LONDON, United Kingdom — Thanks to everyone that attended last week for a lively discussion and a packed house. The question was around valuation, both asking whether we are in a bubble, and also whether the mid-atlantic discount was surmountable. Most of the discussion was about the bubble however.
Valuation – are we in a bubble? A small one, maybe, in parts
In general, the thought was that we aren’t in a major bubble. (We took a vote, and half the group voted for “small bubble, maybe”). Comments were made around the reduced cost of starting a tech company today (tempered by the cost of talent), the low interest rate environment, and in particular, the Seed Enterprise Investment Scheme (SEIS) that has had a significant impact at the seed stage. SEIS may also be bringing investors to the table who may be inexperienced and/or indifferent to valuation, potentially affecting the price paid.
What is an issue is the ‘barbell’ i.e. plenty of investors at seed stage and late stage, but relatively few in the middle stages.Click to tweet
Another aspect of a bubble or not is the comparative valuation of companies now versus historical trends, and from this perspective there is no evidence of a bubble. (Likewise the value of tech companies versus the economy as a whole). What is an issue is the ‘barbell’ i.e. plenty of investors at seed stage and late stage, but relatively few in the middle stages. In part, this could be that VC in the UK is still relatively new, and the cohort of seasoned entrepreneurs putting money back into the ecosystem that we see in the US is yet to materialize here.
The stratified value bubble
Given the balance of VCs and entrepreneurs in the room, there was also a discussion around how valuations are justified, and the impact of a few, headline, companies that have received investment from the bigger players, but the consensus was that the £1m barrier was still in place except for those few standout deals.
As well as a consensus that the bubble, if it exists, is more stage specific, there was also a view that certain sectors were experiencing more hype than others. FinTech was called out as one, Wearables are possibly another. FinTech has certainly received a lot of attention in London specifically, but the jury is out given how early in the investment cycle we are.
… the consensus was that the £1m barrier was still in place except for those few standout deals.Click to tweet
Wrapping up, we went around the table asking for closing comments. There was optimism around the state of the investment climate in the UK, and the positive interventions by the UK Government to that end (the London Co-investment Fund is another example). Also, participants made it clear that the UK’s position as an attractive place to start a business for foreign nationals (especially from the EU) was a big factor in that optimism.