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21 April 2017
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Atomico Need-to-Know

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This is a regularly-updated collection of things we
(@atomico) found interesting and important in tech and VC
land, but that didn’t necessarily get the attention they
deserve. We think of them as our hidden little gems. We’ll
add to the collection over time, so bookmark the page and
keep coming back for updates or to dig into the archive.
Lovingly put together by @twehmeier & @stephen2206
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● Will France continue to attract a rising share of investment
throughout 2017?
● A solid Q1 17 suggests the UK has remained resilient, but how will
the UK fare through the rest of 2017 given potential macro
headwinds?
● Dealroom data suggests continued strong interest and investment
into Europe’s tech ecosystem
● Q1 17 data shows a continuation of many trends witnessed in 2016,
in particular the rise of France as a centre for strong tech investment,
as well as a rise in investment activity outside of the traditional
strongholds of the UK & Germany
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What do you need to know?
Why does it matter?
Key questions
● A total of €4.5B was invested in Europe in Q1 17 across 856 rounds.
This is down from €4.9B in Q1 16, although up or flat versus the
three preceding quarters
● UK (€1B) & Germany (€0.7B) saw largest sums invested in the
region, with France third at €0.6B
● Spain saw a very strong Q1 17 with €330M invested, this compares
to typical quarters in the ~€100M range
● The rise of France continues with more rounds closing in France
(205) in Q1 17 than any other European country (e.g. UK at 141)
€4.5B invested in Europe (inc. Israel) in Q1 17
Source: Dealroom.co

4.
● How are Facebook positioned compared to Apple, MS, Magic Leap? Can it make
a success of its AR dev platform to become a key ‘operating system’ for AR (and
VR) in a way that it has not been able to achieve in smartphones?
● How quickly will we see other competing AR platforms launch into market? Who’ll
be next? Apple? Alphabet?
● Is the ML/AI tech ready to support key capabilities for AR apps, such as object and
people recognition in the physical world?
● Is Zuckerberg’s view of a 5-7 year timeline for compelling AR glasses
conservative? How will smartphones evolve in that time to fill the gap?
● This can be seen as a significant signal of intent to position Facebook as a key
platform for developers to leverage to build AR content and applications.
● There are, of course, many other horses in this race, not least Alphabet, Apple,
Magic Leap & Microsoft. Others, such as Vuforia or even Chinese players, such as
Tencent, will also be jockeying for position
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What do you need to know?
Why does it matter?
Key questions
● Facebook is hosting its F8 developer conference this week and with it has made a
series of announcements on its product roadmap, focusing on AR & messaging
● Zuckerberg announced what he believes will be the first mainstream AR consumer
platform, its Camera Effects Platform for developers
● Like Snapchat, Facebook is reorienting its core apps (FB, FBM, WhatsApp &
Instagram) around the camera - and in doing so is increasingly moving the
company away from text towards richer communications through video and
images
● Zuckerberg gave a number of examples of AR use cases, including looking at a
bowl of cereal and having an app create tiny sharks swimming in the milk; friends
can leave virtual notes for one another on the walls outside their favorite
restaurant. It’s clear there is still some way to go to create compelling use cases.
Facebook F8 marks the start of the AR platform wars
Source: https://www.recode.net/2017/4/18/15315764/mark-zuckerberg-facebook-augmented-reality-ar-f8-glasses
“Think about how many of the things you use [that] don’t actually need to be
physical. You want to play a board game? You snap your fingers, and here’s
the board game. You want to watch TV? You don’t need a physical
hardware TV, you buy a one-dollar app ‘TV’ and put it on the wall”
Zuck on.. a future without may everyday physical things
“The tools today are primitive. And people aren’t using primitive tools
because they prefer primitive tools. They’re using primitive tools because
we’re still early on the journey to creating better tools. A key part of that
journey is making an open platform where any developer can create
anything they want. The unique thing that we’re going to do is we’re not just
going to build basic cameras, we’re going to build the first mainstream
augmented reality platform”
Zuck on... building an open platform for AR devs
Zuck on.. VR as stepping stone to a more complete AR product...
“We can’t build the AR product that we want today, so building VR is the path to
getting to those AR glasses. I think eventually there are going to be people who
want a VR product and there are going to be people who want an AR product. I
would bet the AR one will be bigger if it can get developed in a good way. I think
everyone would basically agree that we do not have the science or technology
today to build the AR glasses that we want. We may in five years, or seven
years, or something like that. But we’re not likely to be able to deliver the
experience that we want right now.

