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  • In the news
  • 21 April 2021
  • 3 min read
  • Words: Northzone

Pär-Jörgen on Bloomberg: "European capital markets need to consolidate to fully capture the value of tech growth stories"

Anna Edwards: PJ has worked in venture capital since the early 2000s, helping grow companies from little-known startups to listed entities with multi-billion dollar valuations. Recent examples are the review site Trustpilot and digital learning platform Kahoot!. One name still in the portfolio is Klarna, a buy now pay later fintech company, which is Europe’s most valuable start-up with a recent valuation estimated at $31B. PJ, thanks for joining us. I wonder how confident you are in your portfolio. You have a lot of consumer internet businesses. That’s something of a passion I know of yours. How confident are you about those consumer internet businesses as we emerge from the pandemic? Because, sure, the idea of virtual travel or event tech might be very appealing when I can’t leave my house but on the other side of this, will it be just as appealing?

Pär-Jörgen Pärson: Yeah, I think it’s clear that the entire pandemic has fast-forwarded digital transformation that we were expecting perhaps in the next three to four or even five years. And that it has basically paved the way and also created a platform for further growth. So I think why there has to be like a jolt to the system. It’s clear also that both consumers and companies have changed their processes when it comes to buying decisions. And that’s largely played into the hands of the digital companies like the ones you just mentioned.

We’ve seen the consumer Internet business Deliveroo come to market here in London, and I wonder what you, in the wider VC and tech space have learned from that kind of experience watching that happen. There seems to be a lot of focus on the lack of profitability of the business. So investors were concerned that if they did have concerns that regulations might change, the business model might be vulnerable. There wasn’t the profitability to deal with that. And what kind of learnings have you taken away from that experience?

Well, I’m not really familiar with Deliveroo we weren’t investors there, but I think it’s important to actually have in mind that when you go public, you are under a different kind of scrutiny and you need to reach a capital market with a product, a product for the capital market that is fully understood. And that is something that in certain markets, you really need to show not only growth but also healthy unit economics and to be able to show a clear path to profitability. And that is sometimes a little bit more convoluted with some companies than others. but I think the public markets are really powerful for companies to continue their growth trajectory. We experienced that with Trustpilot and Kahoot! also so it is an important tool for companies to really continue their strong growth.

And where have we got to in the conversation about whether Europe knows how to value tech companies? Because that was also part of the conversation recently that perhaps US markets are just more accustomed to valuing businesses that are heavy on the growth and less so on the profit side of things. What’s your experience been of European investors on that?

Yeah, indeed, I think the European capital markets have a tendency to undervalue growth and innovation and business model innovation, and consequently, many of the most promising European companies have found the correct listing value in the US. I think that’s sad for the European capital markets at large. I really hope that the European capital markets can come together and consolidate more around a few bigger listing venues where all the supporting infrastructure, such as analysts and the likes will build competence and critical mass to fully understand the high tech and the tech growth stories.

And how does the role of SPACs fall into that then? PJ, that seems to be where the vibe is a more recent phenomenon. Do you think that’s here to stay or just a short-term trend?

Well, I think it certainly is there is a boom in SPACs for sure, and I understand there are five hundred SPACs out there looking for acquisition opportunities and with all of them having some sort of a billion to three billion at target characteristic, which means that there are a lot of companies that are being pursued by five hundred SPACs. I just don’t think that all these SPACs will de-SPAC, as it’s called when they do the acquisition, will be successful. And it really, really boils down to who the sponsors are and what kind of access they have to the best targets in the market. But I think for the long haul, it’s a phenomenon that’s here to stay. But it may not be at the scale that we’re seeing currently.

OK, so maybe we don’t judge them on the ability to raise money, but on the de-SPAC’ing part of the process. Thank you very much for joining us, Pär-Jörgen Pärson, Northzone general partner