Is Europe delivering enough venture backed exits ?

February 2017

2

Venture backed exits in Europe have been consistently

around €30 billion (1) per year between 2014 and 2016

VC-backed exits (1) Tech exits with no known VC backing

€ 34.1B

€ 23.5B

€ 37.1B

€ 17.5B

€ 40.3B

€ 109.3B

91

219 256

93

500

412

2014 2015 2016 2014 2015 2016

Value

Number of exits

Rocket Internet / IPO €6.7B King.com / Activision €5.4B Supercell / Tencent €9.3B (2)

King.com / IPO €6.4B HERE / BMW & Daimler & Audi €2.8B Playtika / Giant Interactive Group €4B

Zalando / IPO €5.3B Sophos / IPO €1.5B Trivago / IPO €3.6B (2)

IHS Markit / IPO €3.9B TeamSystem / H&F €1.2B FleetMatics / Verizon €2.2B (2)

CSR / Qualcomm €2B Skrill / Optimal Payments €1.1B Skyscanner / Ctrip €1.7B

Just Eat / IPO €1.8B AVITO.ru / Naspers €1.9B AVG / Avast Software €1.2B (2)

Zoopla / IPO €1.1B 360T / Deutsche Boerse €0.7B Takeaway.com / IPO €1B

TeamViewer / Permira €0.9B showroomprive.com / IPO €0.7B Heptagon / Ams €0.8B

Fotolia / Adobe Systems €0.7B Yemeksepeti / Delivery Hero €0.5B Valtech Cardio / Edwards €0.6B

DeepMind / Google €0.5B Photobox / Electra P& Exponent €0.5B Automic / CA Technologies €0.6B (2)

Top 10examples:

PokerStars / Amaya €4.5B WorldPay / IPO €5.8B NXP Semiconductors / Qualcomm €42.8B

Mojang / Microsoft €2.3B Informatica / Permira €4.8B ARM Group / SoftBank €28.8B

VKontakte / vk.ru / Mail.ru Group €2.1B TelecityGroup / Equinix €3.2B Global Switch / Chinese group €6B

Trader Media / Apax Partners €2B Scout24 Holding / IPO €3.2B Kuka / Midea Group €4.5B

Travelport / €1.8B Wood Mackenzie / Verisk Analytics €2.5B Philips Lighting / €3B

GlobalCollect BV / Ingenico Group €0.8B Euro Garages / IPO €1.8B Allegro / Cinven & Permira €3B

Viber / Rakuten €0.8B bwin / GVC Holdings €1.3B Home Retail Group / Sainsbury's €1.7B

PubliGroupe AG / Swisscom €0.5B Financial Times / Nikkei €1.2B Kuoni / EQT Private Equity €1.3B

CarTrawler / BC Partners & Insight €0.4B Airwave Solutions / Motorola €1.1B Hotelbeds Group / Cinven & CPPIB €1.2B

Vizrt / Nordic Capital €0.3B E-shelter Berlin / NTT €0.8B Argus Media / General Atlantic €1.1B

Exits that have no known VC backing. This list excludes traditional telecom. 2016 was driven by mega exits such as ARM and NXP. Some may have received unknown VC or angel backing in early stages.

This report focuses on companies with known VC backing which had an exit in last three years. Includes both IPOs, strategic acquisitions and buyouts.

1. Based on 100% of the company value, even if not 100% was sold at exit. The actual amount is likely higher because exit amounts are not always disclosed. Dealroom estimates that after

correcting for undisclosed exits, actual exit amount is 10-20% higher. The median size of all exit rounds is about €70M, while the median size of exit rounds below €500M is €50M.

2. Initial VCs had already sold most or all shares in Supercell, Trivago, Automic, Fleetmatic and AVG by the time of the exit mentioned here, being replaced by new VC/PEs.

3

Strategic acquisitions and buyouts were driving the growth.

