Category : 2021

SPACs (special-purpose acquisition companies) give start-ups an alternative to listing publicly. They are essentially public investment vehicles with a mandate to buy large stakes in start-ups. Instead of listing on a public exchange, start-ups can be bought by a SPAC – securing a large capital raise as well as allowing early shareholders to cash in. The benefit of a SPAC exit is it avoids much of the regulation and red-tape that comes with going public normally. Meanwhile, SPACs often offer start-ups the same valuation they expected to get on the public market. Moreover, SPACs are themselves publicly traded, so retail investors can still indirectly buy-in to the success of a start-up.

2020 has seen a fast growing group of SPACs sponsored by private equity, venture capital and hedge fund titans. In 2021 they will aim to deploy tens of billions of dollars, upend conventional IPOs and deliver huge returns to themselves all at a relatively modest risk. However throughout 2021 the clock will be ticking louder and louder as they only have two years to make it happen or the money raise is returned to investors and the titans walk away empty handed and with a sullied reputation.

What can we expect in 2021?

• There will be intense competition amongst the SPACs looking for target acquisitions. The class of 2020 collectively raised more than $73 billion.
• Stiffer competition could lead to friendlier terms to woo targets. Already some dealmakers have been reducing their promote fee in exchange for striking a merger.
• Potential target companies can cast a wide net as they evaluate what the different SPACs can bring to the table. One merger target recently revealed they were talking to 14 different SPACs.
• Some of the SPAC sponsors are differentiating themselves by packing their boards with a who’s who of industry heavyweights. Kensington Capital merged with electric-vehicle battery maker QuantumScape after assembling a board of automotive executives that included former CEO’s of Fiat, Chrysler and roof rack maker Thule.
• Attention could turn to European SPAC listings. Multiple European exchanges and regulators are competing to become the most favourable exchange and jurisdiction to list a European SPAC. They are working to change rules to allow vehicles to look and feel like a US structure in order to attract money from the robust US investor base. If one of the initial European SPACs in 2021 trades well post-acquisition, then expect others to follow suit and a listing frenzy will begin.

Private investments in public equity (PIPE deals) are vital to closing take-overs. The original investors in SPACs tend to be a concentrated group of financial firms, commonly called the “SPAC mafia”. These investors typically look to sell/redeem their investment at the time of the merger. PIPE investors are needed to replace the redeeming investors otherwise the music stops and the house of cards falls down. The rush of SPACs in 2020 exhausted much of the available PIPE capital towards the end of the year. PIPE investment levels will need to be replenished in 2021 and if the SPAC phenomenon continues we could see new sources testing out investing into PIPE deals.

Since 2001, CSS Partners has raised over £175m for ambitious growth companies.  Over this time we feel we have developed a good understanding of what investors want.

CSSP backed companies will often offer EIS Shares so investors can use the significant tax breaks of the UK Enterprise Investment Scheme to help mitigate the risk of venture capital and maximise returns.

Investments offered by CSS Partners are not appropriate to all investors.  Our free client service aims to be of benefit to high net worth and sophisticated investors looking to achieve higher returns.

20 January 2021

Important Note

The information in this website is provided by CSS Partners LLP. This website has been approved for the purposes of section 21 of the Financial Services and Markets Act by Charles Street Securities Europe LLP (CSSE), which is authorised and regulated by the Financial Conduct Authority. CSS Partners is an appointed representative of CSSE.

Any views or opinions expressed in this blog are those of the author alone, except where specifically stated that they are the views of CSS Partners LLP.

Global Economy Watch; Predictions for 2021 PWC 18.01.2021
2021 Venture Capital Outlook Pitchbook Analyst Note 14.12.2020
Economic Predictions: Will 2021 Be a Boom or Bust? Nasdaq 23.12.2020
10 Financial Predictions for 2021 Hackermoon 24.12.2020

After an improbable comeback in the second half of the year, the US IPO market delivered the decade’s biggest year in terms of exit value. Richly valued tech offerings pushed the value of all 120 VC backed IPOs in 2020 to a combined valuation of nearly $260 billion. These mega- IPOs have refashioned the relationship between public and private markets.

