THE GLOBAL REPORT by Caminosearch

THE GLOBAL REPORT H2 OF 2023 IN REVIEW

Looking back at major investment movements in review across H2 of 2023

INVESTING IN THE SEA AND THE STARS Investors’ views on the movements and developments in ocean and space tech.

EXPLORING THE ROAD TO BUYOUT Overcoming fast-paced growth challenges and keeping staff empowered on the way.

THE GLOBAL REPORT

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SPECIAL THANKS Camino Search would like to thank Future Planet Capital, ROLLUP Europe and Eidetec Ventures for special contributions within this report.

The editorial team also wishes to extend a very grateful thanks to: Our report sponsors: Force24, Blick Rothenberg and Nebula. We would also like to thank: Anjana Sivakumar, Alex Prokofjev, Bina Khatwani, Dan McEvoy, David Reynolds, Ed Phillips, Lynne Patmore, Pavel Prokofjev, Richard Marsham, Sam Martin and Tom Smith. All of whom, without their insight, trust, expertise, time and help, this publication would not have been made possible for release and enjoyment. Report Construction, Source Credits and Intentions. All financial data for the construction of this report has been produced through research conducted by the Camino Search team, using sources and articles from Bloomberg, Pitchbook and the Financial Times. Unless specified otherwise, all charts included in this report have been generated using data sourced from PitchBook (https://pitchbook.com/). The data has not been reviewed by PitchBook analysts. The intention of the report is to provide an unbiased review and overview commentary of key activities from H2, 2023 and the report’s intention is not to advise or influence any investment decisions. Opinions of report contributors are not necessarily reflective of the Camino Search or its subsidiaries. The ‘IP’ and design of this publication remains the intellectual property of the author (Camino Search) and may not be altered or copied without written consent of a registered director of Camino Search, 21 Great Winchester Street, London, EC2N 2JA. This publication has been printed in the UK using the most sustainable methods available at time of initial circulation and is available in a digital footprint to assist with carbon footprint.

WELCOME

WELCOME Welcome to the inaugural edition of The Global Report, produced by Camino Search.

COVER ARTWORK Cover photographic courtesy of Richard Marsham (RMG Photography).

Harry Hewson

THE GLOBAL REPORT H2 OF 2023 IN REVIEW

Looking back at major investment movements in review across H2 of 2023

INVESTING IN THE SEA AND THE STARS Investors’ views on the movements and developments in ocean and space tech.

As we release this report, these are very interesting times for the tech market – as you will note from the commentary from across Q3 and Q4, although the markets have notably endured some distress in H2 of 2023, tech, SaaS – and AI in particular – remains quite buoyant. A global growth and fascination in Artificial Intelligence (AI) has clearly helped to fuel the sector’s enduring success. You would be hard-pressed, for example, to find someone within our industry who isn’t familiar with the name Chat GPT. Reflective of this, within the tech and SaaS sectors, business confidence remains reasonably high within our client portfolios, we are continuing to see considerable growth in start-up businesses within the eco-system and our own business continues to grow and evolve very positively to meet our clients’ needs. This is our first document of this type that we have produced - combining a high-level overture and commentary of some of the key financial movements from H2 of 2023 and some fantastic insight into specific market verticals, such as space and ocean tech. Offering a further flavour into this edition’s contributions, there’s also an exploration into what potential challenges and pitfalls businesses may want to consider when growing and scaling their investor-backed operations at pace, as well as contributions from two fractional CFOs from Camino Search’s global network, who have shared their opinions on what value ‘fractional’ professionals can add to investor backed operations. I am very grateful to all of our contributors and sponsors for supporting this publication and I am looking forward to releasing this edition to our network both digitally and in print. Finally, I would also like to extend a very special thank you to our keynote speaker, equity analyst and former Royal Marines Commando, David Reynolds, for contributing his keynote column ‘A View From The Sidelines’; summarising 2023 and looking forward to 2024. I hope you find the first edition insightful – we are looking forward to building on the foundations of this publication later this year with our next issue.

EXPLORING THE BUFFERS TO BUYOUT What businesses should look out for when scaling and growing their operations.

HARRY HEWSON Managing Director, Camino Search

LEADERSHIP AND LEARNING ARE INDISPENSABLE TO ONE ANOTHER JOHN FITZGERALD KENNEDY

THE GLOBAL REPORT

PUBLISHED BY CAMINO SEARCH

DESIGNED AND COMPILED BY:

ROB ANDREWS

THE GLOBAL REPORT

CONTENTS

THE GLOBAL REPORT

THE REPORT

Financial journalist Dan McEvoy on AI and market cycleshare.

Providing high-level commentary of the third quarter of 2023.

PART | P.08

THE RISE OF THE MACHINES

PART | P.11

IN REVIEW: Q3, 2023

PART | P.31

IN REVIEW: Q4, 2023

The Space For Potential Exploring the opportunity for investment and growth in Space Tech in 2023/24.

The Journey To £20m Lessons learnt on a fastgrowth journey.

The Fractional Professional Introducing the value of fractional finance professionals.

PART | P.48

INVESTING IN THE SEA AND STARS

Liquid Asset Introducing the companies and the investor with plans to save and preserve the ocean.

PART | P.64

WALKING ON THE ROAD TO BUYOUT Preparing Your People For Buyout Considerations to make to prepare the team. ‘Distressed SaaS’ Insights and thoughts into commencing SaaS rollups.

PART | P.86

LOOKING FORWARD

KEYNOTE SPEAKER: A View From The Sidelines Equity analyst David Reynolds summarises 2023 and looks forward into 2024.

CONTENTS

#TheGlobalReport

FEATURED ARTICLES The Global Report | Camino Search

P.50

EXPERT OPINION: SPACE INVESTMENT

THE SPACE FOR

THE SPACE FOR POTENTIAL Florida-based space investor Sam Martin provides

POTENTIAL Florida-based investor Sam Martin, founder of Gravity Management, pens his introductory thoughts on some of the status of investment and growth opportunities in space tech right now.

insight into the ‘space market’.

Photo: Sam Martin, fouder of Gravity Management. (picture courtesy of Sam Martin).

THE GLOBAL REPORT

P.56 LIQUID ASSET: THE BUSINESSES THAT ARE SAVING THE OCEAN Ed Phillips, of Future Planet Capital explains how

OPINION: OCEAN TECH

LIQUID ASSET Future Planet Capital Investment Director, Ed

Phillips, highlights his passion for investing in ocean-saving businesses and introduces some of the funds that are helping to save the ocean

investment is helping to save the ocean.

LESSONS LEARNT ON THE JOURNEY TO £20M

THE GLOBAL REPORT

LESSONS LEARNT ON THE JOURNEY TO £20M ARR.

P.66 WITH: TOM SMITH

CFO, TOM SMITH, OUTLINES WHAT BUSINESSES COULD CONSIDER WHEN SCALING THEIR OPERATIONS ON THE ROAD TO BUYOUT. The following Q&A was captured in November, 2023, between Tom and Oliver Dunne, Camino Search’s global consultant for senior finance positions in the Tech and SaaS markets.

LESSONS LEARNT ON THE JOURNEY TO £20M ARR CFO, Tom Smith, discusses what tech businesses

FORMER CFO: MINTEC

“Spencer Wicks, Mintec’s CEO, had a vision; to expand into the US Market, where the food industry was worth billions of dollars. The objective was to develop proprietary data and not just an aggregator of data – be a trusted PRA for Agri-data, reliable forecasts and have high-quality data sources. The business was to get embedded into the supply chain workflows but creating the right tools/platform for the industry, especially for supermarkets, who sit at the top of the pyramid, where the breadth of data was essential to help busy buyers make better-informed buying decisions across a wide spectrum of produce.”

may want to consider during growth to buyout.

THE GLOBAL REPORT

PART ONE

THE AUTHOR’S PREVIEW

THE RISE OF THE MACHINES? The Global Report’s author and financial journalist, Dan McEvoy, on AI and market cyclesare. Markets move in cycles, and as anyone knows 2022 marked the beginning of a new phase for global economies. The catalyst for this shift was Russia’s invasion of Ukraine; this exacerbated inflationary trends that began during the pandemic era, by prompting global food and fuel shortages. The shockwaves of both the pandemic and the sudden geopolitical fallout of Russia’s invasion are being felt across the world. An era in which ultra-low interest rates had facilitated rapid growth of technology companies large and small gave way to one of central bank hikes, and an air of

pessimism among investors. Against this macroeconomic backdrop, the overall downturn that began in 2022 continued through the second half of 2023, and capital markets are, on the whole, cautious in the face of significant headwinds. However, AI and Machine Learning has been a strong countercurrent to these global trends. VC, M&A and IPO activity gravitates inexorably towards AI companies, with the rise of generative AI pointed to by many onlookers as the key source of future growth in the technology sector.

“VC, M&A and IPO activity gravitates inexorably towards AI companies”

Start-ups like Anthropic and OpenAI could feasibly be among the greatest drivers of growth when the business cycle eventually turns, once again, towards a period of expansion.

FURTHER AI COMMENTS FROM DAN ON PAGE 22 IN: ‘WILL AI UNLOCK AN M&A SUPERCYCLE?’

REPORT PREVIEW: THE RISE OF THE MACHINES

DAN

MCEVOY

A graduate of the University of Cambridge, Dan is a financial journalist who covers disruptive technology investing, mainly for OPTO Magazine. He is also a recruitment expert, having spent four years as an agency recruiter and two years in-house, and has previously worked as a content writer for a software recruitment platform.

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PART TWO

IN REVIEW

#TheGlobalReport

IN REVIEW | Q3

COMMENTARY AND ANALYSIS BY: DAN MCEVOY

QUARTERLY REVIEWS PRESENTED IN ASSOCIATION WITH:

THE GLOBAL REPORT

Q3 | 2023 | VENTURE CAPITAL (VC)

VC MARKETS UNDER STRESS? These are tough times for technology start-ups seeking funding. As several global markets teeter on the edge of recession, venture capital (VC) investment fell during Q3.

Persistent inflation, high interest rates, and macroeconomic pessimism have weighed on investor confidence and restricted capital flows.

Total Global VC Activity by Year: Global VC markets hit a peak in 2021 and have been slowing ever since. Note: 2023 data covers 1 January – 31 September

IN REVIEW | Q3

This downtrend is evident both year-over-year and quarter-over-quarter. The third quarter (Q3) of 2023 showed a drop-off in overall global VC activity compared to the same period in recent years.

rounds fell to levels not seen since 2016. Q2 had already registered a slowdown compared to previous quarters, and Q3 continued this trend.

Capital raised was the lowest it has been since 2017, while the overall number of VC

“Persistent inflation, high interest rates, and macroeconomic pessimism have weighed on investor confidence and restricted capital flows”

“

THE GLOBAL REPORT

“Stability and cash flow are being prioritised both by investors and by company founders in the current climate” Dan McEvoy

IN REVIEW | Q3

Q3 | 2023 | VENTURE CAPITAL (VC)

Stability and cash flow are being prioritised both by investors and by company founders in the current climate.

Although government investment (such as the Inflation Reduction Act and the CHIPS Act in the US) offer alternative sources of capital. The market remains under considerable stress; notes PitchBook in its Q3, 2023 Venture Monitor report.

Global Q3 VC Activity by Year: Zooming in on Q3 activity confirms the annual trend. Deal count has been steadily falling since its peak in 2021, and total VC invested is also declining.

THE GLOBAL REPORT

Q3 | 2023 | VENTURE CAPITAL (VC)

Global VC | Month by month Interestingly, September saw a decrease in deal volume but an increase in capital raised, implying a number of high-value fund raises during the month. Indeed, the five largest deals of the quarter (and the only five to raise over $1bn) all took place in September.

the Anthropic round (which PitchBook data has logged at the full $4bn) skewing the picture.

