Venture capitalists are also feeling the shocks of the interest rate turnaround. For the Zurich-based company Redalpine it's an opportunity for Europe to prove itself to Silicon Valley, its founders tell finews.com in an interview.
Venture capital funds are more closely associated with California's Silicon Valley than with European cities like London, Berlin or Zurich. This is because many U.S. startups generate loud media coverage and are showered with money by big American venture capitalists (VCs) - hoping to have invested in the next Facebook, Airbnb or Google.
However, «the European startup landscape is just as attractive to investors as America’s,» founding partner of Redalpine Peter Niederhauser, said in an interview with finews.com. «European companies have always been equally as innovative as their American counterparts,» Co-founder Michel Sidler added.
Neglected Opportunities
In the past, however, Europeans have «somewhat neglected investing in promising growth companies,» Niederhauser said.
Sometimes the Old Continent failed to attract capital: «In Europe, there was little or no investment in promising startups, partly because there was too little VC capital available. Young companies must be given strong support in financing rounds for them to grow quickly,» he said.
Promising Fintechs
For Redalpine partners, who scour thousands of startups every year, there is no shortage of opportunities. Especially in the financial sector.
Taxfix, a company specializing in tax returns founded by two Swiss in Berlin, is an example of such an exciting fintech, as is London-based company 9fin, Niederhauser said, describing it as a «Bloomberg for bond markets.»
Both companies are represented in Redalpine's portfolio, which includes names such as the German neobank N26 and Swiss accounting start-up Bexio.
The European VC sector is now able to catch up with its U.S.counterpart thanks to its international network, larger financing rounds and interesting exit opportunities. Something the pandemic has also contributed to.
Global Virtual Network
«Seeing as everything is being done virtually, it no longer matters for start-ups or VC experts whether you hold a video call with New York or Zurich,» Sidler said. This development is a great advantage for young entrepreneurs as well as for venture capitalists - and helps both sides to quickly build a global network.
The Redalpine managers have high expectations for a new fund that the company recently launched. The Summit Fund has a target volume of 1 billion Swiss francs and a structure that makes it more attractive to a broader professional investor base. This «evergreen» fund allows for diversification over time across multiple economic and innovation cycles, while offering investors partial liquidity of their holdings.
Interest Rate Impact
In recent years, private equity vehicles have benefited greatly from the low-interest-rate environment as many investors increasingly turned to the private market in search of yields. But how is the rise in interest rates and the sharply cooled market climate now impacting start-ups and the VC sector?
In Germany, investor sentiment deteriorated significantly in the first quarter. The business climate indicator for the venture capital market, which among other things reflects the financing situation for start-ups, fell by 35 points to 7.2 points, as reported by «Handelsblatt» (in German, behind paywall). The barometer is compiled by the German development bank KfW and the industry association BVK.
Slower Financing Rounds
«We have so far felt little of the severe valuation correction that tech companies are currently undergoing on the stock market in our business,» Niederhauser said. But financing rounds are no longer as easy as before, especially for capital-intensive business models, he said. He remains confident, however, and points out that Redalpine, as an experienced VC company, has already gone through a few cycles and also has staying power.
«Technological substance will outlast any crisis,» Sidler said. «You can't put the brakes on progress and innovation.»
From the perspective of venture capitalists, the current correction in the public markets is not as worrying as the price slump may seem to many retail investors. VC experts are used to the fact that not every investment will eventually yield profits. Usually, a significant stake in a unicorn, for example, is enough to compensate for other failures of a venture capital fund.