In the UK we are following Wall Street’s lead with Moonpig , the online greetings card company, confirming plans for a £1 billion-plus stock market listing. The float will be the first significant stock market flotation of the year and is expected to prompt a wave of technology-focused IPOs from businesses that have defied the pandemic.

Beyond the blockbuster listings in the US, 2020 will be remembered for the introduction/acceptance of a variety of ways in which private companies can tap into the public markets: from new IPO pricing mechanisms to Special Purpose Acquisition Companies (SPACs) and direct listings. The crop of deals broadened the pool of public stocks serving up fast growing companies to tech hungry investors. Here in the UK the Stock Exchange is exploring how similar mechanisms can be utilised.

So what can we expect here in the coming year and what can we learn from our friends across the pond:

• Valuation multiples have risen across the board, with growth stage technology companies leading the charge. This has closed the gap in valuation multiples for private and public companies and made IPOs more attractive to large tech companies.
• Strong investors’ appetite for new stocks follows a decades-long decrease in the number of US-listed public companies – a trend mirrored in the UK over the past twenty years.
• Whilst tech stocks attracted most of the headlines in 2020, healthcare and biotechs continued to lead US IPO activity in number. There were 82 healthcare deals compared to 16 for the IT industry and 11 consumer companies.
• In monetary terms debuts by tech and consumer names accounted for nearly three quarters of the total exit value.
• Biotech and healthcare stocks, traditionally viewed as defensive plays, can be attractive even in times of economic weakness. Investor interest in the sectors only intensified as the pandemic set off a worldwide race for vaccines and drug treatments.
• Some of the year’s largest deals – Airbnb, Doordash, Unity Software – used an auction process to settle on IPO share prices. Each of the companies using the new auction approach eventually priced their IPOs well above their initial targets indicating the process was effective at gauging demand.
• The auction process did not prevent sharp first day rises that are sometimes viewed as evidence that the IPO was underpriced. It can also be a clear indication of wider investor demand.
• Palantir and Asana revived the direct listing, an IPO alternative in which no new shares are sold and the stock price is set by public demand. Both companies saw their share price rise sharply once listed.
• The rapid rise of SPACs has also given tech start-ups a third path to the public markets.
• 2021 is expected to bring more improvement and innovation in how companies can go public.

The wide investor exuberance for all things tech has been bolstered by a number of analysts likening the global economy to a “coiled spring” following the challenges of 2020. It has been suggested the post vaccine world could resemble the Roaring Twenties, a time of headlong economic growth that followed World War 1 and the last global pandemic.

Since 2001, CSS Partners has raised over £175m for ambitious growth companies.  Over this time we feel we have developed a good understanding of what investors want.

CSSP backed companies will often offer EIS Shares so investors can use the significant tax breaks of the UK Enterprise Investment Scheme to help mitigate the risk of venture capital and maximise returns.

Investments offered by CSS Partners are not appropriate to all investors.  Our free client service aims to be of benefit to high net worth and sophisticated investors looking to achieve higher returns.

20 January 2021

Important Note

The information in this website is provided by CSS Partners LLP. This website has been approved for the purposes of section 21 of the Financial Services and Markets Act by Charles Street Securities Europe LLP (CSSE), which is authorised and regulated by the Financial Conduct Authority. CSS Partners is an appointed representative of CSSE.

Any views or opinions expressed in this blog are those of the author alone, except where specifically stated that they are the views of CSS Partners LLP.

Private Equity Surge of IPOs Capitalises on Frothy Public Markets Pitchbook News 18.12.2020
Forecasting the World in 2021 the Financial Times 30.12.2020
2021 European Private Capital Outlook Pitchbook Analyst Note 14.01.2021
Silicon Valley’s Banner Year on Wall Street Pitchbook News 10.12.2020

The primary trends set to shape the emerging tech VC market in 2021.