The largest of these saw Amazon take an initial $1.25bn stake in generative AI startup Anthropic, with Amazon holding an option to increase its stake to up to $4bn.

On the other hand, the sheer volume of $1bn+ deals in September compared to the previous two months is itself encouraging, and implies that the VC market could be gathering pace heading into Autumn.

This could suggest one of two things. Looking at volume alone implies that VC momentum is dwindling going into Q4 and that a few outsize deals, particularly

Q3 Global VC activity, by month: Deal volume dropped slightly between July and August but held steady through August and September. However the total VC raised increased substantially.

IN REVIEW | Q3

UK Tech VC Investment Venture capital flows into the UK’s technology sector have been similarly lacklustre through Q3, with August a particularly slow month both in terms of deal count and capital raised. AI & Machine Learning have attracted the bulk of VC capital during the quarter — a shift from the previous quarter, in which this vertical came third behind SaaS and LOHAS & Wireless.

In fact, AI & Machine Learning saw a sharp uptick in capital raised both year-overyear and quarter-over-quarter during Q3, reaching levels not seen since the first half of 2022.

Total UK Tech VC during Q3 by vertical: AI and Machine Learning (ML) companies attract the bulk of funding.

UK AI and ML VC by quarter: Q3 2023 appears to reverse a year-long downtrend.

THE GLOBAL REPORT

Q3 | 2023 | VENTURE CAPITAL

UK TOP 20 INVESTMENTS

TOP 5 1. Conigital

2. Ovo Energy

million

$631 3. Builder.ai

$256 4. Envisics

Builder.ai completed a $250m Series D that had been announced in May, while driverless car company Conigital secured a £500m ($631.58m) Series A to become the best-funded autonomous vehicle start-up in Europe. Conigital’s products target the industrial vehicle market; it offers a comprehensive “lift and shift” autonomous vehicle platform, ConICAV, for any industrial or commercial vehicles.

$250 $100 million

ConICAV is either retrofitted onto preexisting vehicles, or Conigital can custombuild them.

5. Shop Circle

Despite a volatile time for the energy sector and a £50m customer support package, Ovo managed to post £20m EBITDA in its recent full-year results.

million

$631 million 18

Ovo Energy raised £200m ($256.44m) from its existing investors Mayfair Equity Partners and Morgan Stanley Investment Management.

During the quarter, Ovo also completed the migration of 3.5 million customers from SSE Energy Services onto its Kaluza platform, following its acquisition of the unit in January 2020.

UK TOP 20 INVESTMENTS / Q3 / 2023

TOP 6 TO 20 6. Zyber 365 $100m

11. Sylvera $57m

16. Hyperjar $40.47m

7. Zopa $95.77m

12. Open Cosmos $50m

17. Automata $40.30

8. Curve $72.67m

13. floLIVE $47m

18. Myenergi $37.20

9. Dice $69.12m

14. ev.energy $42.40m

19. Lemfi £33m

10. Tractable $65m

15. Sedna $42m

20. Prolific $32m

*Data accurate as of November, 2023.

#TheGlobalReport 19

THE GLOBAL REPORT

Q3 | 2023 | MERGERS AND ACQUISITIONS (M&A)

Q3 TOP ACQUISITIONS

Global M&A activity recovered in Q3 compared to the previous quarter, but did not return to the levels seen in late 2022 and early 2023.

The biggest deal of the quarter saw two of the world’s largest combat sport franchises, World Wrestling Entertainment (WWE) and the UFC merge. The deal, announced in April, completed in September to form a new company, TKO Group Holdings [TKO].

Quarterly global M&A Activity (Q4, 2022 - Q3, 2023): Trends seem to indicate that more capital flowed into fewer deals in Q3, 2023.

IN REVIEW | Q3

Ariel Emanuel, CEO of Endeavor, previous owner of UFC and a 51% stakeholder in TKO, said that combining the franchises would “provide unrivalled experiences for more than a billion passionate fans worldwide”. The merger, valued at $21bn, was a major contributor towards September being the busiest month by capital invested — though it trailed July for quantity of deals.

$21bn

WWE merged with UFC in Q3

Snapshot of Q3 2023 global M&A Activity by month: From a high-point in July, deal volume fell in August but held steady in September. That month also saw the greatest amount of capital invested of the quarter.

THE GLOBAL REPORT

Q3, 2023, Global M&A Spend by primary industry sector: B2B and Financial Services saw the greatest amount of M&A activity during the quarter. Materials and Resources was by far the weakest sector for M&A activity, attracting just 1.99% of capital invested.

THOUGHT: WILL AI UNLOCK AN M&A SUPERCYCLE? In October, Goldman Sachs published a report entitled ‘How to unlock an AI-driven M&A supercycle’. In it, the investment bank argues that increasing adoption of AI systems by businesses, as well as a maturing regulatory framework around the technology, could catalyse an increase in established big tech companies acquiring AIfocused start-ups. This process, says Goldman Sachs, has been ongoing since January, with some pre-revenue start-ups acquired primarily for the expertise of their workforce. Continued activity in the space is likely to revolve around several themes: Vertical Integration — AI-ready companies might acquire businesses with access to industryspecific data. The resultant models could lead

to pronounced productivity gains within these verticals. Transforming Customer Support — The rollout of AI-powered, fully automated customer support systems could drive another wave of M&A activity. The Need to Replatform — As companies increasingly adopt AI systems, the underlying technological requirements become ever more complex. M&A activity could be driven, for example, by the need for companies to exercise greater control over the servers and data centres hosting their systems. A Convergence Between Analytics and DevOps/ MLOps — With the intensive data processing requirements of AI and Machine Learning becoming central to business performance, the boundaries between DevOps and analytics will blur.

IN REVIEW | Q3

Q3 | 2023 | UK TECH SNAPSHOT

UK TECH: AI AND SAAS SHARE THE PIE $1.05bn According to PitchBook’s unicorn tracker*, just a single UK-based start-up — challenger bank Zopa — achieved unicorn status during Q3 of 2023. Zopa raised $93m (£75m) in debt fundraising at a post valuation of $1.05bn.

The valuation of the Zopa unicorn operation.

However, Zopa was arguably already a unicorn — having achieved $1bn+ valuations in February 2023 and October 2021. It’s unclear why PitchBook lists Zopa’s unicorn status as beginning September 2023; Q3 could mark the UK’s first unicornless quarter since 2023.

UK Tech Unicorns: The number of British tech startups achieving $1bn+ valuations has flatlined throughout 2023. *Sourced from Pitchbook: https://pitchbook.com/news/articles/unicorn-startups-list-trends

THE GLOBAL REPORT

“AI and Machine Learning attracted the greatest level of VC investment during the quarter” Q3 UK Tech VC by vertical: AI and Machine Learning attracted the greatest level of VC investment during the quarter. Conigital and Builder.ai led this charge, along with companies like Tractable, a computer vision start-up that applies AI technologies to visual assessments for auto and property claims and auto salvage.

26%

SaaS and AI/ML companies accounted for more than a quarter of capital invested into British tech startups during Q3.

IN REVIEW | Q3

Q3 | 2023 | US TECH SNAPSHOT

US TECH: AI DOMINATES INVESTMENT

The US is also seeing a slowdown in the number of new tech unicorns being created. The number of US firms achieving $1bn+ valuations for the first time halved from Q2 to Q3 in 2023; the eight new unicorns was the lowest quarterly number in the US since Q3 2017, which saw five.

$1bn+ Funding Valuations HALVED Q2 TO Q3.

US Tech Unicorns: As with the UK, in the number of American startups achieving $1bn valuations flatlined during 2023.

THE GLOBAL REPORT

The outsize impact of AI seems to be even more pronounced in the US than it is in the UK, accounting for nearly a quarter of the VC raised by the US technology sector. Anthropic takes the crown, with its $4bn fund raise topping the next eleven largest US VC rounds of the quarter. Amazon has spent big on a stake in Anthropic thanks to its pivotal position in the emerging generative AI ecosystem. Another of Anthropic’s key historical investors is Google, with whom the start-

up is collaborating closely on developing standards on AI safety. Early in the quarter, Anthropic was one of seven AI companies to sign a voluntary agreement on AI safeguards at the White House, which preceded the executive order on the technology the US President then signed into law in late October.

Q3 UK Tech VC by vertical: AI and Machine Learning’s dominance of VC flows is even more pronounced in the USA, with this vertical attracting 23.1% of all capital during Q3.

$4bn

Anthropic takes the crown for the largest US VC round of funding for the quarter.

IN REVIEW | Q3

Q3 | 2023 | INITIAL PUBLIC OFFERINGS (IPO)

INITIAL PUBLIC OFFERINGS (IPO) The IPO market started slowly during Q3, but September was a bumper month for new listings.

Between them, these two industries accounted for approximately half the funds raised via new listings during the quarter.

New B2C listings raised the most funds during the quarter, with technology coming second.

Q3 global IPO activity by month: July and August were both sluggish in terms of new listings and capital raised. September, however, saw an encouraging resurgence.

THE GLOBAL REPORT

Q3 | 2023 | INITIAL PUBLIC OFFERINGS (IPO) [KVYO]

[ARM]

US Tech IPOs

UK Tech IPOs

Q3 saw seven US-based tech companies debut, raising a total of just over $1bn. However, these proceeds were split between three deals, with the remaining four a combination of private placements, spin-outs and direct listings. Klaviyo’s [KVYO] debut on the New York Stock Exchange raised $576m, making it the largest IPO for a US-headquartered tech company of the quarter. It is also noteworthy because, according to PitchBook’s Q3 2023 Venture Monitor, it represents an example of a mature company’s ownership deciding that market conditions are ideal to liquidate their position.

$576m

Klaviyo’s NYSE debut was the largest of the quarter in US tech.

In the UK, August was the busiest month of the quarter in terms of volume of new listings, but September saw by far the most capital raised. Only four UK-headquartered companies IPOed during the quarter, and only one of these (computer chip designer Arm Holdings [ARM]) raised noteworthy amounts of capital. RegTech Open Project [LSE:RTOP] debuted on the London Stock Exchange via a direct listing — i.e., raising no new funds. The company, which, as the name suggests, is a regulation technology platform provider that developed the Orbit Operating platform, held a $60m valuation at the time of its listing.

IN IN REVIEW REVIEW || Q3 Q3

Q3.

THE BIG DEAL

THE U.S WINS THE ‘ARM RACE’ The US and the UK will split the difference as far as Arm Holdings’ IPO is confirmed. The computer chip designer is headquartered in Cambridge, UK, but in a blow to the beleaguered City of London, its majority owner, Japanese tech giant SoftBank, opted to list the business in New York.

While a blow to the City, the debut was a runaway success for Arm. Shares in Arm gained 25% on the day to value the business at $67.9bn and raised $4.87bn. This was the larget technology initial public offering since EVmaker Rivian’s in 2021.

THE GLOBAL REPORT

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PART THREE

IN REVIEW

#TheGlobalReport

IN REVIEW | Q4

COMMENTARY AND ANALYSIS: DAN MCEVOY

QUARTERLY REVIEWS PRESENTED IN ASSOCIATION WITH:

THE GLOBAL REPORT

Q4: INTRODUCTION

MARKETS TAILING OFF? The narrative in Q4 has been one of extreme uncertainty, especially over the likelihood of various global economies entering a recession. Globally, the macroeconomic picture was mixed. Inflation fell in various key geographies, without reaching levels that would be acceptable to many central bankers. Consequently, interest rates are widely expected to remain elevated at least until H2, 2024, even if hikes themselves appear to have come to an end. This is weighing heavily on investor confidence, and mentioned later in this section of the report, the upshot is that most capital markets, rather than rebounding in Q4, continued the downtrend that has persisted since early 2022.

