all real estate agents, on the main platforms.

2) Hedge funds have a lot more data to work with and are in a technology arms race which led to big hedge funds winning from small ones due to superior technology budgets, hurting small investors who do not have access to these technologies.