Agtech – expect field robotics to receive a record level of VC investment in 2021

The pandemic has exacerbated labour shortages in the agricultural industry leading to rising long-term food demand on a global scale. Field robotics and smart field equipment could help meet this need by allowing farmers to automate manual functions and reduce their reliance on human labour. Whilst full commercialisation is likely to take several years, expect VC investment to ramp up in 2021 due to strong market drivers and the potential for a large addressable market.

Artificial Intelligence and Machine Learning – natural language technology (NLT) is likely to attract the highest VC investment in 2021

Natural language technology has experienced technical breakthroughs in 2020 that position the technology to become a building block for start-ups and significant advances in AI. Many of the major breakthroughs have been in natural language processing (NLP) a subset of NLT. NLP allows analysis and interpretation of human communication through neural networks. In late 2018, Google released BERT allowing better
contextual understanding of text. This lead to emerging algorithms ALBERT, RoBERTa and OpenAI’s GPT-3 to achieve state-of-the-art results in NLP. Performance is increasing in line with increased usage and computation power, suggesting further investment could trigger further exponential gains and commercial traction. A flow of later stage VC deals could create a wave of NLT unicorns in the near future.

Cloudtech – remote work technology represents a long term megatrend with significant exit opportunities in 2021

The COVID-19 pandemic catalysed the need for remote to allow business continuity and at the same time drove demand for products that promote work-from-home (WFH) productivity. The trend of WFH will likely persist beyond the end of the pandemic. The initial adoption of remote working saw widespread adoption of video conferencing tools such as Zoom, with this market segment now maturing into a deep ecosystem of digital and virtual collaborative tools. Enterprises are embracing tools for software
development, product design, project scheduling, information hubs, employee management, virtual event platforms and communication. This has led to high demand for digital infrastructure such as VPNs, networking solutions, next-gen security and cloud computing. This has created opportunities for start-ups as the customer base grows and demand increases. There has also been significant late-stage VC investment into a number of the existing players suggesting we could see a number complete exits through IPO in 2021.

Enterprise Health and Wellness Tech – expect e-pharmacy incumbents to expand their reach across the drug distribution industry through partnerships and through the acquisition of innovative start-ups to widen product offerings

E-pharmacies are e-commerce sites that sell and deliver over the counter and prescription medicines directly to consumers. The pandemic has accelerated the conversion from traditional bricks and mortar pharmacies to e-pharmacies and this is likely to drive further expansion of the e-pharmacy industry in 2021. Most e-pharmacy incumbents are owned by large retail companies such as Walmart and Amazon or
insurance companies, so the opportunity for start-ups to take market share in e-pharmacy is limited. The VC investment opportunities will lie in start-ups developing innovative add-ons that will help e-pharmacies broaden their product offerings and generate additional revenues.

Fintech – 2021 is expected to be a record year for VC exits via the public markets for consumer fintech companies

The fintech industry is currently top-heavy in consumer companies; seven of the top ten fintech unicorns in the US provide consumer services. Consumer fintech companies have attracted significant investor interest in recent years. In North America and Europe, these companies raised $11.7 billion between 2018 and 2020. Limited bank branch access and stay-at-home restrictions have altered the landscape creating a surge in demand for
flexible banking solutions. 2020 was a watershed year for financial apps and other digital banking and money management services. As consumer fintech companies scale, expect them to close the gap with traditional retail banks in regards financial service offerings. The demand for product bundling is gaining momentum and helping start-ups to acquire and retain more customers as they offer an increased range of retail financial services.
As the range of fintech services expands, consumer adoption will increase and late stage fintech companies will come under pressure to IPO. If the existing public fintech companies continue to trade well then expect an even stronger year for consumer fintech exits in 2021.