IPO markets slowed down, but more IPOs are on the horizon

IPOs of VC-backed companies (1) Acquisitions of VC-backed companies (1)(2)

€ 25.2B

€ 3.6B€ 6.0B

€ 8.9B

€ 19.9B

€ 31.1B

9 14 16

82

205 240

2014 2015 2016 2014 2015 2016

Value Number of exits

A handful of big IPOs in 2014 and steep decline thereafter. The market for IPOs has historically been unpredictable. However, the advent of VC mega-rounds have made IPOs generally less desirable, and arguably even disadvantageous during high growth phase of companies. However, strong pipeline of some big upcoming tech IPOs:

Rocket Internet / IPO €6.7B Sophos / IPO €1.5B Trivago / IPO €3.6B

King.com / IPO €6.4B showroomprive.com / IPO €0.7B Takeaway.com / IPO €1B

Zalando / IPO €5.3B Mimecast / IPO €0.5B Paradox Interactive / IPO €0.4B

IHS Markit / IPO €3.9B Windeln.de / IPO €0.4B THQ Nordic / IPO SEK 2B

Just Eat / IPO €1.8B PurpleBricks / IPO €0.3B WISeKey / IPO €200M

Zoopla / IPO €1.1B On The Beach Holidays / IPO €0.3B Ayondo / IPO $117M

Hostelworld Group / IPO €0.2B

Topexamples:

CSR / Qualcomm €2B King.com / Activision €5.4B Supercell / Tencent €9.3B

TeamViewer / Permira €0.9B HERE / BMW & Daimler & Audi €2.8B Playtika / Giant Interactive Group €4B

Fotolia / Adobe Systems €0.7B TeamSystem / H&F €1.2B FleetMatics / Verizon €2.2B

Google DeepMind / Google €0.5B Skrill / Optimal Payments €1.1B Skyscanner / Ctrip €1.7B

NaturalMotion / Zynga €0.5B AVITO.ru / Naspers €1.8B AVG / Avast Software €1.2B

Clear2Pay / FIS Global €0.4B 360T / Deutsche Boerse €0.7B Heptagon / Ams €0.8B

Wilocity / Qualcomm €0.3B Yemeksepeti / Delivery Hero €0.5B Valtech Cardio / Edwards €0.6B

Eyeworks / Warner Bros. €0.2B Photobox / Electra & Exponent €0.5B Automic / CA Technologies €0.6B

Telerik / Progress Software €0.2B ClickSoftware / Francisco Partners €0.4B Hibernia Networks / GTT €0.5B

M and M Direct / Bestseller €0.2B Ricardo Group / Tamedia €0.2B Privalia / Vente-Privee €0.5B

Momondo / Priceline €0.5B

Remarkable growth in venture backed exits via strategic acquisitions and buyouts. Growth is led by a few landmark mega deals like Supercell, King.com and Playtika, but a healthy range of medium sized exits too.

1. Based on 100% of the company value.

2. Strategic acquisitions and buyouts.

Source: Dealroom.co

Expected IPOs:

and more…

€ 16.9B

€ 9.6B

€ 18.4B

€ 8.1B

€ 6.5B

€ 10.8B

€ 9.1B

€ 7.4B

€ 7.9B

€ 34.1B

€ 23.5B

€ 37.1B

2016 2015 2014

Exits in top 3 (≈ 0.5%) Exits in top 10 (≈ 1.5%) All other exits

4

Extreme concentration: the top 0.5% of rounds drive 40-50%

of the returned capital. The top 1.5% of rounds drive 70-80%

High concentration of VC backed exits Proceeds from exits below €1 billion

Rocket Internet / IPO €6.7B King.com / Activision €5.4B Supercell / Tencent €9.3B

King.com / IPO €6.4B HERE / BMW & Daimler & Audi €2.8B Playtika / Giant Interactive Group €4B

Zalando / IPO €5.3B Sophos / IPO €1.5B Trivago / IPO €3.6B

IHS Markit / IPO €3.9B TeamSystem / H&F €1.2B FleetMatics / Verizon €2.2B

CSR / Qualcomm €2B Skrill / Optimal Payments €1.1B Skyscanner / Ctrip €1.7B

Just Eat / IPO €1.8B AVITO.ru / Naspers €1.9B AVG / Avast Software €1.2B

Zoopla / IPO €1.1B 360T / Deutsche Boerse €0.7B Takeaway.com / IPO €1B

TeamViewer / Permira €0.9B showroomprive.com / IPO €0.7B Heptagon / Ams €0.8B

Fotolia / Adobe Systems €0.7B Yemeksepeti / Delivery Hero €0.5B Valtech Cardio / Edwards €0.6B

DeepMind / Google €0.5B Photobox / Electra P& Exponent €0.5B Automic / CA Technologies €0.6B

50%

74%

41%

69%50%

79%

Top 3exits:

Top 10exits:

€ 580M

€ 369M

€ 771M

€ 90M € 68M € 65M

2014 2015 2016

Average size of all exits Median size of all exits

Smaller exits are equally important to support a healthy ecosystem. Steady growth in exits below €1 billion.