AI is, unsurprisingly, the exception, but when looking at AI’s figures compared to other technology markets, it increasingly resembles a vertical doing its best to hold up key sectors all by itself.

“Interest rates are widely expected to remain elevated at least until H2, 2024, even if hikes themselves appear to have come to an end. This is weighing heavily on investor confidence”

IN REVIEW | Q4

Q4 | 2023 | VENTURE CAPITAL(VC)

VENTURE CAPITAL ACTIVITY Q4 VC activity fell for the second year in a row. Deal volumes were down 41.26% during Q4 2023, while capital invested fell by 19.20%. During previous years, PitchBook data indicated that December typically sees a spike in VC deals closed (manifested both in deal count and capital invested) compared to the rest of Q4. To a certain extent, this goes against common sense and conventional

41%

Deal volumes fell in excess of 40% during Q4 of 2023.

wisdom, which suggest that December is a barren month for venture capital raises. It could be that these December spikes are a consequence of how PitchBook defines its data, or it could result from behavioural factors such as VC firms pushing to complete longrunning deals before the end of the quarter and/or calendar year. Whatever causes these December spikes, it didn’t happen in 2023. Capital invested barely edged above November’s figure and fell short of October’s total. In terms of deal count, December was the quietest month of the quarter.

Q4 Global VC activity by month, 2015-2023: In previous years December has seen a spike in Q4 activity. This, however, hasn’t materialised in 2023.

THE GLOBAL REPORT

DECLINE

Q4 TAILS OFF

Q4 Global VC activity by quarter, 2014-2023: Unlike in previous years, Q4 2023 does appear to have rebounded the traditional mid-year lull.

Since 2015, Q4 has typically accounted for an outsized proportion of annual VC activity and December accounts for a disproportionate amount of this. The lacklustre December figures mean that Q4 2023 saw invested capital flatlining and total quarterly deal count fall to its lowest level since Q3 2014.

VC markets grew steadily through the last decade as interest rates remained at historic lows, culminating in a surge of activity during the pandemic era. Since then, high inflation and elevated interest rates have dented investor confidence.

COMMENTATOR’S THOUGHT...

The total quarterly deal count fell to its lowest level since 2014. Unfavourable macroeconomic conditions appear to have eroded investor confidence.

IN REVIEW | Q4

Q4 | 2023 | VENTURE CAPITAL (VC)

2023: ‘THE VC ROUNDUP’

cash injection by the ¥14.56bn The Chinese government into its chipmaker Changxin ($2bn) domestic Xinqiao in late October.

Microsoft [MSFT] made a statement of intent early in the year with its $10bn investment round into OpenAI, maker of ChatGPT and DALL-E.

Payments platform Stripe netted the year’s second largest funding round in March, when it raised $6.87bn from existing investors, including Andreessen Horowitz, Baillie Gifford, Founders Fund, General Catalyst, MSD Partners, and Thrive Capital, as well as new backers such as Temasek, GIC and Goldman Sachs Asset and Wealth Management.

Generative AI platforms like these took the year by storm; Anthropic, founded by former OpenAI employees and maker of Claude, a ChatGPT competitor, claimed two of the year’s five largest funding rounds.

The fourth largest VC round of the year was financed by the Chinese government, as it injected ¥14.56bn (approximately $2bn) into its domestic chipmaker Changxin Xinqiao in late October.

The largest tech funding rounds of 2023: Microsoft’s $10bn stake in OpenAI was 2023’s biggest VC deal.

THE GLOBAL REPORT

Q4 | 2023 | MERGERS AND ACQUISITIONS (M&A)

M&A: MICROSOFT & ACTIVISION Two things characterised 2023’s biggest M&A deals: tech house takeovers, and regulatory battles. October saw the conclusion of 20 months of high-profile activity between Microsoft and various regulatory bodies to complete its $68.7bn takeover of Activision Blizzard. Safe to say, we all learned a lot about how antitrust suits work along the way.

That crown goes to Broadcom’s [AVGO] acquisition of cloud services provider VMWare for a cool $69bn. Again, regulatory scrutiny had held this one up since it was announced in 2022, but the deal finally closed following approval from the Chinese government in late November.

While Activision games like Call of Duty, World of Warcraft and Diablo becoming Microsoft IP was arguably the year’s most newsworthy deal, it wasn’t the biggest financially.

$68.7bn

OCTOBER: Software giant Microsoft completed a takeover of Activision Blizzard.

$69bn

NOVEMBER: Broadcom’s (AVGO) acquisition of cloud services provider VMWare.

IN REVIEW | Q4

THE TOP

10 OF 2023

Mergers & Acquisitions THE TOP THREE

$69.0bn $68.7bn $27.8bn Activision Blizzard

VMWare

Horizon Therapeutics

SEVEN TO TEN

$21bn WWE

$19.0bn

Shaw Communications

$16.3bn

Bank Of The West

$18.8bn

Magellan Midstream

$13.1bn Black Knight

$16.7bn

Newcrest Mining

$12.7bn Life Storage

THE GLOBAL REPORT

Q4 | 2023 | MERGERS AND ACQUISITIONS (M&A)

M&A ON THE RISE? While VC markets struggled during Q4, M&A fared better. In the first two months of the quarter, M&A spend had already exceeded the totals for each of the preceding two quarters, and despite deal volumes continuing to decline Q4 saw the highest quarterly total spend since 2022.

43%

$137.7bn

43% of Q4’s M&A spend in the first two months of the quarter (totalling $137.7bn) came from Broadcom’s acquisition of VMWare and Microsoft’s acquisition of Activision Blizzard.

However, this declining deal count hints that the Q4 M&A spend figure may be skewed by a small number of large deals closing in the quarter — especially the year’s two largest takeovers, of Activision Blizzard and VMWare (REPORT: Section Three), which closed during October and November respectively. These two deals between them accounted for just under 43% of Q4’s M&A spend in the first two months of the quarter.

Global M&A activity by quarter, 2023: Whilst deal volume fell, Q4 M&A spend reached its highest level since 2022.

IN REVIEW | Q4

IRIS WAS THE ONE TO WATCH IN DECEMBER, 2023

LGP GETS TO

BUY IRIS

British accounting software developer Iris Software dominated M&A headlines late in the year. On 12 December, Bloomberg reported that investment firm KKR had pulled ahead of other contenders to acquire Iris from its private equity owner Hg. The rumoured £3bn ($3.8bn) valuation would itself have made the deal the largest buyout of a private European software company in 2023. That wasn’t the end of the story, though. Just over a week later, reports emerged that negotiations with KKR had stalled, and that PE firm Leonard Green Partners (LGP) had moved ahead of KKR in the pecking order. LGP entered into a definitive agreement to acquire the firm on 23 December, at a post valuation of $3.98bn.

$3.8bn

Iris Software was sold to Leon Green Partners (LGP) in December.

THE GLOBAL REPORT

Q4 | 2023 | UK TECH SNAPSHOT

ZILCH TECH UNICORNS PitchBook’s unicorn tracker logs just a single new UK unicorn for Q4.

trend set by Arm by opting for a London listing when it eventually IPOs.

The company in question, Castore, secured a $1.2bn (£950m) valuation in November. However, the sportswear brand falls outside the technology sector, bucking the general trend.

“The question between the US and the UK is something we’re taking very seriously and talking about a lot,” Belamant told Bloomberg in August. “We are encouraged by what we’re seeing from Julia Hoggett and LSE, as well as the government.

While no new tech unicorns emerged, buy-now-pay-later (BNPL) provider Zilch maintained the $2bn valuation from its earlier Series C when securing additional funding from eBay Ventures. Zilch CEO and co-founder Philip Belamant has indicated the firm is eyeing up a public debut in the near future, and could buck the

$2bn

Zilch maintained the $2bn valuation from its earlier Series C when securing additional funding from eBay Ventures.

“They’re really leaning in to say how do we support firms, not just post-IPO, but leading into IPO and beyond.”

IN REVIEW | Q4

Q4 UK tech VC funding by vertical: Investors flocked to British AI firms, but every other technology appeared to struggle for funding.

It’s hard to overstate how heavily the UK’s tech start-up sector depends on AI and ML. This vertical accounted for 41% of total VC raised and 38% of all VC deals in the UK tech sector in Q4.

38%

Of all Q4 VC deals in the UK tech sector were from the AI and Machine Learning verticals.

StabilityAI’s $86bn round, led by Intel [INTC], was the largest of the quarter. According to Bloomberg, Intel has described StabilityAI, the developer of the Stable Diffusion generative AI program, as the “anchor customer” for the supercomputer that it is developing.

41%

Of all VC raised in Q4 went into funding artificial intelligence and machine learning start-ups.

THE GLOBAL REPORT

Q4 | 2023 | US TECH SNAPSHOT

AMERICAN UNICORNS: TECH PERFORMANCE IN THE UNITED STATES

Q4 US tech VC funding by vertical: Unicorn valuations held steady in October but fell towards the end of 2023.

SEVEN

$1BN VALUATIONS

October saw seven startups achieve $1bn+ valuations, the second most of any month in 2023.

US unicorn production seems to have defied worsening macroeconomic conditions to recover slightly in Q4.

Law” — and Vestwell, a retirement and savings platform, were the only two US tech companies to achieve $1bn valuations for the first time.

October saw seven start-ups achieve $1bn+ valuations, the second most of any month in 2023. However, this number fell to just two in each of the last two months of the year.

As in the UK, several US tech firms reiterated their unicorn status.

During December, Lightmatter — a photonic supercomputer maker which claims its products “are the foundation for the next Moore’s

Data analytics firm VAST Data, for example, secured $118m at a $9.1bn valuation in early December, according to Reuters. Its cofounder, Jeff Denworth, said that the company is considering an IPO in the near future, possibly as soon as 2024.

INVESTMENT VERTICALS BY PERCENTAGE IN Q4 2023

IN REVIEW | Q4

ONE IN EVERY FIVE DOLLARS INVESTED IN THE USA TECH STARTUPS IN 2023, WAS IN ARTIFICAL INTELLIGENCE

9% 22 % 21% 17 % Artifical Financial Misc mixture Software Intelligence and Machine learning

of minor verticals

as a Service

Tech (FinTech)

6.7 % 6.6% 5.7% 4.8% Tech, Media Big Mobile and CloudTech cellular

and DevOps

and Telco (TMT)

Data

2.7 % 2.2% 1.8% Cyber Mobility Real Security

Tech

Estate

As in the UK, US tech VC has been dominated by AI and ML companies. 22% of VC funding went into this vertical throughout the year. 43

THE GLOBAL REPORT

Q4 | 2023 | INITIAL PUBLIC OFFERINGS (IPO)

INITIAL PUBLIC OFFERINGS

Quarterly global IPO activity, 2020-2023: Markets remain subdued, with Q4 IPO volume and investment falling year-over-year.

IPO markets continue to struggle, with Q3 proving to be the high point of the year in terms of the number and size of new listings. The market has registered yearover-year declines in every quarter of 2023. However, the declines of 2022/23 are far shallower than the steep

drop-off that occured from 2021/22.

COMMENTATOR’S THOUGHT...

MIght this imply that markets are beginning to settle following the shockwaves that began with Russia’s invasion of Ukraine?

IN REVIEW | Q4

LIGHTS OUT FOR ENERGY?

2023 global IPOs by primary industry: Most of the year’s IPOs saw B2B and financial services list with the energy sector seeing the smallest number of IPOs.

Relatively speaking, B2B and Financial Services were the industries that kept IPO markets busiest throughout the year. Energy was the lowest-performing sector, likely reflecting the pressure that global inflation is applying to the sector. While technology, particularly AI, has dominated both VC and M&A markets throughout 2023, Information Technology was a mid-performer in the IPO market.

