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  • Northzone News
  • 30 March 2021
  • 4 min read
  • Words: Vincent

Jeppe Zink on Bloomberg: Regulation is very much needed for tech giants

Bloomberg: Mark, let’s get to another story which is important and when we need to give our attention to and that is the FinTech sector, we saw a flurry of activity in 2020, including a number of European success stories such as Klarna, and also revolute. Europe saw almost $10 billion of venture capital investments in 2020, and nearly half of that in the UK. That’s according to trade group innovate finance, which finds that the UK ranked first in Europe and only second globally to the US for the number of FinTech investments. My next guest has invested in klarna and says there’s a lot of room for the FinTech industry to grow, adding that the firm’s focus is on how to crack the market, which is still dominated by big banks. Let’s bring into the conversation Jeppe Zink, General Partner at Northzone. Give us your thoughts on where are the big opportunities in FinTech right now, how much of the FinTech story has been done and how much is still ahead?

Jeppe Zink: Morning, I think the main prize is still there. I don’t see the main banks coming out in their earnings call saying they’ve lost lots of customers and business to FinTech startups. So as long as that’s the case, you are still just seeing FinTech scratching the surface. It’s the beginning.

If this is just the beginning of the story. Do you think that banks will eventually be moved aside for these new FinTech names? Or do you think that they are going to have to start modifying their behaviour eventually, to start copying some of the FinTech innovations?

I think what we’re seeing is a redefinition of the entire mapping, banks have no right to be the custodian of everything related to moving money around in the world and doing payments and whatever else people regard as financial services. Banks will certainly have a continuously important role, but there will be many other players coming in that can help out with financial service actions for consumers and businesses.

I’m sure we’ve seen some big banks try to buy out some FinTech names but it doesn’t seem as if that is the general run of things, you don’t see those headlines all the time. If the big banking sector was really that worried about FinTech, wouldn’t we see more bid activity on that front?

I think we are beginning to see it. We have to remember that as much as we would like to see things happening in a year or two, when you’re dealing with regulated industries, and you’re dealing with building great new businesses. It takes time you mentioned Klarna, who is on a 16 year run to date, and many still regard it as a startup.

You’ve said that people don’t know how to value tech companies. What do you think is the biggest mistake they’re making? Or how do you think we should value tech companies? 

What people have to remember is the staggering importance of the compounding effect. If you have something that’s hyper-growth, it may look incredibly expensive right now but it’s a question of time. Because of the high growth, it could soon in 2 – 4 years, if it’s growing 100%, look very cheap. The public stock markets, generally speaking, regards anything above 20% as high growth, so it has to redefine how it thinks about something that’s hyper-growth.

So, therefore, it makes sense that if we’re seeing valuation levels that don’t look like history then Jeppe, because you think the rate of growth of these tech names can achieve doesn’t look like history. Let me ask you a little bit about where these tech names should list. I mean, you’ve listed some businesses, you bought some to market in London, but not all, you’re in London, but Northzone is not necessarily based here. How is that battle for the FinTech listings going around Europe? Who has the edge?

Well, at this stage you have to remember that less than 10% of VC exits come from IPOs. And if you look overall a very small percentage of their tech businesses actually go public. So the big question is, how do we get more of these businesses to go public? That’s the first question. When we, for example, did Spotify, another of our businesses, it was all about the direct listing and how do we make sure to rethink the process. In Europe there’s no doubt that London does have an edge when it comes to FinTech, given the history of the city and all the financial services that happen in London, having said that, very few tech businesses, in general, have listed in London compared to Stockholm, where we have the NASDAQ. So I think London has to work hard to make sure it makes itself appealing as a listing site for European FinTech.

What’s the single biggest change that you think London needs to make to attract more IPOs? Or is it too late to chase that market and they should be focusing more on overhauling their system for SPAC’s?

It’s definitely not too late. I think first and foremost, it’s just getting more businesses in. There was this long-standing perception that there was a valuation gap from Europe to the US and also, you don’t want to be a single FinTech or Tech listed business where you have no peers, no comps, etc. So I think it’s just a question of making sure you get some strong cohort, let’s do the marketing right. For us having listed TrustPilot last week, it was a natural home because the UK was its largest historical market, and therefore it makes sense. So I definitely think it’s gonna come.

We focus a lot on regulation around FinTech here at Bloomberg TV. We seem to have talked about that a lot. I wonder about regulations surrounding FinTech, regulation around the smaller tech names, and thinking here about Klarna, do you worry about legal challenges to that business model?

I think first and foremost great entrepreneurs have always run ahead of regulation. That’s the whole point of it. It’s about trying to fix something that they see needs fixing. In Klarna’s particular case I think they have publicly stated multiple times that they will welcome regulatory scrutiny and it’s time. As far as we can tell, Klarna is a force for good. They’re doing something customers demand, of course, it needs to adapt as it grows. And I think it welcomes whatever scrutiny it comes on, because it will always attract some negative practices throughout the industry and therefore getting a rulebook in is a good thing.

Thank you very much for joining us. Jeppe Zink, GP at Northzone Ventures. Thanks for coming to talk to us here on the European market.