Asian money invested into European tech firms, with the UK in the vanguard, is set to double, suggests an investment bank.
Europe has one big advantage over the US. The UK has one one big advantage over the rest of Europe and the US has one big snag, at least that's the gist of what Magister Advisors, an investment bank which specialises in mergers and acquisitions and alternative finances, says.
And this makes the region's tech firms attractive to Asian investors, says the bank.
Because Europe consists of lots of smaller countries, its tech firms have to take a more international perspective. By contrast, the domestic market in the US is so big that techs have less need to focus on international markets. For example, it is much more common for European techs to build in multi-currency or multi-language options into their products from day one. Magister put it this way: "European tech targets that are inherently much ‘safer’ to internationalise, in turn increasing their attractiveness."
The UK's big advantage is that it's cheap. In this post-Brexit era, the pound is at a level which makes UK companies pretty cost-effective targets for investors and would-be purchasers. The UK's strengths isn't just that its businesses are bargains, suggests Magister, but companies that looked interesting before Brexit are now a lot cheaper. It cites Arm as an example, which was bought by Japanese firm SoftBank last summer, a great company that became cheap when valued in yens.
The US, by contrast, has President Trump. He may or may not make the US midwest and rust belt great again, but he has not exactly endeared himself to the tech scene, while he does appear to have, and let's put this tactfully, an anti-China emphasis.
Then again, European techs need money. Magister reckons it has identified dozens of European techs that will soon need a significant fund raising round.
But Magister has also identified a problem with the European tech scene: "While a similar number of tech companies get initial funding in both Europe and the US, the funding gap is yawning in later stage rounds," it said. So there is a need for latter stage funding and as European techs mature, it suggests Asian finance will meet that need.
Magister says that there are now nearly 50 European unicorns, valued at $1billion plus, but that these companies are often much better developed than US techs, with valuations that have not been hyped so much.
So what does all this mean? Magister says:"Last year Asian capital into European tech reached an all-time high of $58B. We believe 2017-18 could see a doubling of that, entirely transforming the European tech ecosystem."
It said that European techs will have far more success accelerating their development by looking east rather than looking west.
