Reaction to Nutmeg Announcement

Commenting on Nutmeg’s announcement, Victor Basta, managing director of Magister Advisors, who advised Nutmeg, said:

Nutmeg’s announcement today represents the largest FinTech fundraise to be announced in Europe since Brexit and the largest investment yet in a European robo advisor.  It is also the largest EU fundraise in Fintech led by an Asian investor this year and is indicative of the broader trend towards Asian investors backing the best European tech assets.

This fundraise is a great vote of confidence in Nutmeg and in UK tech.  Nutmeg is without question the largest and most mature business in its sector in Europe. Clearly the investors see a significant opportunity for Nutmeg to become a world class global business.”

Digital wealth managers are bringing sophisticated wealth management to the masses.  Industry estimates indicate that the EU robo advisory market is likely to grow to $114B, much faster than the more mature US market.

At a time when there are concerns about the impact of Brexit, here is a London-based business engaged in dynamic FinTech innovation and attracting global investors.

“European tech is witnessing a surge in investment from Asia.  We expect the value of investment this year to be ten times the level it was three years ago and we expect to see further significant rises in the years ahead.  We’ve already seen two blockbuster acquisitions of European tech companies, Supercell and ARM, by Asian buyers this year.”

Several factors are contributing to a surge in Asian investment in European tech according to Magister Advisors analysis:

–    Chinese tech giants are generating far more cash than they can profitably deploy in China. Alibaba’s annual cash generation has jumped 6x to nearly $9B in just 4 years, while Baidu’s market value has soared from $1B to $64B since IPO just over a decade ago, all while at the same time China’s growth rate is slowing. This creates two reinforcing trends spurring international investment.  First, it naturally drives local tech giants to look further afield for growth.  Second, with slower growth comes less requirement for local investment, yielding even more annual cash (albeit not forever).  Imagine Alibaba having $15-20B of cash flow without much need to invest locally and you have a major international tech deal-maker in the offing.

–    Local growth rates are slowing – China’s 2015 growth was the lowest in 25 years.  The opportunity to scale to $1B+ in local revenue in 4-5 years is rapidly fading, and many ambitious local success stories need to look further afield for either a technology edge or additional markets to continue rapid expansion.

–    English is sweeping China – More people are learning English in China than in Europe.  Over the next 20 years, English-speaking, internationally oriented Chinese students will take positions of power in cash-rich tech players, creating a cadre of tech leaders confident in expanding beyond Asia.

–    There is a huge desire to “buy the best” abroad and bring it back home.  Demands for proven, transformational technology has never been greater in the region. For example, Chinese pupils are entering the education system far faster than the country can deploy qualified teachers, leading to intense interest in education technology.  In fin-tech, world-class European firms are seen as attractive tech weapons to shake up stodgy Asian banks and insurers.

–    European tech companies are more capital-efficient than US counterparts, making them a safer bet for profit-oriented Asian investors.  With less early-stage capital historically available in Europe, companies have spent less and gotten profitable faster.  This balanced approach inherently appeals to profit-minded Asian investors, who are cautious about pumping money from a distance into high burn-rate Silicon Valley start-ups.  Perverse as it may sound, the lack of historic capital in Europe is a driver for attracting unprecedented Asian capital into Europe.

–    Accessing huge Asian markets best done via local partners – For European tech companies, the market entry benefits of a large Asian investor/acquirer are clear.  There is no such thing as an Asian market; even mainland China, Taiwan and Hong Kong are entirely distinct markets.  The adage about Europe applies even more to Asia; going alone into several Asian markets is a bet-the-company decision hardly any European tech CEO would make. Gaining a significant Asian investor who is motivated to help “bring the technology home” can transform a European tech company’s reach into the region.

–    Valuations in European tech remain more attractive than top-tier US start-ups.  Many US start-ups still demand $1B+ “unicorn” valuations despite being years away from making money; at last count, there were 100+ US tech unicorns across all tech sectors.  This makes it hard for Chinese or Asian strategic investors to justify a major strategic stake, or full acquisition.  In contrast, Europe has created only 15 unicorns, and many European tech companies are available for still-high, but at least justifiable, valuations.

Author: Dylan Jones

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