Finance

Family offices and the ultra wealthy are piling into investments in European tech. It’s another sign that the continent is becoming more like Silicon Valley.

  • Europe has minted a new generation of tech millions after some notable IPOs and acquisitions. These wealthy founders are now re-investing their earnings back into the continent’s tech ecosystem.
  • Private wealth has doubled from $33 trillion in 2008 to $70 trillion in 2018 with some 92% of respondents saying they now invest in venture capital, according to a survey by London-based fund Talis Capital. 
  • Money committed to VC now outstrips real estate among ultra-high net worth individuals as they hunt for yield outside of traditional assets. 
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The young and ultra-wealthy want to pile their billions into tech startups.

Research conducted by Dealroom.co for London-based fund Talis Capital has found that increasing numbers of family offices and ultra-high net worth individuals are committing larger proportions of their finances towards European tech, via venture capital funds.

It’s a sign that the continent’s ecosystem is becoming more like Silicon Valley where millionaires and tech entrepreneurs are major investors in new startup ventures.

Where previously Amazon founder Jeff Bezos invested in Uber and Twitter, now European tech and other business founders may be well-placed to fuel the next big thing. 

In the past decade, private wealth has doubled from $33 trillion in 2008 to $70 trillion in 2018 with some 92% of respondents saying they now invest in venture capital, according to a survey by Talis Capital.

Talis Capital is a London-based venture capital fund which invests on behalf of wealthy private individuals

TransferWise founders Kristo Käärmann and Taavet Hinrikus

Taavet Hinrikus (left) and Kristo Käärmann, founders of European finance firm TransferWise.
TransferWise

This is down to a few reasons. One is that some traditional types of investment don’t offer the same attractive returns that they used to, such as property. Investors seeking higher returns need to look at riskier models, such as venture capital.

“It’s a product of a hunt for yield in private markets and investors turning away from traditional assets,” Vasile Foca, cofounder and managing partner at Talis Capital, said in an interview with Business Insider. 

Another reason is that successful exits by European entrepreneurs have created new millionaires who want to put money back into the ecosystem. A notable example in Europe is Skype cofounder Niklas Zennstrom, who set up venture capital firm Atomico.

iZettle, and Adyen are just some of the major European exits in recent years while individual entrepreneurs such as TransferWise cofounder Taavet Hinrikus have been notable investors across a number of sectors. 

These newly wealthy entrepreneurs don’t account for all ultra-high net worth individuals investing in venture capital, but Talis believes they account for some of the shift.

Over the past five years, the number of individuals and families using private wealth to directly participate in VC rounds in Europe has grown five-fold to a record-breaking $5 billion. According to the research, 2019 could yet beat that record.

In fact, Dealroom calculates that 20% of new venture capital funds raised in Europe came from private limited partners and that 18% of the $28 billion investment in European startups in 2018 came directly from private wealth.

Young, wealthy investors want to back tech

A survey of investors in the US with more than $25 million to hand earlier this year found that the average age of wealthy investors had dropped to 47, down from a previous 58. While youthfulness doesn’t always scream tech savvy, it may well be behind an adoption of hitherto tricky bets.

Research from BNP Paribas found millennials are more than twice as likely to invest in VC funds and startups than other age groups. 

So-called digital natives are more interested in technology but still need help with understanding venture capital as an asset class, according to Matus Maar, cofounder and managing partner at Talis Capital.

“Having more capital means European investors can make bold bets like they can in the US or China,” Maar said. “The key is educating investors as to how VC works as it has previously been quite opaque and they need to understand the returns cycle is longer than other assets.” 

Similarly, a lack of tech expertise makes it harder for first time venture investors to do the necessary due diligence alone but are still keen to be part of a an exciting part of the market. Since 2013, tech exits in Europe have totalled $354 billion with $115.5 billion worth of exits last year alone with Spotify’s $30 billion deal standing out. 

“Everyone knows you need to invest in tech and investors can see that it’s not just the US that can create large companies in tech,” Foca added.  

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