5.
● Do brick-and-mortar shops have a future? How to transform them to fit with the
new shopping habits of customers? Is the distinction between online and offline
retail going to disappear?
● What will the vacant space from the closing malls become? Will we see a
transformation of urban environments?
● Overall retail spending continues to grow steadily but different trends underpin
overall retail growth (ecommerce grew by an average of $30 billion annually
2010-2014). There is a renaissance of restaurants and booming travel industry
(Airlines and Hotels), but spending on clothes is down (share of total consumers
spending down 20% this century)
● Job losses incurred as retail spend goes online could have social and political
consequences with 1/10 Americans working in retail
● As evidenced by PetSmart’s $3.35B acquisition of Chewy.com, there are signs
that bricks & mortar retailers are set to become more acquisitive
● While traditional retailers are downsizing their store footprints, more formerly
online-only players are building an offline retail presence by opening stores
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What do you need to know?
Why does it matter?
Key questions
● The US is set to see a big wave of retail closure with more than 3.500 stores
expected to close in the coming months
● Online shopping is growing (from 2% of digital spending in 2010 to 20% in 2016,
but the closure likely also due to an oversupply of retail space in the US. According
to Cowen, there is 5.1x more shopping centre space per capita in the US than in
the UK
● American’s spending is shifting towards travelling and restaurants with a new
generation much more focused on customer experience and social media
Retail seen reaching a ‘historical tipping point’
Source:
http://uk.businessinsider.com/the-retail-apocalypse-has-officially-descended-on-america-2017-3?r=US&IR=T
https://www.nytimes.com/2017/04/15/business/retail-industry.html?_r=0
https://www.theatlantic.com/business/archive/2017/04/retail-meltdown-of-2017/522384/

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Largest M&A deals of VC-backed Ecommerce companies
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Source: CB Insights
Acquisitions
by ‘traditional
retailers’

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● The report provides hard data to support the oft-cited argument that a small
number of exits drive overall fund performance
● What is the right portfolio strategy to optimise risk-return ratios? Can European
VCs adapt the right mindset to embrace failure?
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What do you need to know?
● EIF published a study on VC returns in Europe using a dataset of 3,600 VC
investments performed via EIF-backed VC funds from 1996 to 2015 to analyse
their liquidity events and returns
● EIF’s data shows 70% of exited investments are either written-off or sold for an
amount below cost. Deals in which venture capitalists (VCs) sell at cost account
for 8%, whereas the remaining 20% are profitable liquidity events
● 4% of the exits have returned more than 5 times the investment. This 4%
generates almost 50% of the total aggregated proceeds
● The weighted average of the multiples on cost (MoCs) at exit for realised VC
investments stands at 1.16x for the entire period, the median being 0.12x
● 50% of the performing EIF-backed European investees are acquired by
non-European corporations, particularly from the US. US-based buyers are
typically larger in terms of assets and revenues, more innovative and mostly active
in the ICT domain
● A larger number of investments made by a VC fund is related to a higher
probability of experiencing a write-off, but also to a greater chance of IPO
Why does it matter?
Key questions
EIF opens up mega dataset on European exit performance
Source: http://www.eif.org/news_centre/publications/eif_wp_41.pdf
70% of exits at below cost & 4% of exits deliver a >5x return...
...those 4% account for ~50% of total aggregated proceeds

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EIF report: additional charts
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Source: http://www.eif.org/news_centre/publications/eif_wp_41.pdf
Acquisitions by buyer geographyAverage exit MoC risen to ~2x in 2015

