The year 2015 ended with 74 privately owned US companies being valued at $1 billion or more, demonstrating that it was a good year for venture capitalists who were hunting ‘unicorns’. By comparison, latest data from Europe suggests that there is just 47 of these high valuation companies across the entire continent. Although this is a significant increase for Europe and does suggest some improvements in building bigger businesses, considering Spotify tops the list at a valuation of $8.5 billion, this doesn’t qualify it for the top 10 valuations worldwide.
Many investors here in Europe still like to talk about how it is becoming a better environment for building the truly huge, yet there is still some distance to go before this becomes a reality. Where North American companies have benefitted from a rich history and experience of building these companies, and Chinese technology companies benefit from its enormous domestic market audience, Europe is finally seeing the playing field levelled for itself. This has come in the shape of the purely mobile business.
From Nokia, Ericsson and Philips hardware, through to Vodafone, Deutsche Telekom and Telefónica’s network, Europe has an impressive history in the mobile marketplace. Although the hardware firms no longer compete with the dominant global smartphone manufacturers, European businesses are able to use this platform to develop and create the businesses which can go on to become category leaders and redefine their industry.
Standing out from the crowd
As an investor we are privileged to be given a front row seat to innovation as it is happening. The sheer volume of businesses that come to our attention through the brilliant work they are doing means that you are able to see developments and trends as they are happening. However also from an investor’s point of view, we want to avoid investing in these trends (unless they are truly amazing), because it dilutes the potential of any investment. The ambitious VC is looking for the jewel in the crown, that hasn’t sparkled to the rest of the marketplace yet.
This is something which is certainly happening in financial services. Over the past few years, mobile technology has redefined domestic and international payments. Now with a few taps of an app, or the use of near-field communications via a smartphone or wearable, what used to be a laborious and unsafe process has become incredibly simple. The implications for this have been global as there has been as much benefit for international diaspora sending remittances to some of the poorest corners of the world as there has been for Western consumers doing their daily shop.
Across financial services, anything which has employed an agent model has found an opportunity for direct to user relationships through mobile services. Now we are entering an era when the very physical notion of the high street bank is being redefined by mobile. UK start-ups like Tandem Bank are utilising smartphone ubiquity to work with early adopter consumers to build an entire bank together and deliver completely unrivalled customer service.
Where banks have been the cornerstone of streets and towns for centuries, the first steps are being made towards redefining the industry, driven by the power of mobile. If you consider how big the incumbent retail banks of today are then it is easy to envisage the valuation of a successful mobile bank.
Although something like retail banking is today heavily regulated, making it difficult to go global, mobile centric businesses for everyday consumers have this built into their very existence. Whereas once upon a time a retailer would have to buy a physical location when it wanted to enter into a new country, the limitations normally applied by infrastructure have been absolutely decimated. With smartphone use saturating developed economies and growing at a rapid place in developing economies, considering something which has a global appeal is much easier from the outset.
A good example of this is Natural Cycles, from Sweden. Natural Cycles links a body thermometer to the app to inform women of the stage of their ovulation cycle, becoming a natural alternative to the contraceptive pill. After being on the market for a little over one year, Natural Cycles has already gained more than 100,000 users from 161 countries. Given that the business is addressing something which affects around half of the world’s population. Over time and with effectiveness proven, Natural Cycles has the potential to replace treatments which have either been invasive or have physiological side effects.
One impact of the smartphone boom is that societies around the globe are now glued to the little screens more and more. Anyone living in a city who uses public transport for their commute can look around the bus or carriage that they are in and see an army of headphone wearers with their necks bent to let them look downwards. Although the debate around if this is healthy or not is to be had elsewhere, it indicates the supreme dominance of the smartphone. This constant attention to our phones delivers a supreme opportunity for ‘attention grabbers’ such as mobile games and social media.
Unless you’ve been living in remote cave, it has been impossible to escape the impact that Pokémon Go has made on the mobile gaming market. Reported to have reached 75 million downloads in just 19 days, and only released in 32 out of 100 markets to date, the sheer scale of its success isn’t even close to being recognised. To give it some context, if Pokémon Go was downloaded the same amount in the remaining two thirds of markets it has yet to be launched in, its 225 million customers is very close to the 260 million customers per week Walmart, currently the second largest company on the planet, claims to service worldwide and online. Yet Pokémon Go is just one game from its creators, so for a company like Iceland’s Plain Vanilla who develop multiple titles, there is a very exciting opportunity.
In terms of social media, the success of Facebook, Twitter, Snapchat and Instagram are well documented and latest figures put social media users worldwide at around 2.2 billion people. This is a completely unrivalled audience in any industry and the optimist’s point of view is that there is still billions of people who are not yet using social media.
The mobile march continues at a phenomenal pace, and European start-ups can make the most of this to become as successful as their North American and Asian peers. What is the most exciting aspect of the mobile revolution is the businesses of tomorrow that we cannot even comprehend today. It is these inventions that will become the category leaders and it is these businesses which will bring glory to the European start-up and venture capital industries.
Image: Moyan Brenn, Flickr
Christian Miele is VP of e.ventures. Before joining e.ventures, Christian was leading the international expansion and business development of Kreditech.com as part of the holdings’s core management team. Prior to that, Christian exited mobile marketplace Todaytickets.de, which he founded alongside German media conglomerate ProsiebenSat.1 AG. Before founding his own company, Christian served Rocket Internet AG as a Global Venture Development Director.