Why we raised Balderton’s Liquidity I — and the dramatic growth and maturation of Europe’s tech ecosystem

OCT 03, 2018

Daniel Waterhouse offers the Balderton partnership's perspective on Liquidity I

Since I started working in the tech sector in 1999, the startup and venture capital market in Europe is unrecognisable today from what it was then. After the financial meltdown of 2008/9, the European tech ecosystem has undergone dramatic growth. The amount of venture capital invested into technology companies has grown from $1.9B in 2008 to $17.1B in 2017, with twelve thousand startups financed and a slew of major successful exits. Europe has become a tech-startup region to be reckoned with.

One of the leading indicators we look at for the growth of the European venture ecosystem is the number of companies that have raised more than $20m cumulatively. While a simple measure, this capital threshold is a good litmus test for the health of a business: those that have passed it tend to have achieved a proven and scalable business model. It is a positive signal indicating investors believe these businesses are onto something big and the team is in place to realise a vision.

In 2008, just four* technology companies achieved this milestone. By contrast, in 2017, the number of companies to reach this stage had grown 22x to 89. In total over the last 10 years, 813 tech companies have joined this club**.

Game on!

Throughout the last 18 years, Balderton has been on the journey of company growth with an illustrious group of portfolio companies. As an institutional Series A investor, Balderton stays invested for the long run and we have funds that can hold our investments for as long as it takes in order to help companies achieve a world-leading position and create giant European-born technology companies.

Growth of the European tech ecosystem:

  • 2008 — $1.9Bn of venture capital invested in tech  companies in Europe
  • 2017 — $17.1Bn of venture capital invested in tech companies in Europe
  • 2008 — 4 companies raised more than $20m
  • 2017 — 89 companies raised more than $20m
  • 813 tech companies in Europe have raised >$20m in the last 10 years

Liquidity I activity will be led primarily by Laura Connell and Daniel Waterhouse

However, and often for very good reasons, there can be early stage shareholders who need to sell out after four, five or more years in a company. Business angels may wish to reinvest their gains into new investments. Ex-employees may need to access money to start a company of their own. Founders and employees may find life becoming increasingly financially draining, resulting in a focus on the short-term and not the long-term. Seed funds may want to realise some investments to build their track record.

These are all completely normal, and expected indicators of a maturing technology ecosystem.

But whatever the reason, we think that the pressure that may come from these shareholders looking to sell their shares can be a hindrance to a company, as well as delaying the reinvestment of capital into new company formation and initial funding.

So, in order to remove this tension and to help early shareholders reinvest their money (both of which are good for the continued momentum in the tech ecosystem), we came to realise it was critically important for the ecosystem as a whole that this be addressed in a systematic way. Up to now in Europe, while there are ad-hoc transfers of shares (secondary transactions) between two parties, there is no go-to professional venture investor that a company can turn to.

In 2018, therefore, we undertook to raise, and successfully executed on raising, Europe’s first dedicated fund to buy shares from early-stage shareholders in high-growth, scale-up stage technology companies. This fund, which we are calling Balderton Liquidity I, exists solely to acquire equity from early technology startup shareholders

With Liquidity I, we hope to go some way to addressing the demand both from startups and from angel/seed investors for a way to realise a measure of financial gain and return pre-exit, while at the same time giving another set of European companies access to the Balderton family.

Today, that family consists of our Partners (who have themselves built many multi-billion $ tech companies), the broader Balderton team (including our exceptional Heads of Talent and Marketing, who have built invaluable resources for our portfolio to access), the 250 entrepreneurs we have backed in our 85 portfolio companies, the vibrant communities and events we curate for our portfolio, our esteemed Executive Council and of course our wider network.

We are open for business

If you are a CEO looking to find a solution for some of your shareholders please get in touch.

If you are an early shareholder looking for liquidity please also contact us as well. (But an important note here: we are committed to following up only if we get the endorsement of the company you have shares in.)

My colleague Laura Connell and I primarily lead this fund, though you can reach out to anyone to whom you are connected on the Investment team.

With the launch of Liquidity I, Balderton will have raised over half a billion dollars since the beginning of 2017 alone, and a total in our eighteen-year history of over $2.7bn. Today, there are more than 85 companies in the Balderton family, employing over fourteen thousand people in offices around the world. This new fund will help us to take advantage of new investment opportunities arising in the maturing European tech ecosystem. We are excited about the trajectory of the ecosystem, and the part we all have to play in building future European-born global tech companies.

For the purpose of this analysis, we define tech as Software and Internet-powered companies, so this excludes Biotech, Consulting, Energy, Hardware, Life Sciences, Manufacturing, Materials and resources, Robotics, Semiconductors, and Space.

** Source: Pitchbook

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