COVER STORY | EDITORIAL | CAREERS | NEWS | CONTACT
London/Munich, July 05, 2011
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Dear Friends of Wellington Partners,
A very busy first half-year has come to an end. We have invested in three new digital media and cleantech companies across Europe, led or co-led several large financing rounds, and realized a very successful exit at Astaro. This exit was a perfect example of our ambition to 'Think Bigger'. We accompanied this UTM provider for eight years before we, as well as Astaro’s management team, were convinced that the time had come for the next step in the development of this fantastic company. Also in our main article of this issue, we discuss the necessity of staying power and great ambitions in creating true global leaders in the technology sector in Europe.
Your Wellington Team
Think! { COVER STORY }
| Think Bigger! |
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There is a huge opportunity to build a new generation of global leaders in Europe. But it will take time, a good deal of flexibility and sufficient resources to realize their full potential. |
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Enecsys, the leader in reliable, long-life solar micro-inverter systems had a choice to make: either continue its successful step-by-step strategy or accelerate and extend its technology lead and drive its market entry faster. The answer from the team, centered around executive Chairman Mossadiq Umedaly and CEO Henrik Raunkjaer, was clear: They wanted to expand their global footprint in sales, marketing, customer service and manufacturing, so they sought funding and managed to close the largest cleantech financing round in Europe thus far in 2011. In a round led by new investor Climate Change Capital Private Equity, and in which the existing investors Good energies, NES and Wellington participated, $41 million was invested in the company to facilitate their fast growth in this rapidly expanding market. |
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The UK-based company is now in a good position to become a front-runner in a multibillion dollar industry. At the same time, Enecsys is a great example of a new breed of European technology companies. These companies will not only be known for their innovative and cutting-edge technology but also for their ability to market these products on a global scale and become true global leaders. |
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| Four factors that facilitate fast growth |
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It has certainly never been and never will be easy to bring companies to the global level, but the experience of successful tech companies in the last two decades has shown that certain characteristics facilitate such a fast growth: commitment to an ambitious growth strategy, flexibility in execution, a great management that at all times has the right people in all positions, and access to capital. |
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There is a reason that we have the two words, 'Think Bigger', on the back of our business cards. In too many cases, European entrepreneurs and their financiers have shied away from ambitious plans in the past. They were happy to simply sell their very promising companies to existing large global players at an early stage, rather than build them into global players themselves. But now we are part of a movement to change this attitude. We seek and will back entrepreneurs that are determined to lead their companies to ultimate success without compromise. And as one of the large VCs, we will stay with our portfolio companies for five years or more, as we know it takes time to build a successful global player. For example, Wellington supported mass marketing email provider eCircle for eleven years before we sold the company successfully last year.
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| How to grow in tough times |
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During this time, entrepreneurs in Europe had to cope with two severe recessions, followed by fast upswings. To get ahead of such economic cycles, companies needed more than a technology edge and an eager market; they needed a world class team that had the flexibility to adapt their business concepts to changing times. Astaro, one of the largest providers of Unified Threat Management (UTM) appliances, has done so exemplarily. The company was founded in 2000 by a team of highly talented students from Karlsruhe, Germany. Their unique solution convinced Wellington to invest in 2002 and continue their support during the recession of 2002/2003. In the following upswing, the company opened a second headquarters in the U.S. and spread their solution globally. The global customer base and long-term contracts helped the company to stay on a growth course – even in the tough environment of 2008/2009 – and paved the way for an attractive take-over bid by Sophos in 2011. |
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Flexibility means continuing to develop your business model according to market requirements; great teams always react to market changes and seize opportunities. And that’s just what digital signage providee EnQii, another Wellington portfolio company, has done most recently in joining forces with Minicom Digital Signage. Minicom provides advanced media delivery solutions and management platforms that reduce OPEX and enhance the value of Digital Signage networks – a highly complementary solution to Enqii's content management and delivery system. The merger creates the opportunity for the two companies to provide a more comprehensive solution to customers. The new company, named ComQi, is now in a position to further accelerate its growth on a global scale with an end-to-end solution. Thus, the company has the ability to reach customers in a way that neither company could have achieved separately in such a short timeframe. Furthermore, the merger enabled the closing of a significant financing round, providing the joint company with sufficient capital for that growth. |
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| How to raise money when capital is scarce |
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Getting access to the right capital at the right time is another key factor that facilitates growth. In Europe, there are two main reasons why this is considered by many to be the No.1 topic at the moment: One, public markets over here are still reluctant to accept tech IPOs. Two, the venture capital market has lost a lot of players over the last decade. In Europe’s largest economy, Germany, the venture capital industry has declined by some 80 percent since its heydays in 2000. But the examples of Enecsys and ComQi have shown that good companies with ambitious business plans can still find financing sources – and that well-networked VCs are still able to support their portfolio by attracting new investors. Just take the case of Adconion, one of the largest independent global audience and video content networks. The company has managed to secure some $35 million from Silicon Valley Bank that will support both acquisition and working capital requirements to continue global growth. |