Source: Dealroom.co

Top 3Exits

(0.5%)

Top 10Exits

(1.5%)

€ 4.5B€ 6.0B

€ 7.4B

€ 2.5B

€ 2.5B

€ 4.1B

€ 7.0B

€ 8.5B

€ 11.5B

2014 2015 2016

Exits between €500 million and €1 billion Total

5

Healthy ratio of capital returned vs. invested. But to sustain

growth in VC activity, exits will need to increase even further

1. On average VC backed companies do 3 rounds untill their exit. For larger exits, the number of rounds to exit is higher.

Source: Dealroom.co

Capital returned

VC ownership at exit is typically 60-70% (1). Assuming a 2x target return on capital for the VC industry.

This implies that total exits should return 3x the amount invested by VCs, to achieve target VC return of 2x

Back-of-the-envelope analysis:European performance

In 2014 to 2016, €25-35 billion of capital was returned each year. In the preceding years, roughly €5-8 billion in VC was invested each year (2006 to 2013). This implies a very healthy ratio for industry on a whole.

Currently, €12-15 billion of VC is being invested in European companies each year. To deliver adequate returns going forward, exits would need to substantially increase to levels well over €35 billion each year (to roughly €45 billion each year).

2006 to 2013 2014 2015 2016 2017 & beyond

(€ 5B)(€ 10.2B)

(€ 15.2B) (€ 16.2B)

€ 34.1B

€ 23.5B

€ 37.1B

Required amount

of exits to achieve 2x return on

venture capital(indicative)

Venture capital invested Capital returned

Ratio of capital returned ÷ invested

Capital invested

6

Who are buying European (VC backed) tech companies:

an increasingly diverse group of acquirors and investors

Asian buyers U.S. buyers European buyers IPOs

€ 15.4B

€ 6.5B € 7.4B € 5.7B€ 2.4B

€ 11.1B € 10.0B

€ 25.2B

€ 3.6B€ 6.0B

€ 40.2B

€ 2.9B

€ 11.0B

€ 50.1B

€ 11.9B

€ 17.7B€ 16.0B

€ 1.8B

€ 9.5B € 3.0B€ 3.5B

€ 55.5B

€ 9.4B

€ 18.4B

€ 55.8B

€ 14.3B

€ 28.8B€ 26.1B € 27.0B

€ 13.1B

€ 9.0B

2014 2015 2016 2014 2015 2016 2014 2015 2016 2014 2015 2016

Not VC-Backed exits VC-Backed exits

So far mostly Japan (Softbank) and China (Tencent and others). Soon also Korea, India, Malaysia, and other Asian countries.

Outside Asia: Middle Eastern sovereign wealth funds as well.

World’s largest pool of big tech companies (Google, Apple, Amazon, Facebook, IBM, Cisco, Microsoft, …). Now also joined by traditional firms moving into tech.

Non-tech firms moving aggressively into tech (automotive, electronics, FMCG, banking, telecom, energy, …).

IPO window opens and closes depending on market conditions.

Source: Dealroom.co

7

Capital efficiency varies greatly per country, because few

big exits drive so much of the returns

Realised VC backed exits 2014-2016 Unrealised large potential future exits

€ 30.9B

€ 22.8B

€ 9.7B

€ 7.9B

€ 5.1B

€ 2.8B

€ 2.4B

€ 1.4B

€ 1.2B

€ 1.1B

United Kingdom

Germany

Finland

Israel

Netherlands

France

Russia

Italy

Sweden

Spain

United Kingdom Funding Circle, Farfetch, Deliveroo, Fanduel, The Hut Group

Germany Auto1 Group, HelloFresh, Global Fashion Group, Delivery Hero, Check24

Finland ?

Israel Infinidat, Gett

Netherlands Adyen

France Vente Privee, Sigfox, Jumia, Blablacar

Russia ?

Italy ?

Sweden Spotify, Klarna

Spain Letgo, Cabify

Other Zendesk, Unity (Denmark), Mindmaze (Switzerland)

Source: Dealroom.co

Mainly driven by TeamViewer

Does not include King.com (UK). Also large unrealised gains via Spotify and Klarna

Ranked #3 despite low investment. Outperforming mainly thanks to Supercell

France among most active in terms of VC investment. After big exits like CRITEO and Fotolia, what will be the next big exit?