This might suggest that the two kinds of companies are driving activity in this sector. On the one hand: big tech companies (such as Microsoft, Amazon and Google [GOOGL]). On the other hand: smaller, innovative start-ups (such as Anthropic and OpenAI). There is, however, a relative lack of mid-sized technology companies finding the confidence to go public in the current climate.

THE BIGGEST IPOS OF Q4

THE GLOBAL REPORT

Q4, 2024

‘PRIME STOCK’

BIRKENSTOCK WALKS AWAY WITH TOP SPOT The three biggest IPOs of Q4 all took place during October. Shoemaker Birkenstock [BIRK] took top spot, raising $1.48bn, followed by Saudi oil firm Ades Holding [2382:SR] and Kokusai Electric [6525:T]. However, notably, as with VC, AI firms made up nearly one in five of all technology firms that went public during Q4. Robotics, AI and machine learning, drones, together accounted for almost a third of the IPO transactions by volume.

BREAKING DOWN THE TECH IPO INVESTMENT VOLUME

IN REVIEW | Q4

GLOBAL

Q4 TECH IPOS BY VERTICAL

18 .3% 12.5% 10.4% 8.3% Industrials Artifical Robotics Intelligence and Machine learning

Manufacturing And And Production Drones

6Financial .3% 6.3% 4.2% 4.2% Tech, Media Mobile Big Technology (Fintech)

Data

and Telco (TMT)

And Cellular

4Gaming .2% 4.2% 4.2% 2.1% Software E-Commerce Internet And Online

as a Service (SaaS)

and Online Retail

of Things (IoT)

.1% 2Human.1% 2Cloud.1%Tech 23D.1% 2Education Resource (HR) Tech

and DevOps

Printing Technology

Technology (EdTech) 47

THE GLOBAL REPORT

PART FOUR

SEA INVESTING IN THE

AND THE

STARS 48

INVESTING IN THE SEA AND THE STARS

Two investors’ insights into the businesses that are reaching the final frontiers of space and helping to protect our oceans.

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THE SPACE FOR POTENTIAL

Florida-based Space Investor Sam Martin explores movements and trends in the space-tech market in 2023 and into 2024.

P.57

LIQUID ASSET

Future Planet Capital’s Head of Global Ventures, Ed Phillips, introduces the investor-funded businesses with the ambition of helping to save our oceans.

#TheGlobalReport

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EXPERT OPINION: SPACE INVESTMENT

THE SPACE FOR

POTENTIAL Florida-based investor Sam Martin, pens his introductory thoughts on some of the status of investment and growth opportunities in space tech right now.

Photo: Sam Martin, (picture courtesy of Sam Martin). 50

THE SPACE FOR POTENTIAL

THE GLOBAL REPORT

This year, we observed a slowdown in primaries, with many transactions shifting into the secondary market. Sustained interest and activity in space ventures has largely been driven by SpaceX’s success in reducing launch costs. Their ability todeliver cost-effective launches at scale has introduced accessibility to space, opening up new avenues for investment and innovation across the industry.

The Three Stars: Starlink, Starshield, and Starship

First-off, SpaceX is attempting to launch Starship for the second time scheduled for as early as mid-November 2023. This could mark another order of magnitude decrease in launch costs for the industry. Beyond Starship, SpaceX has continued to ramp up its operations. Just since July the company has successfully launched 33 rockets, deployed 634 Starlink satellites, five customer payloads, and sent a crewed mission to the ISS. This translates to a remarkable launch rate of one every 4.1 days. Among the year’s highlights, SpaceX’s valuation surged from $137 billion to an estimated $161 billion, and they dominated the second quarter by being responsible for 80% of all mass sent to space. September brought more accolades, with a $70 million contract for Starshield to develop a military satellite system and collaboration plans with NASA to morph Starship into a space station by 2028. With a strong financial backing, ending 2022 with $4.7 billion in cash, and a current operation of over 5,000 satellites serving more than 2 million Starlink customers,

SpaceX’s trajectory continues to be positive. Looking to 2024, the potential is undeniable. The year promises an accelerated launch rate, Starship’s increasing prominence in satellite launches, Starlink’s expansion into new territories like Africa and India, and a probable rise in Starshield contracts following its success in the Ukraine crisis. Starlink’s use for aid in the Israel-Hamas war highlights the urgent need for a military-operated satellite constellation.

SpaceX’s Estimated Valuation, as of 2023:

$161 billion Up from £131 billion

THE SPACE FOR POTENTIAL

The Sky Isn’t The Limit

“SpaceX’s trajectory continues to be positive. Looking to 2024, the potential is undeniable. ,” says Florida-based space investment expert, Sam Martin.

Photo: SpaceX rocket launch (stock image)

THE GLOBAL REPORT

The Space Market and Considerations

The broader space market experienced significant challenges in 2023. Rocket Lab’s electron encountered setbacks, emphasizing the inherent difficulties in sustaining a launch provider in a volatile public market. The extended timelines these endeavors demand often clash with the fast-paced expectations of public shareholders. Historically, Space-focused Special Purpose Acquisition Companies (SPACs) and Initial Public Offerings (IPOs) have seen a mixed track record, with many failing to meet expectations. Virgin Orbit shuttered its operations this year and Sidus Space remains on the edge of bankruptcy as it awaits what appears to be its final attempt to unlock revenue and remain public with its LizzieSat launch scheduled for early 2024. The private market sees players such as Relativity Space, Blue Origin, and Stoke grappling with the intricate balance of cost and competition as valuations shift toward even and down rounds in many cases. As liquidity tightens in private markets, it remains unclear whether any of the emerging contenders will bridge the gap and challenge SpaceX’s dominance in launch.

“Singapore-based Qosmosys is making waves, having secured a record $100 million in seed funding” 54

Stellar accomplishment... companies could begin mining our solar system’s abundant reservoir of rare-Earth metals as soon as next decade.

The private market sees players such as Relativity Space, Blue Origin, and Stoke grappling with the intricate balance of cost and competition as valuations shift toward even and down rounds in many cases. As liquidity tightens in private markets, it remains unclear whether any of the emerging contenders will bridge the gap and challenge SpaceX’s dominance in launch.

Space Exploration and the Future of Commodities

Many are unaware of how quickly other sectors within the space industry are evolving, driven by national interests and commercial ventures. While India achieved a significant milestone with its successful lunar landing, Japan’s iSpace faced a setback with its failed attempt earlier this year. Commercially, Singapore-based Qosmosys is making waves, having secured a record $100 million in seed funding, signaling strong investor belief in the sector. Beyond GEO and LEO, the neartermfocus is on lunar resources ->

“Many are unaware of how quickly other sectors within the space industry are evolving, driven by national interests and commercial ventures” particularly Helium 3, seen as a potential game-changer for Earth’s energy needs. NASA’s mission to Psyche highlights the longer-term vision of extracting valuable materials from space. Should Psyche’s composition be confirmed, companies could begin mining our solar system’s abundant reservoir of rare-Earth metals as soon as next decade.

ABOUT THE INVESTOR

THE SPACE FOR POTENTIAL

Sam Martin

Sam is a founder of Eidetic Ventures. Eidetic Ventures is an early-stage venture capital firm based in Tampa, FL. Eidetic invests in emerging technology startups across multiple technology verticals such as space, ai, blockchain, and quantum computing.

Participating in the Space Economy Though this year saw a significant slowdown in early-stage investing, with July being the slowest month in the last seven years, firms like our own have managed to find wellpriced opportunities. We managed to raise funds across four SPVs, totaling $15.1 million — three late-stage space secondaries and one PreSeries A startup. The space industry is transforming key sectors like medicine, agriculture, and defense. As we expand into space, global interconnectivity and collaboration are growing. This article only provides a glimpse into the dynamic space economy and its impact. If you’re interested in space’s role in shaping our future and want to get involved, please feel welcome to reach out. Let’s explore how we can all be part of this exciting journey into the cosmos.

NETWORK

Follow Eidetec Ventures on LinkedIn:

www.linkedin.com/company/ eidetic-ventures/

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OPINION: OCEAN TECH

LIQUID ASSET Future Planet Capital Investment Director, Ed Phillips, highlights his passion for investing in ocean-saving businesses and introduces some of the funds that are helping to save the ocean. 56

LIQUID ASSET

THE GLOBAL REPORT

It’s often said that we know more about the surface of Mars than the intricate depths of our own oceans.

This holds true for entrepreneurship. Whilst the great utopians of our generation pursue interplanetary existence, hedging humanity’s future from climate-induced cataclysm, the Ocean in all its vastness has gone largely overlooked by both technologists and investors. That is despite the fact it sustains billions of people with food and work, carries 80% of the world’s trade, and serves as the greatest single carbon and heat sink, naturally fighting climate change. All the while, rising acidification, sea levels, and surface temperatures, threaten these ecosystems, livelihoods, and industry on a global basis. The Oceans are fast becoming the greatest casualty and harshest medium for the climate crisis.

$1.5 trillion 80% The value of the ‘Blue Economy’, annually 58

of the world’s trade is facilitated by the ocean

LIQUID ASSET

It is critical that as investors and entrepreneurs, we respond to the opportunity and nescessity of investing in our Oceans. I grew up in the South West of the UK, where it’s impossible not to appreciate the sheer power, violence, and beauty of the ocean. It surrounds us, sustains us and provides folklore for generations of fisherman and surfers alike. This connection propelled me to focus my studies and now my career on the Ocean. I spent time in Hong Kong looking at adaptive fish endocrine systems, before my final academic work in Bristol examining climate-induced evolutionary pressure on Kelp populations in Europe. This journey ultimately led me to the realm of impact investing and venture capital, where it became obvious that

the convergence of science, technology and capital would be the greatest tool in addressing societal and ecological challenges. As part of the founding team at Future Planet Capital, I spent 5 years investing in life sciences, health and climatetech, before launching our Blue Ocean Economy fund in 2022 with the support of Barclays, the Constitutional Reserve Fund of Monaco and the Prince Albert Foundation. This was a transformational opportunity to align my interests and academic background with the scale and immediacy of commercial venture capital. We invest where the bleeding edge of technological innovation meets the secular global challenges of our time.

Enter the ocean ->

THE GLOBAL REPORT

Global Shipping Lanes... Felixstowe, Suffolk, UK is an example one of Europe’s essential ports and a vital global hub for ocean trade.

LIQUID ASSET

“It is critical that

An Ocean Of Opportunity The blue economy, valued at $1.5 trillion annually and underpinned by over $24 trillion of natural capital, plays a critical role in our economic landscape as competition for land grows. The shipping industry moves nearly all consumed goods around the world, enabling globalisation as we know it. Offshore wind is fast becoming a critical component of baseload power generation. Billions of people will rely on massive increases in wild and farmed seafood for protein by 2050. It will also be one of the hardest to decarbonise, with fossil fuels in shipping forecast to still be in use by 2050. Paradoxically, despite being a major component of the world economy with clear areas requiring significant equity and capital investment, Venture funding for ocean-centric companies is disproportionately scarce. Indeed, the EU describes a 147Bn Euro annual funding gap to meet SDG 14. Future Planet Capital, alongside others through coalitions like 1000 Ocean Startups, are playing a small but critical role in developing and supporting the ocean investment landscape.

as investors and entrepreneurs, we respond to the opportunity and nescessity of investing in our Oceans” Looking ahead to 2024, we anticipate continued growth of ocean entrepreneurship and investment. While the VC market is likely to continue experiencing the decelerationary effects of higher rates and compressed multiples, we expect a steady increase in capital, entrepreneurial talent, and innovation directed towards ventures addressing climate challenges and the Ocean economy Whilst the VC market may continue to experience sluggish deceleration, we expect a steady increase in capital, entrepreneurial talent, and innovation directed towards ventures addressing climate challenges and the Ocean economy. The imminent threat of global warming and regulatory tailwinds subsidising and supporting technological R&D and innovation, the timing is ripe for transformative investments.