Foodtech – plant-based, alternative protein and cultivated meat start-ups will see elevated M&A activity in 2021

Plant-based foods have gained significant traction amongst consumers. The big food companies will look to compete with the emerging market leaders through the acquisition of next-gen plant-based foodtech start-ups. The past two years has seen significant VC investment into plant-based food start-ups leading to a crowded, competitive environment. These conditions could foster increased M&A as the industry consolidates around the winners.

Information Security – public market demand for cloud-based SaaS companies could see a surge in infosec unicorn IPOs in 2021

2020 disproportionately benefited late stage infosec companies seeing late stage VC rounds at the expense of backing early stage innovation. Before the pandemic, a pipeline of IPO candidates had formed to take advantage of market conditions. If a number of these COVID deferred listings go ahead this year then expect a surge of investment into the early stage, innovative infotech companies.

Mobility Tech – expect a second wave of SPAC mergers focused on self-driving technology

Publicly traded electric vehicle stocks continue to outperform. As of December 2020, Tesla’s valuation had surpassed that of Walmart and the market capitalisation of Nikola stood at over $7.0 billion despite not having yet produced a functional prototype. This public market enthusiasm towards electrification is likely to expand to include self-driving technology leading to a new wave of SPAC market debuts for autonomous vehicle technology companies.
SPACs are an attractive listing option for highly capital-intensive start –ups at the pre-to early revenue stage and they should prove an attractive option for autonomous vehicle companies.

Supply Chain Tech – last mile delivery platforms are primed for another significant year in 2021

Last-mile delivery platforms serve a large, rapidly growing and underpenetrated addressable market that has seen significant expansion due to the COVID-19 pandemic. Whilst the overall delivery market is growing, expect VC and pre-IPO app-based food, grocery and convenience item delivery services to post significantly faster growth. These companies spend heavily on marketing and serve an underpenetrated market relative to general e-commerce delivery. The shift in customer behaviour seen in 2020 is likely to persist long-term as consumers have grown accustomed to the convenience offered by food, grocery and convenience item delivery, making it more likely they continue to use these services even after the necessity for them dissipates.

In December 2020, DoorDash went public and soared on its first day of trading to a market value of $72.0 billion. DoorDash’s successful IPO validates the continued venture backing of early-stage mobility start-ups and sets a strong precedent for future last-mile delivery IPO candidates.

Since 2001, CSS Partners has raised over £175m for ambitious growth companies.  Over this time we feel we have developed a good understanding of what investors want.

CSSP backed companies will often offer EIS Shares so investors can use the significant tax breaks of the UK Enterprise Investment Scheme to help mitigate the risk of venture capital and maximise returns.

Investments offered by CSS Partners are not appropriate to all investors.  Our free client service aims to be of benefit to high net worth and sophisticated investors looking to achieve higher returns.

20 January 2021

Important Note

The information in this website is provided by CSS Partners LLP. This website has been approved for the purposes of section 21 of the Financial Services and Markets Act by Charles Street Securities Europe LLP (CSSE), which is authorised and regulated by the Financial Conduct Authority. CSS Partners is an appointed representative of CSSE.

Any views or opinions expressed in this blog are those of the author alone, except where specifically stated that they are the views of CSS Partners LLP.

2021: Predictions for Next Year’s Economy, Politics and Technology Forbes 01.12.2020

The Emerging Technology Outlook Pitchbook Analyst Note 17.12.2020

2021 Global Economic Outlook Morgan Stanley 01.12.2020

Venture capital focuses on funding small, early-stage and innovative firms that are deemed to have high growth potential. It is often considered a catalyst for job creation and economic growth. Investment focus in 2021 will be on new highly innovative start-ups and companies that have benefited from the disruption caused by the pandemic with follow-on investment aimed to turbo-charge that growth through to exit. The combination of the high investment appetite for VC and the increased exit opportunities is likely to shorten the typical VC window from start-up to sale.