8

Capital returned by industry: gaming and search

outperform; FinTech and HealthTech still to deliver

€ 26.3B

€ 13.9B

€ 13.7B

€ 11.6B

€ 7.2B

€ 6.9B

€ 6.7B

€ 6.5B

€ 4.8B

€ 4.0B

€ 3.8B

€ 3.7B

€ 3.6B

Gaming

Fashion

Enterprise software

Food

Transportation

Financial

Search

Travel

Healthcare

Security

Content

Semiconductors

Real estate

2014 2015 2016

Note: some overlap, and therefore doublecounting between industries, resulting in them adding them up to more than total exit volume.

1. Comparison of capital invested in same years. Not return on capital. Only indicative of relative capital efficiency till thus far of industry.

FinTech has been a leading receiver of VC funding (6.1 billion between 2014-2016) but so far not delivering in terms of exit. The industry is still in a earlier stage of development.

Gaming outperforms all industries in terms of capital efficiency. However, very hard to pick winners.

29.5x

4.7x

2.3x

3.2x

2.6x

1.1x

6.1x

2.7x

1.0x

2.0x

2.2x

7.4x

7.3x

Capital efficiency ratio (1)

Search includes Yandex, Trivago, Skyscanner, and Momondo. Like gaming, search has been a highly capital efficient category.

Health tech has had some big exits but also received lot of capital

Notable heavy hitting venture capital investors into

big European (potential) exits

9Note: Selected landmark exits of European VC-backed companies. Grey boxes indicate selected notable $1 billion+ companies. List is not fully exhaustive.

1. Late stage VC and growth equity.

Index VenturesSupercel l

(€5.0B)Skype (€2.3B)

King.com

(€5.4B)Just Eat (€1.7B) Betfa i r (€1.7B) CRITEO (€1.5B) MySQL (€0.9B) Priva l ia (€0.5B)

Photobox

(€0.5B)

Mimecast

(€0.5B)

SwiftKey

(€0.2B)Asos Adyen Del iveroo Funding Circle

Insight Venture Partners Trivago (€0.7B) Wix (€0.7B) Priva l ia (€0.5B)Photobox

(€0.5B)

TeamViewer

(€0.9B)

Mimecast

(€0.5B)Del ivery Hero Letgo Hel loFresh

Balderton Capital Betfa ir (€1.7B) MySQL (€0.9B) Talend (€0.7B)Natura lMo-

tion (€0.4B)Yoox (€1.8B) Bebo (€0.7B) The Hut Group

Accel PartnersSupercel l

(€5.0B)Avito.ru (€2.7B)

Showroom-

privee (€0.7B)

SwiftKey

(€0.2B)Spoti fy Letgo Check24 Funding Circle Del iveroo

Bessemer Venture Partners Skype (€2.3B) CRITEO (€1.5B) Wix (€0.7B)TeamViewer

(€0.9B)

TA Associates (1) ION (€3.8B) Fotol ia (€0.7B) AVG (€0.8B) Sophos (€0.8B)

Institutional Venture PartnersSupercel l

(€5.0B)

Fleetmatics

(€2.2B)MySQL (€0.9B) Klarna

Scottish Equity Partners CSR (€2.0B)Skyscanner

(€1.7B)BioVex (€0.9B)

LakestarKing.com

(€5.4B)Skype (€2.3B) Spoti fy Klarna

Highland Capital Partners Priva l ia (€0.5B)Photobox

(€0.5B)

Socia l Point

(€0.3B)

Vitruvian Partners Just Eat (€1.7B)Skyscanner

(€1.7B)

HV Holtzbrinck VenturesZalando

(€5.3B)CityDeal Hel lofresh Home24

Baillie GiffordSkyscanner

(€1.7B)Hel lofresh Funding Circle Home24 Auto1 Group xyz

= (partia l ly)

rea l ised exi t

Northzone Avito.ru (€2.7B) Wallapop Letgo Spoti fy

Baring Vostok Yandex (€7.3B) Avito.ru (€2.7B) xyz= unreal ised

potentia l ga in

83North Hybris (€0.9B)Socia l Point

(€0.3B)

Greylock Just Eat (€1.7B)Socia l Point

(€0.3B)