Meet the investor ->

ABOUT THE INVESTOR

THE GLOBAL REPORT

Ed Phillips

Ed is an Investment Director and Head of Global Ventures at Future Planet Capital, where he leads the Blue Ocean strategy and sits on the Investment Committees for flagship Future Planet Capital funds and the UK Innovation and Science Seed Fund. He is a Director at Captura, and has led investments into companies including Rovco, Regent and Vaccitech (NASDAQ) the Oxford spin-out behind the COVID-19 vaccine with 3 billion doses now made available worldwide.

As part of the founding team at Future Planet Capital, he helped grow the firm from a $20M experiment fund to over $400m in committed capital today. He has led investments for a number of strategies, including a Pandemic response microfund with Barclays. He also developed Future Planet

Capital’s partnership with Seedrs to become the first VC firm to democratise investment into its management company. Ed has previously been a Venture Fellow and Scout for a leading US deeptech accelerator and the UK’s most active seed investor. Before Future Planet Capital he spent time researching molecular genetics at Hong Kong University and received a 1st (Hons) in Biological Sciences at Bristol University, where he was President of Bristol Think and joint first for the Liv Sidse Jansen Prize for his work into the impact of Climate Change on marine ecosystems.

Photographic credits (Adobe). Ed Phillips’ headshot (courtesy of Ed Phillips). Felixstowe photographic (Rob Andrews).

LIQUID ASSET

FUTURE PLANET CAPITAL | THE OCEAN PORTFOLIO

THE BUSINESSES THAT ARE SAVING THE OCEAN CARBON REMOVAL

Founded by two Caltech Professors and a CEO whose last company was acquired for $1.6BN, Captura has the potential to remove gigatonnes of carbon from the atmosphere through the Ocean, simultaneously contributing to alkalinity enhancement and providing a supply of CO2 for Maritime e-fuels. Carbon removal is now widely understood as a critical component of mitigating climate change and Captura’s approach provides the scale and cost to meet this challenge with no waste products. The company uses renewable energy and electrodialysis technology to capture CO2 directly from seawater and is already backed by industry giants and the worlds foremost carbon offtakers.

SUBSEA ROBOTICS

Rovco, an emerging leader in subsea robotics and digital intelligence, provides tech-enabled services for the offshore renewable industry. The company has developed unique subsea simultaneous localisation and mapping technology that, combined with 3D vision and edge computing, allows asset owners to replace video surveys with high-resolution digital twin models to improve anomaly detection and reduce the carbon footprint of ocean operations from renewables to defence. They recently helped enable a 1.4GW floating wind farm in the North Sea, expected to save over 2 million tons of CO2e.

ZERO-EMISSION TRAVEL

Regent revolutionizes short-haul maritime transport with all-electric, wing-in-ground-effect vehicles. Seagliders promise fast, affordable, zero-emission travel, reaching speeds up to 180 mph and traveling up to 180 miles on a single charge. With a recent $60M Series A funding from investors including Future Planet Capital, Founders Fund, Mark Cuban and Lockheed Martin, REGENT Craft will shape the future of coastal travel, displacing short-haul flights and enabling new, flexible connectivity.

UPSTREAM MICROPLASTICS

Queen of Raw addresses the textile industry’s $120 billion excess fabric waste through a no-code software platform. Partnerships with industry leaders like Ralph Lauren and Shein showcase the transformative potential of turning waste into a valuable resource, and importantly starting upstream to reduce microplastic pollution in the Ocean, up to 35% of which comes from textiles.

SUSTAINABLE AQUACULTURE

Wittaya Aqua, drawing on over 80 years of aquaculture experience, addresses the challenges hindering aquaculture’s full potential, including Disease, feed waste and increasing production costs. By making protein production sustainable and scalable, Wittaya Aquas intelligent platform contributes to a future where aquaculture thrives without compromising ecosystems.

THE GLOBAL REPORT

PART FIVE

ROAD WALKING THE

BUYOUT 64

WALKING THE ROAD TO BUYOUT

‘From rollups to buyouts’. Thoughts and opinions to prepare people, systems and financial functions within fast-paced businesses, for takeovers and buyouts.

P.66

LESSONS LEARNT ON THE JOURNEY TO £20M ARR

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PREPARING YOUR PEOPLE FOR A BUYOUT

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THE ROLLUP OF DISTRESSED SAAS #TheGlobalReport

THE GLOBAL REPORT

LESSONS LEARNT ON THE JOURNEY TO £20M ARR.

THE ROAD TO BUYOUT

WITH: TOM SMITH

FORMER CFO: MINTEC

THE GLOBAL REPORT

SO, CAN YOU START by telling us about the business, the scale of the journey, and the transaction, giving OLIVER DUNNE us a general overview of the ARR journey of the (OD) business and its expansion, and then its eventual exit as well? Questions

Answers TOM SMITH (TS)

Sure - Mintec was a business that was acquired by Synova at the back end of 2017 with an ARR that was sub-£5 million at the time. I joined the business six months after Synova took control of the business. Mintec is an Agri-foods business that fits in the food and food-related supply chain, and if you look at the pyramid of the supply chain, the initial focus was very much on the supermarkets at the top, then the manufacturers, and then the smaller producers and distributors. I joined Mintec as it was in the process of transitioning from an on-premise legacy product to a new SaaS cloud-based offering.

The early SaaS offering was very basic and there was a significant development roadmap planned. There was a wide breadth of data with over 10,000 prices across Europe for food and food-related commodities. The opportunity Mintec needed to unlock was the ability to become embedded in the workflows of the businesses for the supermarkets and manufacturers in the supply chain. Spencer Wicks - who took over as CEO — had the vision to develop proprietary data, and therefore Mintec would not just be an aggregator in the market but also be a proprietary of business-critical information. Therefore, launching PRA data, forecasting and having a user interface platform to interpret the data and serve value-add information became our driving force for product development. Market expansion plans were focused on expanding into the US market — an Agri-market that was worth billions. The ambition was to become a global agri-data business and we knew it

could be delivered organically, but were open to strategically aligned acquisitions that would get us there quicker. I was tasked with the responsibility of getting the back-office foundations and the infrastructure in place for Mintec to scale and grow, allowing all future efforts, investments and resources to be focused on delivering commercial results. I went about this by setting up a tech infrastructure where we didn’t have to scale using people; we just scaled by using technology. Near real-time reporting and simplified processes that could be scaled was the litmus test.

“The ambition was to become a global agri-data business and we knew it could be delivered organically, but were open to strategically aligned acquisitions that would get us there quicker”

LESSONS LEARNT ON THE JOURNEY TO £20M

“We needed leaders who could develop talent underneath them and bring them on the journey” How did we get to the transaction? We really wanted a strong culture in Mintec. So initially we worked on getting the right functional leaders and the right people into the business. We needed leaders who could develop the talent underneath them and bring them on the journey. The exit started at the back end of 2021; there was a process that started pretty much in the Autumn of 2021 and was completed on 31 January 2022. It was six months of hard work going through collecting the data and explaining the journey of how the ARR grew through the period. So having evidence that we started it at a sub-£5 million ARR and how we grew that ARR through an increase in product, no new product features, bolton revenue, and then what was through price increases and user upsell - where we worked with customers, showing them the value-add of the product and bringing them on the journey. So basically explaining to them where the growth came from. Then we also had to explain to them where the growth could come from in the future. Looking at the TAM - Mintec only touched upon a tiny segment of the market, especially in the US, and there was also a huge scope within our existing customer base to expand and grow. The potential for future growth was compelling and evidence of execution of organic and bolt-on growth, as we pretty much quadrupled our ARR by the time of exit, made Mintec a very attractive proposition at exit.

(OD)Do you remember what you were talking about when you talked about the foundations of, firstly, the structure of the business, then building out the leadership, and then the next segment that helped to enable that natural growth? (TS)Yes, it was very much about the leadership and it was about consolidating the core functions within business. Setting the foundations to launch and helping people through the different stages of growth – From ‘forming’ to ‘storming’ to ‘norming’ and ultimately to the ‘performing’ stage (Tuckman). It was very much about bringing people along on that journey as well. We invested a lot in our sales force, trying to get them to sell using a unified method. We brought some really good talent on, but we found that everyone was trying to do it in a different way, and that wasn’t in itself a scalable process. We engaged an agency to help us align and define the best way to sell Mintec. Having a unified scalable “Mintec” process really helped to create more momentum, especially when there was so much to go after. It was about being specific and relevant – constant messaging on propositions that was easy for customers and new starters. Everything that we did was about trying to make us leaner and faster. We looked to try and remove obstacles out of the way of the sales force and for the whole business really - what stopped them from doing their job and how can we

THE GLOBAL REPORT

make that better. So as we improved Salesforce, as we rolled over the renewal, we made it more automated for the sales guys so that they were doing less admin and just entering the minimum amount of data to be able to give us the best amount of visibility. So we created that consolidation process. And then, when we bought Kairos, which was a forecasting business, we stopped developing our own forecast product and adopted their methodology and product. So, we always looked at buy-and-build strategies as well. We saw the opportunity to leverage their market position with a tried and tested forecast model, where it would likely take us another two or three years to get market adoption. So we’d really done a lot of hard work around our back-end as to how we’d fit the forecast stuff in and for our own product. By taking the Kairos model, a way of forecasting that is way more reliable, we bolted that onto the Mintec platform.

We really saw our customers get really excited by having forecasts, and then we saw the momentum start picking up again. It was all about just driving that momentum and keeping the sales team focused on delivering and explaining the proposition as well. During COVID, especially, it was really tough. You can imagine everyone slashed their budgets immediately, but we actually had very little attrition during COVID.

“We saw the opportunity to be able to leverage the market position of being a tried and tested forecast model where we’d have to go into beta, which would probably take another two or three years to get market adoption”

LESSONS LEARNT ON THE JOURNEY TO £20M

We know we worked very hard with our customers at the time to try and keep them, and we would also help them navigate through all the difficulties of the price inflation that was happening in different markets and that sort of thing, giving them some guidance as well. SSo we were very focussed on consolidating our position with them and driving forward. But yeah, that’s every time we had these targets and we wanted to get to 8 million or 10 million or 15 million, and it was just to get there, consolidate, and keep driving forward again. (OD) I know from the other conversations we’ve had in the past, like the element around automation, that I know when you’re talking about whether the sales team is super important to make life easy. But I know that generally, automation is something that you kind of really drove across across the business. So can you talk a bit more about the automation that you embedded across the business and the results that you saw from that? (TS) When I first joined, it was pretty much a people-run finance department and back office, and I quickly changed that to bring in NetSuite to combine that with Salesforce. We also had ChurnZero and Power BI on top of that so that we could get almost real-time reporting across all those aspects, as well as our SaaS platform. So with the PowerBI analytics platform, we could see users’ interactions and usage on the user platform and how that translated to the top-line growth and how it impacted everything else across the whole of the data estate. I worked very hard to make sure that we try to keep everything as one-touch as possible. So as information flew from HubSpot into Salesforce and then came into NetSuite, and from NetSuite, becoming invoiced and revenue recognised.

“It was all about making processes as free-flowing as possible across the whole tech estate” I wanted to make sure that it was a seamless process, reviewing and monitoring as we went along and not necessarily re-entering and rekeying stuff. We also bolted on Concur at the time, where all our expenses and AP invoices were processed through Concur with minimal duplication of effort. Through a simple app, our team could be out on the road and approve invoices or do their expenses in real-time as well. People didn’t have to come back to the office to do that sort of admin task in front of a desk. So it was all about making processes as free-flowing as possible across the whole tech estate. We wanted everything to be in the cloud. If we wanted our clients to work in the cloud, we had to show them that we could do the same. And so everything that we did was based in the cloud, which was very fortunate at the time because we’d just moved everything to the cloud when COVID happened.