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Another path to fund the growth of these companies – which we have utilized in some 40% of our portfolio companies – is to work together with corporate investors that not only bring in money but also add tangible strategic value. In April, German-based biomass gasification specialist Agnion has opted for this path to finance its growth. The company has closed a financing round with WM Organic Growth, a member of the Waste Management group. With 20 million customers and revenues of $12.5 billion in 2010, America's largest recycler has provided Agnion not only with further capital to fuel its growth but also with unique access to one of the largest providers of feedstock in the US. This will open up hundreds of potential locations in North America at which Agnion can build and operate its decentralized plants for generating synthetic natural gas, electricity and heat. |
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| Aiming for global growth |
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Fast growth means global growth. That’s the lesson companies like Enecsys, ComQi and Adconion have learnt by heart. Enecsys has company locations in six countries; Adconion now has sixteen offices in seven countries; and EnQii-MDS is also operating out of six offices around the globe. They are targeting local markets with local staff, thus paving the way for global success. It will be a key task for VCs in the coming years to support such ambitious growth strategies by providing sufficient resources. If we succeed in our mission and are able to encourage European entrepreneurs and their financiers to 'Think Bigger', Europe will see a lot more tech companies catching-up with their US counterparts to become global leaders themselves. { TOP }
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Listen! { EDITORIAL }
| The art of patience |
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Bart Markus explains why it takes time and
commitment to build true global leaders. |
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In everyday life, patience is not known to be one my strengths. I definitely like to get things done, and in the operational management of our portfolio that trait is clearly visible. But when it comes to exiting the companies themselves, I know, like my partners, that a fast solution is not the best one in every case – in fact most often it is not. Staying power, long-term commitment and yes, patience, are necessary to support a young technology company through its inevitable ups and downs to its ultimate success. And that’s what characterizes our investment philosophy as well as those of Tier1 VCs around the globe.
In the US, the average time between first venture money into a company and recorded venture exits above $100M (the only ones that really matter for returns in our industry) is 6.5 years, and for IPOs it is 9 years. Times were different when I started my career in the VC business in the late 1990s. We had a period where it became the norm to stay with a company for a maximum of 3 to 5 years until a successful exit. That enabled the VC industry to create some tremendous successes quickly, but keep in mind that this was during the biggest bull market in history. And, although many of these successful companies definitely became truly world leading companies, in a business sense most of them achieved this status only after their early exits. Since this time, it has been back to business as usual, and though we have no doubt that the venture industry will continue its successes, we will need to show patience and stamina in order to earn the really big wins – the 'homeruns' as they are called in the industry. |
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| Patience enables a very successful exit |
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Our Astaro exit last month is a case in point. After eight years in our portfolio, UTM specialist Astaro was acquired by Sophos, an event which provided us with a very attractive return. Two years ago an exit opportunity was created, and whilst we decided to reduce our exposure by exiting enough to recover our initial investment at a reasonable multiple, we chose to hold on to a large portion of our stake because we felt there was a fantastic management team in place that would be able to create even more long-term value. Last month we were able to sell the stake at a substantially higher valuation. |
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Simply hanging in there, of course, is not enough – this staying power has to be combined with a commitment to lead and structure follow-up financing rounds, as has been the case with some recent notable successes: with $41M, Enecsys closed the largest cleantech VC funding round thus far in 2011; and Adconion got access to a substantial working capital loan facility with Silicon Valley Bank that will help it to continue to fund its growth. Such large financings enable these companies to aggressively and quickly market their products and services on a truly global scale, the key to success in the world we live in. |
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| Wellington invests at a very early stage |
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But of course it does not start there. We invest in companies well before they are of the maturity at which fundings of that size are achievable. In February, we led a financing round for Artfinder at a time when the company was launching its Beta-version of the most comprehensive database of fine art online. In the following months, we closed two more seed rounds in companies that are just getting ready to introduce their products to the market. Furthermore, we led a new financing round for eWise in June, a global provider of a groundbreaking online payment solution for banks. All these investments are early stage and are meant to bring these companies to the maturity level of our other companies. |
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Over time, this has created a portfolio that contains both fast-growing companies with established track records as well as new players with disruptive technologies and excellent management teams that have the same potential. And with sufficient patience, I am sure we will see a lot of these companies develop into true global leaders in their respective industries. { TOP }
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Apply! { CAREERS }
Read! { NEWS }
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