Despite macroeconomic and geopolitical headwinds, Europe continues to establish itself as a unicorn breeding ground. And with a notable shift toward late-stage funding, combined with challenging public market conditions, both investors and issuers are looking for ways to tap into this growth pre-IPO. In the recent Future Private webinar, Blythe Masters, Founding Partner at Motive Partners and an Independent Director at Forge, led a discussion of the dynamics around the European private market.
“If companies are growing to be worth a billion, $10 billion, $50 billion, you're minting a lot of wealth within the employee base. And that ride to going public does generate a point where liquidity is needed by hundreds, if not thousands of employees,” said Kelly Rodriques, CEO of Forge.
Top European private companies include such decacorns as Checkout.com, Revolut, Blockchain.com and Global Switch. For the complete list of $1 billion+ European private companies or unicorns, please visit our Private Market Update.
Typically, European startups have around 10% employee ownership, aside from founders, compared to 20%+ in the U.S., noted Christoph Hansmeyer, Managing Director, Deutsche Börse Group, and Independent Director at Forge.
But these cap tables could soon change. “I think this gap will close fast,” due to the “war for talent that we see today,” he added.
So, as companies look to provide employees with more stock and liquidity, that creates new opportunities for investors to potentially participate in Eurocorns’ and other private market companies’ upside.
“This is becoming a new asset class,” said Hansmeyer.
Whereas institutional investors might have accessed the private market through venture funds, “investing directly in late-stage, pre-IPO companies…is very interesting in terms of the return profile, the fee structure, etc.,” he added.
Yet analyzing and accessing this new asset class isn’t always straightforward.
“Clearly, Europe is not one country. It's a region of many countries. And that leads to a lot of complexity. But there is a big pipeline [of unicorns] here, and we believe there's a lot more to come over the next year,” said Hansmeyer.
Amidst this backdrop, Forge is expanding into Europe — in partnership with Deutsche Börse — to help startups and investors navigate trading of European private company shares.
“We believe that we've gone from a reactive market to a more proactive market. If a CEO and a board of directors are looking around at other companies and they're looking at the capital dynamics, both in terms of raising money and in providing liquidity programs formally, that environment has shifted significantly in the last few years,” said Rodriques.
So, one of Forge’s first offerings in Europe will be to help private companies create managed liquidity programs. Doing so will provide transparency and simplicity within the European private market that typically hasn’t been accessible before, which will benefit both buyers and sellers.
“There's really a chance for building a pan-European unified platform to trade private share capital,” with Forge and Deutsche Börse working together, said Hansmeyer.
Much of the private market interest comes from institutions, but there’s also a growing appetite among family offices, high-net-worth individuals and retail as a whole — both in Europe and elsewhere around the world — as finance becomes more democratized.
“Underlying that on a global basis is the rise of the middle classes with disposable income, seeking investment opportunity. And facilitating all of that is another trend, which is the digitization, the electronification of marketplaces,” said Blythe Masters.
Adding to this phenomenon, “wealth advisors around the world…are increasingly realizing that to be competitive, they need to have a complete offering of product that is not just their own manufactured product,” she added.
And by standardizing and centralizing private marketing trading through a platform like Forge, the market as a whole can benefit from increased visibility into private market valuations and investment activity.
“We think that a great private market is one that continues to expand globally, has the flexibility to build a big, world-changing business, but also has enough data about it to demonstrate that the valuations and the access to liquidity and investing is informed, because we all want to be confident in what we're doing, said Rodriques.
“That combination of disclosure and data transparency that we're putting out in our proprietary product really serves everybody's interest in the space,” he added.
To get more private market insights in Europe and around the world, you can see the full webinar replay here.