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Know you’ve got limited resources. So be really specific about how you deploy those resources and where you deploy them. Tom Smith

LESSONS LEARNT ON THE JOURNEY TO £20M

(OD) What advice would you give to a management team undertaking, or about to undertake a similar journey. Maybe a management team that is currently one to five million ARR - they’re looking to scale to £20m perhaps a similar kind of B2B SaaS journey. What advice would you give them? (TS) I think first and foremost, be specific and relevant, and know you’ve got limited resources. So really be specific about how you deploy those resources and where you deploy them as well. So, a big part of our scaling effort was recruiting a lot of good commercial people very quickly to cope with the growth of the customer base. It made us look at our customers need and potential and then match the right “people assets” to them. We needed to match our high-value people assets to high-value customers. That’s the way we looked at it and then said, “Well, they’ll need a lot of managing and hand-holding, so let’s get our best people working on them to move the dial”. And then, as you work down the tail, you know there will be some customers that just want to come on the platform four times a year and they don’t need constant support. Identifying those people and saying, well, actually, they can be self-service. Trying to work out with your limited resources; how do you best serve your whole customer base? You can very quickly find savings that way by just redeploying some of your best assets in the right direction. Understand your value proposition. I think that’s really, really, key: understand the use cases that your customers and prospects are using your product for, and don’t underestimate the value of your product for that reason. It doesn’t mean that you can’t go in at a low value and build it up. You just need to

be able to explain to the customer that you know your product’s worth this, but you’re going to let them come in at an entry price point and let them see the value to get to that ultimate price point. So, it’s about bringing those customers on the journey. Be patient. Just because you don’t sell it at the top price right away, just get them up there by selling them the value of the proposition, then develop a sales process and methodology that’s scalable. Again, when you’re growing fast, you can’t bring people on quickly enough because it takes them, sometimes, three to six months to embed into the organisation and to actually start making their first sales. So you want to bring on people at the right time, but you want a method that they can follow and that they know will work as well. That creates consistency, which obviously creates better performance because you can then start forecasting that as well. You have a scalable approach to doing things. So you know if you bring one person on six months later, they’ll start performing because that’s the way the process works. It is then a matter of measuring your pipeline and conversion rates.

“Understand your value proposition. I think that’s really key” 73

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“The quality of the information [the data] tells your growth story”

A lot of people just get in and just crack on, and they forget to take care of the quality of the data that they’re working with or creating. The quality of the information tells your growth story. When you get to exit, you can explain why the business will grow faster or how it will grow faster, but it also helps you with your forecasting as well. It’s that predictability. If you know that at a certain sales stage is always 30% and it will be 40% soon based on past trends, just by looking at your pipeline, you can get a very quick sense as to where and how you’re going to grow, and again, where to allocate you need your resources – including post-sales support. Because again, you don’t want to be trying to bring in your resources too late. I think you need to look at your process as well. It’s very easy to get bogged down in the way you do things. Try to find those pinch points and those painful points in your processes, and always look for things to help the team move forward. Take the weight off them. Trying to get the senior management team focused on the exit is important as well. That is particularly important to me. The whole reason I love private equity firms is that there is no reason for politics. Everyone just focuses on the exit. You’ve got one goal and one objective. Now every time you sit down and there’s a 50/50 decision, you’ve just got to ask yourself, Is this going to make the exit better or worse? And then it’s simple. No

one’s got an agenda, and it’s a matter of getting everyone to bond with that mentality as well. Don’t underestimate the effort that will go into an exit process as well. It might be five years from now when it happens, but those five years go really, really fast. Make sure you’ve got a strong operational team underneath you. Because for those last six months before the exit, you’re not going to be in the business. You’re going to be consumed by everything about the exit process: working with the investors, talking to prospective suitors, and generating numerous forecasts and information requests. You’re not going to have time to do the day-to-day stuff that you’d normally do. So make sure you have a strong operational team; who can pick that up, and the business doesn’t suffer as a result of you stepping away for six months, as this will also add value to the business and show that this is a strong business and that it’s not dependent on one person, two people, or three people. Don’t be afraid to use advisers during the ordinary course of the business of the life cycle. It’s really important, especially topics like transfer pricing. If you start creating new subsidiaries in different countries, it’s better to engage them early - it’ll cost you a bit more now, but when you get to the exit process, it just makes it so much smoother. It’s much easier just to present a report. It just eliminates two or three days-worth of conversations immediately, just by

LESSONS LEARNT ON THE JOURNEY TO £20M

presenting and saying, “This is what we should have done; we’ve done that; they can check it, and now we can move on”. In due diligence reviews, there is a lot of nitpicking from the buy-side advisors trying to devalue the business and show their value to their clients. Paying £10,000 for a report can probably save 100,000 pounds plus later on for fees to remedy a situation that is not compliant. So don’t underestimate the value of getting professional advice in real time. Something that I’m seeing more and more recently is the ESG. Don’t be an ostrich. If your strategy is to ignore it, that’s fine, but pick a strategy and make sure that you know where you’re going with it. If you’re going allin or just partially. You need to be clear when you get to due diligence, as this will determine the level of information that you need to collect along the way. It’s never too late to start a data room as well, a virtual data room, especially with supply agreements, all the non-trading, non-dynamic reports - such as your certificates, VAT, non-legal agreements, leases, all those types of things. If you can start putting that into a safe place as you go along, that saves you about two or three weeks of collecting information later on. It will allow you to focus on all questions being fired at you from a lot of advisors scrutinising the business. Save yourself some time by just putting that stuff away now, and then being able to present to them on day one. It makes your life so much

easier. That’s something that I did the second time around with Mintec. It just makes the process so much smoother. You can just focus on the real issues, as opposed to trying to find a document that was filed five years ago somewhere. But yeah, those would be the key areas. There are some really, really good points there. (OD)What risks and challenges would you look out for, and can you give some examples of how, in your journey with Mintec, you and the management team overcame them? Yeah. So what about journey at Mintec? (TS) It was obviously moving into new territories. We moved into the US; we created a US subsidiary, and that was a huge challenge in itself. It was a bigger challenge than we thought it would be. To be honest, we thought it would be quite an easy move to just hire a couple of people. We had a small customer presence with some existing customers. We knew it would be hard establishing an operation, but it was far more challenging than we were expecting, as it gets quite complicated, especially around sales and usage tax. With SaaS products and services, you have to be very careful about digital services and how they’re delivered in various regions. So if you’re not up to date on the regulations, then get up to speed on it very, very quickly. You can fall foul of the authorities and various regions very, very quickly.

“Something that I’m seeing more and more recently is the ESG. Don’t be an ostrich. If your strategy is to ignore it, that’s fine, but pick a strategy and make sure that you know where you’re going with it”

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“Finding the right people with

the right attitude to be able to understand where they fit in, is critical” Picking the right system can help you scale operations and mitigate compliance issues. We picked NetSuite at the beginning purely because we knew we could scale and grow into different regions whilst remaining compliant. To help mitigate that risk, I also selected an application called Avalara that helps manage the sales and usage tax within the US. I mean, that was a godsend for me to be honest when I found that, and it had a native integration with NetSuite - and they also can prepare and submit your sales tax returns. But you still need some good advisors because, as soon as you start hiring people, that in itself creates more problems around taxes, corporation tax, and various other legislative sorts of issues. Hiring people was a challenge in the US as well. Finding the people to join you at that early stage can be very hard. You want the best-experienced people, so you tend to hire at a more senior level as the first employee. Sometimes that was a struggle for us because they would come in and they would expect, a team of people to join with them, when they were the only salesperson effectively for the next six months. I think some people struggled with the concept of being the lone wolf until you can scale enough to be able to support more people. So finding the right people with the right attitude to be able to understand where they fit in, is critical. In addition - most people in the US work

on a on two weeks’ notice period. It’s good for hiring, but at the same time, trying to retain talent can be tricky. Be aware - it can become very expensive very quickly in the US as well. Expect to pay more than what you’d pay in the UK. In short, it’s a matter of not becoming complacent. Staying on it and staying aware of what’s going on in the hiring process. Keeping people engaged and feeling part of the business from a distance is crucial. I think that that was one of the key learnings for us - keeping them engaged. (OD)And for the final point, what do you think are the key things growing SaaS businesses need to be aware of in 2024? (TS) Well, I think the obvious is that the macro environment has changed a lot. I mean, obviously, it’s very similar to what we experienced in COVID, but without the redundancies. I think that’s where I sort of see ourselves at the moment. With the higher cost of living and higher wages that people are demanding, the effect of paying higher wages will result in businesses looking at cost savings and redundancies. If you go back and look at history, it’s always that as soon as salaries go up significantly, 6 to 8 months later you see a round of redundancies starting to happen. I think we’re starting to see that happening more and more in the industry. I think that in itself is an inherent threat. So you’ve got to invest in getting people to use the product from day one. So in order to mitigate that threat, I think that you need to invest in making sure customers are using and adopting your SaaS product. Preventing ARR bleed by developing strong champions in the customer base to ensure the users themselves are first to try and keep your product, as they see real value in it and

LESSONS LEARNT ON THE JOURNEY TO £20M

So in order to mitigate that threat, I think that you need to invest in making sure customers are using and adopting your SaaS product. Preventing ARR bleed by developing strong champions in the customer base to ensure the users themselves are first to try and keep your product, as they see real value in it and make their jobs easier, which is what happened for us in COVID. We really demonstrated the value proposition to our customers. I think whenever it gets tight in the economy, the competition for budget gets stronger and you’ve got to be able to show your differentiation will help them with their daily workflow. I’d say really just focus on that and make that right. I think another sort of market macro-impact will be bank lending. So if you’ve got any leverage in your business, you probably should be forecasting probably every two to three months to ensure that your cash flow covenants aren’t going to be breached in any way.

“I think that you need to invest in making sure customers are using and adopting your SaaS product. Preventing ARR bleed by developing strong champions in the customer base to ensure the users themselves are first to try and keep your product, as they see real value in it and make their jobs easier”

You want to signal potential issues 18 to 24 months before a breach could happen. So keep a really close eye on your bank documents, understand what your cash flow covenants are, and make sure that you keep your Board abreast of any slight deviances and stress test the covenants regularly. This is my advice at this stage. Make sure you know you’ve got a strong hold on all of that because the last thing you want to do is have a very successful business, a very strong operating business, and a very successful product, but then run out of cash due to over-trading. You cannot afford to let your lenders and investors lose confidence in you. So, I think it’s becoming more and more competitive in the SaaS market. New entrants are coming to the market a lot faster now. I was recently looking at accounting systems. When I first looked at accounting systems and cloudbased systems that were international and could do everything I needed, there was pretty much only one, which was NetSuite. When I joined Techex recently, I did a quick survey of the market. I found a few that could quite easily compete with NetSuite, and it just shows how quickly one industry has adopted the cloud market. Everybody’s moving towards the cloud; everyone’s trying to sell a subscription now; everyone’s moving away from the perpetual licence model. Competition is much tougher now. It all comes back to being specific and relevant to your customer. I wish everyone the best of luck in 2024, but the opportunities are out there. Winning new business is harder, but it’s not impossible.

Photographic credits (Adobe). Tom Smith (Credit: Tom Smith).

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NAVIGATING CORPORATE TRANSFORMATION Challenges, Strategies, and Team Resilience in Business Buyouts or Mergers.

Global HR Executive, Anjana Sivakumar, from UPSTACK explores some of the common challenges and key strategies for preparing teams in the context of buyouts or mergers within a dynamic, growing business.

Photographic credit: Anjana Sivakumar

PREPARING YOUR PEOPLE FOR A BUYOUT

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IN THE ever-evolving landscape of fast-paced business, the occurrence of mergers and buyouts has become intrinsic to companies’ growth strategies. However, the value proposition of a deal goes well beyond the tangible product or service being sold and what the financials on a spreadsheet indicate.