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● Can corporates adopt this mindset?
● Amazon is one of the most successful tech companies of all time,
growing from $400M at IPO in 1997 to a $440B market cap today
● Amazon has constantly innovated, creating several new $B+
revenue streams, such as Amazon Marketplace, Amazon Web
Services
● This is the mindset that is required to survive in a world where
technology-led disruption is threatening corporates in all industry
verticals at an increasing rate of change
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What do you need to know?
Why does it matter?
Key questions
● Jeff Bezos, Amazon’s Founder & CEO, released his annual letter to
shareholders, focusing on what it means to be a ‘Day 1’ company
● Bezos call to action to the company is to "experiment patiently,
accept failures, plant seeds, protect saplings, and double down when
you see customer delight”
● Bezos has famously driven Amazon to operate with a ‘Day 1’
mentality for more than 20 years. According to Bezos, “Day 2 is
stasis. Followed by irrelevance. Followed by excruciating, painful
decline. Followed by death. And that is why it is always Day 1.”
Source: http://phx.corporate-ir.net/phoenix.zhtml?c=97664&p=irol-reportsannual
"There are many advantages to a customer-centric approach, but here's the big
one: customers are always beautifully, wonderfully dissatisfied, even when
they report being happy and business is great. Even when they don't yet know
it, customers want something better, and your desire to delight customers will drive
you to invent on their behalf. No customer ever asked Amazon to create the Prime
membership program, but it sure turns out they wanted it, and I could give you
many such examples."
“The outside world can push you into Day 2 if you won’t or can’t embrace powerful
trends quickly. If you fight them, you’re probably fighting the future. Embrace
them and you have a tailwind.”
Bezos on… customer obsession
Bezos on… taking a sceptical view of proxies
Bezos on… the eager adoption of external trends
Bezos on… high-velocity decisions
“Good process serves you so you can serve customers. But if you’re not
watchful, the process can become the thing. This can happen very easily in
large organizations. The process becomes the proxy for the result you want. You
stop looking at outcomes and just make sure you’re doing the process
right.”
“Most decisions should probably be made with somewhere around 70% of
the information you wish you had. If you wait for 90%, in most cases, you’re
probably being slow. Plus, either way, you need to be good at quickly
recognizing and correcting bad decisions. If you’re good at course correcting,
being wrong may be less costly than you think, whereas being slow is going to be
expensive for sure. Use the phrase “disagree and commit.” This phrase will
save a lot of time. If you have conviction on a particular direction even though
there’s no consensus, it’s helpful to say, “Look, I know we disagree on this but will
you gamble with me on it? Disagree and commit?”
”
Amazon has been in ‘Day One’ mode for 20+ years

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M&A wrap up
Acquiror Target Target desc. Amt Comments
MOVE Guides Teleport Country & city data for people moving N/A Sten is joining MOVE Guides in a CPO type role
Wal-Mart Bonobos Full-stack online apparel retailer $300M*
Just rumours at present, but Wal-Mart said to be interested in acquiring Bonobos to further
build out its expansion into new categories that can drive higher-end shoppers to its
ecommerce platform. The price being discussed is $300M. Bonobos has raised around
$128M from Accel Lightspeed and others
Peek Travel Zozi Tours & activities marketplace N/A
Reported as an asset acquisition. Zozi competes in tour & activities space, against players
such as GetYourGuide and Viator. Zozi had raised $44M. Reports say Zozi had grown
revenue 3x in 2016.
PetSmart Chewy.com Online pet retailer $3.4B
Largest ecommerce transaction of all time, according to reporting of the deal. Chewy.com
did $900M in revenue in 2016, just its fifth year of operation. Chewy had raised $236M from
investors including BlackRock, T Rowe Price & Volition Capital. Based in Fort Lauderdale.
TakeLessons Chromatik Online music learning platform N/A
Chromatik had raised ~$8M, according to Crunchbase, and claimed to have “millions of
users”. TakeLessons has built an online marketplace to find music teachers/tutors
VMWare Wavefront Application monitoring software N/A
Wavefront, an application monitoring company, had raised $66M from Sequoia, Sutter Hill,
Workday Ventures, including a $52M Series B in October 2016.
Samsonite eBags Online bag/luggage retailer $105M
In another sign of non-tech companies becoming acquisitive, luggage manufacturer
Samsonite has picked up eBags, an online-only luggage retailer, as it seeks to build its
online presence and direct-to-consumer channel
Accor Hotels VeryChic Online travel flash sales N/A
Accor has made another acquisition to improve its digital capabilities, acquiring the
Paris-based flash sales site VeryChic for an undisclosed sum. VeryChic claims 5M
members of its platfomr for discounted deals on hotels, apartments & travel breaks
Baidu xPerception Computer vision startup NA
xPerception has its own module for object recognition and depth perception that can be
deployed on robots and drones
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