Lockdown proves the attractiveness of technology for growth investors

While the Covid-19 pandemic has brought economies and health systems close to collapse, the ability of fast-growing companies to prevail – and profit – remains somewhat undiminished.

Aside from a pause when national bans first came out last year and companies tried to gauge the impact on economies around the world, many startups and scaleups have sprung up largely in good financial shape – in part because investors keep going growth in the US will support a low interest market.

“When March came there were months of panic in the venture community with the scramble to support cash balances in portfolios, but the Fed and central banks, which were aggressively backing the markets, completely changed the approach to risk,” says Toby Coppel . Co-founder of the venture capital company Mosaic Ventures.

“We have seen tremendous amounts of new money since July. . . on the hunt for growth, which means valuations have risen very significantly across the board, ”he explains.

the FT Statista ranking of the fastest growing companies in Europe, which assesses their sales growth in 2016-19, does not show the impact of the pandemic on these companies. Instead, it lists the companies and founders who entered 2020 with strong support. However, the success of many of the companies on the list – before and after – isn’t all down to financial strength.

In many cases, it’s because the pandemic is changing the way the world uses technology, catapulting many niche innovations into the daily uses of people locked in their homes.

“We are in the golden age of European technology,” said Tommy Stadlen, co-founder of the Giant venture capital fund last month created Tailwind International – a special purpose vehicle to take over European technology groups in the USA.

Such fast-growing companies, he says, have the “answers to many of the problems” posed by the pandemic that resulted in technology “penetrating the wide world.”

He quotes the rapid introduction of telemedicine and video conferencing: “This would have taken 10 years but happened in 12 months.” With that in mind, he adds, startups have grown from zero to billions of dollars in less than two years.

In addition to business software and collaboration tools, education technology and health technology are also growing strongly, notes Erin Platts, head of Emea at Silicon Valley Bank, the US lender. Here, too, it is partly due to a pandemic-related change in habits.

Erin Platts

Erin Platts, Emea boss at SVB

Several sectors are going through the same kind of transformation as fintech after the financial crisis, argues Gerard Grech, CEO of Tech Nation, a government-backed organization that supports UK entrepreneurs.

“We are in a humanitarian crisis, but that has made people think differently,” he says. Tech Nation’s annual report earlier this month showed investments in the UK to hit a record $ 15 billion in 2020 Effects of Covid-19 and Brexit.

Tech is also the largest sector within the FT 1000 rankings, accounting for 22 percent of the entries, but this year’s list shows that fast-growing companies are emerging in other industries as well. After technology, construction and retail were the largest industries by number of companies.

Glencar Construction is the fourth fastest growing company. It develops distribution warehouses and builds the UK’s first vaccine manufacturing and innovation center. Other high-profile contributions include Chilly’s, a manufacturer of fashionable returnable bottles, and the toothbrush manufacturer Happybrush.

Some of them on the list offer renewable energy services and hardware as companies ramp up their zero carbon plans ahead of the COP26 climate change conference in Glasgow this fall.

Pear energy – the six-year-old utility that claims to offer 100 percent renewable electricity – is on the list for the first time and lands right at the top, while competitor Octopus Energy also makes the top 25.

Octopus founder Greg Jackson says the company continued to grow “exponentially” until and during the pandemic. “We are at the intersection of two” [booming] Energy and technology sectors, ”he says.

Octopus raised money last year from Tokyo Gas and Origin Energy, major energy companies in Japan and Australia. “There was a line of investors,” says Jackson. “London has long been the hub for fintechs, but energy technology is just as strong. Both are based on the same issues: strong regulation, the need for big data to increase efficiency, and consumers who are underserved and overwhelmed. “

Charlie Jardine, CEO of EO Charging, which provides charging points for electric vehicles and is number 27 on the list, agrees that the turning point for energy technology has arrived. He points to further growth in the next few years, as “companies will rely on electric fleets by 2030-40”.

EO became profitable last year and he expects it to stay that way as “the economics of electric vehicles have increased” for both consumers and fleet use.

Bulb, Octopus and EO are all based in the UK but grow in other regions. Jackson and Jardine say the UK is the best place in the world to be a disruptive energy company.

“The government is doing a good job of laying the foundations,” says EO’s Jardine, “but the market is growing independently of government aid.”

Hamburg and Stockholm are newcomers to the top 10 cities in the ranking based on the number of companies. And for the first time, Italy is the country with the most entries – 269 – followed by Germany and France. Giant’s Stadlen says this is partly due to Italian industry investing directly in the country’s startups.

Although the UK ranks fourth this year, London remains the top city for the number of fastest growing companies on the list at 71, compared with 45 for closest rivals Paris and Milan at 36.

Still, the UK’s slide from third place in the rankings last year is a potential concern as many tech creators say Brexit-related restrictions like the free movement of skilled talent make the UK less attractive.

Ian Connatty, executive director of government-backed investor British Patient Capital, says the UK is successfully building technology clusters outside of London, but adds that given its newfound capabilities, the pandemic also raises a “profound question” of where companies need to be based to operate virtually build up.

The UK government is taking action to address these concerns with a new one Tech visa for EU workers and incentives to build and keep promising companies.

The SVB’s Platts notes the importance of the upcoming reforms to the UK listing regime and other supportive measures to ensure that the UK remains an attractive environment for investment and a skilled workforce.

“The UK is by far the most mature ecosystem in Europe and we are now seeing a number of market leaders evolve as the UK becomes an innovation hub for fast-growing businesses,” she says. “We’re starting really great companies, but we need to make sure they go through the full lifecycle to recycle capital and talent and drive new startups.”

In general, the question is whether the tech sector as a whole can sustain such breakneck growth – at least in terms of valuations and funding rounds.

“Will it end badly? Is it the top? In my 25-year career in technology investment, I’ve never seen anything like it, ”says Coppel from Mosaic. “But regardless of that, transformative companies are launched in booms and busts and you cannot predict when the next Alibaba will come.”

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