Unlocking true value and generating greater alpha demands a nuanced and strategic approach to successfully steer teams and employees through times of transformation.

uncertainties and address concerns promptly contributes to a harmonious transition. The ability to engage in an open and honest dialogue ensures that each team member feels valued and heard, creating an environment of trust and clarity.

Of the many elements necessary for any successful transformation, two of the most critical pieces include a comprehensive, proactive communication plan and a holistic, robust change management strategy.

In addition to a proactive communication plan, it is necessary to develop and implement a solid and comprehensive change management strategy. Employees may resist changes to established workflows, systems, or corporate culture.

To start, it’s important to acknowledge and understand that in addition to the initial excitement and buzz employees may feel about an organization’s growth and expansion, individuals may also experience uncertainty and anxiety as they grapple with the unknowns surrounding their roles, job security, and the broader future of the company. Prioritizing employee well-being during any transition is crucial. As Tom Smith, Mintec’s CEO, stated in the previous article, one of the key learnings they had through the process was employee engagement - “Keeping people engaged and feeling part of the business from a distance is crucial.” Effective communication and transparency are critical for fostering that engagement. Breakdowns in messaging can contribute to misinformation and rumors among employees, which can negatively impact change efforts. Leaders and managers must uphold a commitment to open and transparent communication, providing teams with clear insights into the buyout or merger process, associated timelines, and potential changes, thereby mitigating anxiety and preserving morale and productivity. Additionally, acknowledging and addressing employee concerns is a cornerstone of effective communication during mergers. Establishing a dedicated platform for employees to express their thoughts, seek clarification on

The integration of different technologies and processes from merging entities or the sunsetting of old technologies in the case of a buyout, poses challenges in seamless assimilation, potentially disrupting daily operations and impeding team efficiency. Equipping managers with the necessary skills to guide their teams through the complexities of change encourages adaptability and resilience. A structured approach to change management is critical in maintaining operational effectiveness during a transition. In addition to communication and change management, one of the foremost challenges in the merger landscape is the clash of cultures. The convergence of distinct organizational cultures can lead to friction, making it a delicate task for leaders, managers and HR teams to navigate to foster a unified culture. Strategic planning for cultural integration becomes crucial in this context. The organization should assess and align the cultures of merging entities, fostering a sense of unity and shared purpose, thereby smoothing the path toward a cohesive organizational identity. Leaders, particularly managers, play a pivotal role in exemplifying and championing the adoption of this newly integrated culture.

This necessitates an alignment of diverse leadership teams to maintain employee confidence. Clear and transparent communication, coupled with strategic initiatives to align leadership, becomes paramount in preserving the sense of direction and purpose. Talent retention also emerges as a critical challenge, as the uncertainty accompanying a merger often results in the departure of key personnel. To address this, proactive measures are imperative. Leaders and managers must proactively address concerns, recognize and retain valuable employees, and implement strategies to attract new talent if needed. While changes in organizational structures are necessary to align with a new or different operating model, it can create ambiguity regarding roles and responsibilities. Clarity in the organizational structure is vital. Defining clear roles and responsibilities for each team member, along with transparent reporting structures and clarified expectations, mitigates confusion. This ensures that business operations continue seamlessly, minimizing disruptions during the transition. In addition to the above, creating opportunities for team building can facilitate collaboration and teamwork. Organizing purposeful team-building activities encourages interaction among employees from different teams, laying the groundwork for strong interpersonal relationships. These connections form the backbone of a harmonious and collaborative work environment within the newly integrated organization that can aid in value creation and faster growth. Lastly, navigating the complex legal and regulatory frameworks inherent in mergers demands meticulous attention to compliance from managers and legal teams. This involves ensuring compliance with all applicable laws and regulations and working closely with legal teams to address potential issues. The success of navigating the complexities of buyouts or mergers requires a strategic and holistic approach from leaders, managers, teams and employees. Understanding the challenges faced during these transformative events and proactively preparing for them positions organizations for resilience, adaptability, and sustained success in the ever-changing corporate landscape. By emphasizing and implementing effective communications, change management, strategic planning, cultural integration, and targeted proactive initiatives, organizations can navigate these transitions with resilience and poise to emerge stronger in the aftermath of a merger or buyout, paving the way for sustained growth and value creation.

ABOUT THE EXPERT

PREPARING YOUR PEOPLE FOR A BUYOUT

ANJANA SIVAKUMAR

Anjana Sivakumar is an innovative global Human Resources (HR) executive with more than 20 years of experience in large and small companies across several industries. She has led work in HR strategy, M&A, organization design, talent and leadership, DEI and data analytics. Over the course of her career, Anjana has developed and delivered successful human capital strategies, integrating and executing holistic HR solutions to support and advance business operations and the workforce as a whole. She is experienced in partnering with senior leaders to provide direction, counsel and guidance to help align a company’s strategy, purpose, operating model and leadership to achieve stellar business performance. Anjana has also advised corporations through significant business transformations and M&A transactions. She combines her business acumen with expertise in human capital, project management, organizational and talent planning, and analytics to drive business performance forward and align purpose with passion. Anjana has implemented and led Diversity, Equity and Inclusion (DEI) initiatives throughout her career. She works with C-suite executives to ensure their DEI strategies meet and support the needs of employees and align with business priorities and a company’s purpose. Having served in several DEI roles, Anjana has led and facilitated workshops, initiated new affinity networks, developed and executed DEI communications strategies, and implemented reporting tactics to measure and advance DEI efforts. Before joining UPSTACK, Anjana was a Human Capital Advisor at Apollo Global Management, helping lead the stand up of Atlas SP, one of Apollo’s credit platform companies. Prior to that, Anjana was the Chief Human Resources Officer at StoneTurn, a global professional services firm. Anjana was also a Senior Manager at EY, where she led client engagement teams advising on business operations post-merger or acquisition. She previously worked at XL Catlin and MetLife in various HR leadership roles. Anjana has an MBA from New York University’s Stern School of Business and an MA in Organizational Psychology from Columbia University. She completed her BSc in Psychology from the University of Toronto. She lives in NJ with her husband, two children and their dog, Sparky.

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THE ROLL-UP OF DISTRESSED SAAS BY Alex and Pavel Prokofjev

THE ROLLUP OF DISTRESSED SAAS

THE OPINION

Most rollups are in fact ‘boring businesses’. Shareholder value is unlocked gradually and through incremental improvements, rather than “hyperscaling” or groundbreaking innovation. And yet, there are two types of headline grabbing rollups. The first archetype (#1) is a secretive, private equity backed consolidator buying up chunks of highly fragmented, politically sensitive B2C industries like healthcare. Such land grab inevitably provokes the wrath of the general public,

followed by an antitrust investigation. The second (#2) archetype type is the same type of consolidator buying “diamonds in the rough” type businesses from increasingly desperate VCs at a fraction of their 2021 valuations. In this instance, the acquirer is the hero and not the villain.

Fortunately or not, we have no experience or exposure to #1. So here’s our take on #2. 83

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Up until now, we’ve seen more examples of rollups shutting down / selling back failed acquisitions, than we have seen acquisitions of distressed VC backed companies. That said, Brookfield and Sequoia Heritage have teamed up to take advantage of the growing VC to PE deal flow, alongside a gaggle of independents like Curious, Arising Ventures and Tikto. Stepping into 2024, how’s the deal flow looking? It’s picking up! Over the past two years, we have scrutinized numerous VC-backed companies, culminating in the acquisition of a few. Surprisingly, the predominant category does not revolve around WeWork-style leveraged excesses or businesses relying on “rare IP plus a squadron of MBAs.” These aren’t your typical rollup ventures. Instead, our focus has been on businesses situated in the 20% of the 80:20 VC portfolio. Most of these businesses exhibit commendable performance with decent Annual Recurring Revenue (ARR). However, their valuations are often inflated, with

liquidation preferences surpassing the ARR, thereby limiting the value allocated to common equity. The decision to sell typically stems from two triggers: 1/ VC fund end of life, especially for investments made 7-10 years ago, or 2/Imminent cash depletion Flat businesses facing such predicament often don’t have the luxury of continuation funds or pass-the-parcel type exits. In instances where founders need motivation to step aside, investors may relinquish liquidation preferences. In cases where a portion of the team is retained, we observe two-part structures incorporating elements such as earnouts and equity, providing a nuanced approach to navigate these complex scenarios. At the same time, buying companies from VCs

comes with several challenges, including: 1/ Most VC-backed companies that failed to scale are left with significant technical debt (e.g., overbuilding in early years) and demotivated staff as a result of redundancies. 2/ Most companies grow slower after the acquisition since pre-acquisition growth rates in the 2050% are often sustained through unprofitable sales force.

What does a typical distressed deal look like?

In a distressed acquisition scenario, the acquisition involves the purchase of assets, and occasionally shares, at a value significantly below the liquidation preference. In more severe instances, the transaction may occur at or below the debt value. This often renders common equity worthless,

thereby adversely affecting both the founders and the employees particularly, those with ESOPs. The revelation of such circumstances can be a profound shock for startup founders, especially considering the substantial investment of time and effort, often spanning over a decade, dedicated to building and growing their company.

This presents a substantial dilemma for VCs who may struggle to comprehend why acquirers are hesitant to apply double-digit ARR multiples.

Distressed SaaS and the EU

Handling distressed acquisitions outside of the US introduces added complexity. A significant divergence arises from the presence of TUPE regulations in many Where do markets, necessitating the distressed of all employees valuations stand? retention by the acquirer even in Many VC-backed the event of bankruptcy. companies find themselves This regulatory aspect in a challenging position, often results in $2-3M ARR often operating at a loss or businesses being bundled achieving only breakeven with 60-70 staff, whose status, with diminished post-closing necessity growth prospects post remains uncertain. This, in cost-cutting measures. turn, amplifies the overall Consequently, these assets cost of acquiring the must vie for attention business. against bootstrapped counterparts — SaaS Furthermore, certain businesses that are not markets restrict automatic only profitable and thriving contract assignment, but also boast exceptional leaving acquirers to employee culture and navigate the intricacies of satisfied customers. contract assignment, Data Processing Agreements, This competitive landscape and other related matters. leads to a significant Proceed carefully! disparity in valuations, with the typical valuations of VC-backed companies falling well below those of their bootstrapped counterparts. Photographic credit: RollUp Europe

ABOUT THE CONTRIBUTORS

THE ROLLUP OF DISTRESSED SAAS

Pavel and Alex Prokofjev. Pavel and Alex are consummate dealmakers, classically trained in the ‘Big Four’ and investment banking, Pavel is the Head of M&A for saas. group, a platform for PLG SaaS brands. Alex is the founder of Cauma Group and the former CFO of Threecolts, an e-commerce enablement platform. Between them in the last 2 years they have closed nearly 20 acquisitions (and lost a few more!). Wesoftware, M&A, and networking. They also run RollUpEurope, which was born out of a frustration with the lack of a forum for European software rollups.

For more information about Rollup Europe, visit the homepage at: rollupeurope.com

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2024 2024 2024 2024 86

2024

PART SIX

THE RISE OF THE ‘FRACTIONAL PROFESSIONAL’ AND THE KEYNOTE OPINION. P.88

P.94

The Global Report explores the ‘Rise Of The Fractional CFO’, with opinions from two finance leaders.

Equity analyst, David Reynolds provides the keynote opinion on 2023 and shares his thoughts moving into 2024.

THE RISE OF THE FRACTIONAL CFO

THE VIEW FROM THE SIDELINES

#TheGlobalReport 87

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INTRODUCTION: TOM GARRATT

f O e s i R e h “T l a n o i t c a r F The 2024” CFO in

FRACTIONAL & PERCENTAGES

78%

Of recent responders to a Camino Search LinkedIn survey would use a fractional CFO.

90%

Of fractional CFOs within our global network work across more than one business

72%

Increase in fractional hirings from 2022, to 2023.

Traditionally the CFO has been a permanent fixture in most businesses, working for and with the C-suite to encourage financial efficacy and performance. But that’s changing. The rise of ‘fractional’ support for portfolio companies has been prominent across the C-suite in 2023, but the CFO hire has been at the heart of this trend. Is it driven by cost reduction? Is it the ‘post-covid’ worlds answer to flexibility at C level? Having worked with Venture Capital and PE investors for a number of years, there is definitely more of a trend for Fractional hiring within VC.

part-time or project basis, adjusting the leadership structure based on the evolving needs of the business through growth and expansion. By hiring fractional executives, companies can access high-level expertise without the commitment of a full-time salary and benefits package thus keep the costs low in an environment where cash runway may be short. Last year saw a 72% increase on Fractional hiring when compared to the volume we experienced in 2022, coupled with 90% of the ‘Fractional’ CFOs we met with working across more than one business as part of a personal portfolio.

This is mainly due to the size, and shape of the early stage businesses that VCs are investing in. For example, a Seed or Series A stage business that has very basic accounting requirements, but needs support with strategy or fundraising. In 2024, pipelines & deal flow for Investors seem to be trending Fractional C-suite roles positively for a busy year which offer flexibility in terms of will likely lead to the inevitable engagement duration for the changes at C-level. client & the exec. Organizations can bring in executives on a

- TG -

THE RISE OF THE FRACTIONAL CFO

TOM

GARRATT

Tom Garratt is the Director of interm and fractional appointments at Camino Search. Based from Camino’s Search’s London office, he leads the global search practice, placing transformational interim talent in private equity and venture capitalfunded tech and SaaS businesses.

e h T r o F r Turn Ovel Viewpoints Fractiona ->

“

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CFO: Viewpoint One

Lynne Patmore

Bringing in a Fractional experienced CFO lends credibility to the financial governance and operations of a business, to the integrity of the set up. It ensures policies, processes and procedures commensurate with the maturing nature of the business are embedded early. It provides comfort to VCs that the organisation is taking financial governance and management seriously. It brings structure and discipline and helps to set stall out for the future. A fractional CFO can help prepare a company for a fund raise and can identify opportunities or areas of risk

which need to be managed early. Often early stage companies do not need a full time CFO as the nature level or type of work may not justify the experience and cost involved – ‘factionals’ whether interim or permanent can help companies at the start up/ set up, set the course for the next period of development then recruit in appropriate personnel to work with the company for that stage of development – being brought back in as and when needed. Fractionals can be seen as experienced, flexible resource, when a company cannot justify a full time CFO at that time.

THE RISE OF THE FRACTIONAL CFO

or step up if further events happen; more fund raising, M&A, on an ‘as-needs’ basis. Experienced CFOs especially used on a fractional basis should be used to help set up the company, policies, processes systems, help recruit initial finance personnel and should help write the business plan, prepare the deck and work with Founders to shape the investment narrative. They are best used as and when major events are about to or need planning for, eg: further fund raise, M&A, listings, when companies need to develop pricing strategies - but not for ongoing day to day management Ease in seniority on an as needs basis – flex up and down to suit the experience needed. Fractional support and especially if interim is a flexible resource that can be used as and when needed but not incur the heavy cost of employing someone too senior for day to day activities, when not needed.

ABOUT THE EXPERT

An experienced Fractional CFO can be a good sounding board and a counter balance to the CEO. If the founding CEO is an expert in his founding subject he or she may not be aware of what is needed to take the idea/product/service to the next level or to market and what investors will be interested in when deciding whether to invest. He or she may not be aware of best practice financial governance, policies, processes, controls and risk management. Experienced CFOs are aware of what financial markets look for in early stage companies and can support and complement the CEO who has the technical or other expertise – an experienced CFO who has worked with a number of early stage companies can help CEOs avoid the pitfalls of evolution. An experienced CFO who has worked with early stage or growth companies will have a sound knowledge and understanding of what is needed in a fund raise – what information is needed, what investors will be looking for, what should be in the data room, what to share and when, how a deck needs to be presented; content, structure, analysis, can write a business plan which will help promote the company and the opportunity and provide credibility to the process. Fractional CFOs will help shape the narrative of the presentation and understand the capital market’s mind set and approach to investment. They are very useful as early stage goes through different levels of development, writing the business plan, setting up systems and processes, preparing a deck for fund raising. But once these events or stage gates have been passed through, the day to day business operations may be best suited to a less senior Finance professional and the Fractional can step away - being used as a sounding board for particular issues, challenges etc and/

“Fractionals can be seen as experienced, flexible resource, when a company cannot justify a full time CFO at that time”

LYNNE PATMORE

Lynne Patmore is an experienced CFO and NED having spent a number of years working with early stage and growth companies in an Interim and Fractional Capacity across new and emerging industry verticals from Life Sciences to AI enabling technologies and As a Service Models, helping them along their journey from startup to scale up, setting up systems, processes and policies, recruiting staff, external advisors, writing business plans and particularly supporting them through fund raising or other major event activity.

“

THE GLOBAL REPORT

CFO: Viewpoint Two

Bina Khatwani

With fractional work VC businesses can tap into specific expertise on a flexible basis, while professionals can offer their skills and knowledge to multiple organisations. What value-add does a Founder or CEO get from a Fractional CFO? In short, it’s rocket fuel! The difference between a Fractional CFO and a consultant is that the Fractional CFO sits on the Exec Leadership team- They are part of THE teamworking towards the company vision and objective. It’s the same benefits as having a full time CFO but for a

fraction of the cost. Fractional CFOs also work with multiple businesses all at different stages of the business cycle, which means they come with extensive experience and learning, great networks, connections to bring to the table and can get stuff done. Fractional CFOs will have worked with multiple start ups most of which will have been fundraising. I, for example have my own investor database which isn’t based on cold leads, but more on people that I have worked with before. I know which investors are likely to be interested in

THE RISE OF THE FRACTIONAL CFO

“Fractional CFOs also work with multiple businesses all at different stages of the business cycle, which means they come with extensive experience and learning, great networks, connections to bring to the table and can get stuff done”

ABOUT THE EXPERT

different startups because I have been through the process multiple times before. Having a CFO participating in investor conversations and the fundraise process adds credibility to the startup and it’s forecasted financials. All businesses start by flying solo in the entrepreneurial stages. The right time to consider a fractional CFO is when you have made ‘GROWTH’ part of your mission. I refer to myself as a ‘growth enabler’ more than a finance professional. The role of the CFO is ever evolving. It’s becoming more and more a business partner role rather than financial expert. The fractional CFO affords businesses strategic direction, Bottom line focus, Enabling of growth……for a FRACTION of the cost. Both businesses and professionals benefit from fractional work- but there has to be ‘know-how’ on both sides on how to operate. The pandemic has finally opened up leaders to the world of flexible working and it’s a win-win for both sides. Startups and companies in the growth phase find fractional talent to be a cost-effective solution, providing expert knowledge without the need for full-time hires. This allows them to access specialized skills while managing costs. Research shows that 87% of companies will work with fractional or on-demand talent in 2024. The market size for fractional hiring is estimated to be US$2. 2billion. In my opinion, there will continue to be growing interest in fractional work, even if interest rates go back down and the economy picks up. This solution is a good long-term option to address talent acquisition and retention challenges in businesses and can work for large or small companies.

BINA KHATWANI

Bina is a mother of two children, who led her down the path to being a fractional CFO. She left the corporate world in pursuit of a better work life balance and ended up working with CEOs of startups, scale ups and high growth SMEs, becoming a growth enabler, specialising in a variety of activities from fundraising to exit planning. She has a particular passion for purpose-driven, impact-led ventures, and generally making a difference to peoples’ lives.

THE GLOBAL REPORT

KEYNOTE SPEAKER

A VIEW FROM THE

SIDELINES

FORMER ROYAL MARINES COMMANO AND PRIVATE EQUITY LEADER DAVID REYNOLDS ADDS HIS KEYNOTE THOUGHTS TO THE GLOBAL REPORT TO SUMMARISE THE STATE OF THE MARKETS

THE VIEW FROM THE SIDELINES

THE GLOBAL REPORT

Wow(!) expletives and superlatives.

2023 felt crazy. Rapidly shifting sands, significant economic pressures, profound cyclical dynamics and tragic socio-political catastrophes… In more colloquial terms the NASDAQ 100 hit +55% over 2023, the best performance this century! On the UK side of the pond, the FTSE 100 just +2%, quite some divergence. In terms of that divergence, some peculiarly British issues undermining the Capital Markets backdrop in London, significant issues, things need to change… The interest rate cycle appeared to have broadly peaked towards the end of the year, rates driven by the return of an old friend, meaningful inflation. Broadly defined corporate transactional volumes again declined in 2023 following a moribund 2022, the rising cost of capital following a decade long period of ultra-low interest rates has squeezed corporate activity in both public and private markets, the environment remains somewhat challenging and perhaps will remain so until the latter part of 2024.

That being said, advances in ‘technology’ represents a spectacularly positive array of catalysts, we have all become familiar with the clarion call of ‘generative AI’. Artificial Intelligence (‘AI’), seemingly crossed the rubicon and became a commercially viable, ubiquitous technology and created a tsunami of expectation around all things generative AI, large language models et al, content seemingly remaining ‘King’.

“Artificial Intelligence, seemingly crossed the rubicon and became a commercially viable, ubiquitous technology”

+2%

The FTSE 100 hit just +2%, a divergence from the American NASDAQ

+55%

The NASDAQ 100 hit +55% over 2023, the best performance this century.

Historically we over-estimate the near-term impacts of step changes in technology and under-estimate the long term changes. Artificial Intelligence is a monumental step change and will revolutionise many areas of human life, the observed changes around generative AI and content, whilst seemingly the first to capture the imagination may ultimately be the least important. To be clear, the profound changes driven by artificial intelligence will catalyse innovation, growth and value creation and the coming AI tsunami will change almost everything. These are the most exciting of times. With the light, there is always dark and the humanitarian disaster in the Middle East shames the world. The risks of a widening conflict and a broader crisis are real. And in a similar vein, climate change remains an open sore seemingly becoming ever more obvious and more painful. Thus, the set up for 2024 and beyond is in many ways incredibly exciting and the gains possible by the application of artificial intelligence may to some extent be beyond our imagination, but they will be vast. At the same time, there remain existential threats to a better world.

ABOUT THE EXPERT

THE VIEW FROM THE SIDELINES

David Reynolds

After leaving the Royal Marines, where he served in South America, Northern Ireland and the Middle East for five years as an officer, David qualified as a chartered accountant at KPMG, where he completed a secondment as COO of the Brunei Invest-ment Agency, in Brunei. In 1997, he joined DKB in Technology Equity Research - the operation merged with JP Morgan in 2000. David left in 2007 to take a career break to teach maths and statistics at A-level. He returned to the industry in 2011, joining Jefferies where he led the European Media and Internet team, covering media names and digital companies including ASOS, Autotrader, Boohoo, Grubhub, Kinnevik, Mail. ru, MoneySuperMarket, Naspers, Opera, Rocket Internet, Takeaway and Yandex. David was voted No. 1 ranked stock picker in the Reuters Starmine Awards, 2016 and 2017. Between 2017 and 2021, he worked as a CFO for Brandwatch, Evrythng and Focal Agent, before joining Davy as an equity analyst for disruptive technology, in 2021. He covered AO, ASOS, Boohoo, Cazoo and Moonpig, amongst other major brands, before leaving in 2023. In his spare time he enjoys free diving and Brazilian Jiu Jitsu.

#TheGlobalReport

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