• the quiet European publishing empire
• should Apple buy Klarna?
• marketing versus product strategy for VCs
• putting the money where the mouth is

 

---

 

Observations

🇸🇪 Embracer, the Swedish gaming holding, has quietly become a European publishing empire and has done so by acquiring multiple assets in a consistently manner on the last decade.

• It even beat out Tencent with the most gaming deals (21) closed in 2021. This year, it is keeping up the pace - it just spent some $577 million for a group of gaming companies and rights including The Lord of the Rings and Hobbit.
• That means Embracer now has control over movies, video games, board games, merchandising, stage productions, and even theme-park rights for the Tolkien fantasy franchises. That's a lot of dough to be made. 

• Embracer was founded as Nordic Games (later renamed THQ Nordic and then Embracer) in 1993 by Lars Wingefors, as he started selling comic magazines and games by mail order.
• Lars still runs the business, now operating a holding with eleven stand alone operative groups that produced sales of $1.7 billion in 2021, while in the last quarter it just announced some $600 million.

• The group is publicly listed on the local stock exchange from Sweden and a couple of months ago it sold 8% of the company's ownership for about $1 billion to The Savvy Gaming Group, an entity wholly owned by Saudi Arabia's Public Investment Fund (a deal which rose some questions).

👀 Should Apple buy Klarna? Here's an argument saying that Apple should buy a neo-bank from Europe, with the short list including Monzo, Starling and Klarna.

• The idea is not without substance, as strategically Apple took a good chunk of the market via its Apple Card and now is establishing itself in the BNPL business in the same manner, competing head-to-head with multiple startups making a living out of the consumer finance business.

• But it is an unlikely move. For once, Apple's growth playbook doesn't include purchasing big companies - they don't do M&A for getting quick market share but for acquiring technology or teams. On top of that, Apple has a love-hate relationship with the European market, which is mostly Android, super fragmented and more regulated - particularly a difficult context for a natural monopolist player. Buying sizeable market share in Europe would only fuel the anti-America feelings that the EU tech policy is built on.

• Secondly, Klarna et all, while vulnerable at the moment because of the macro, will require sizeable returns for their investors, which are likely to be obtained via an IPO.
• Besides, particularly in Klarna's case, I think there's still a huge upside as a standalone business, and quite sure that Siemiatkowski's pride will play a good role on the way forward - unless he gets burnt out, he's been at the task for 15 years already.

• That being said, never say never - if nothing else, Klarna's a better fit for being bought by Google. 

🇸🇪 Tell me it's not working out without telling it's not working out Here's a head scratcher: Sweden-based Hygglo acquires UK-based Fat Llama in a €41 million deal to create world’s biggest peer-to-peer rental platform.

Facts first:
• Hygglo is active in Sweden and Norway and last year it made less than $1 million in sales out of a marketplace of 350,000 users, 35,000 lenders and 80,000 products. It raised relatively little money (~2M) and is backed by Swedish investors - including a media company, Schibsted, and an impact investor, Norrsken VC. 
• Fat Llama's core market is the UK, and the only traction specifics from the PR is that their marketplace handles 350,000 products. It is an YC alum, and raised some 13 million from top class investors - Atomico, Greylock, Blossom.

Question is...
• Why would a bigger company (at least 4x bigger judging from the product ratio) with good investor pedigree make such a lateral move and let itself get acquired by a smaller startup active in a market corner? It would have made sense the other way around, wouldn't it? 

• It's likely that the Llama is not performing and this is an out, probably the better option the investors had on the table. Four years after series A, it didn't have the trajectory a further series B round would commend.
• Last year, it was shopped around to a Canadian company in a complicated scheme, with an IPO as a final liquidity ticket. Didn't work out - and keep in mind, that was at peak market. 9 months later, the market is bad, the company is not investable and gets sold to a smaller player, probably in a stock transaction. I bet lawyers got a nice fee for structuring this deal. 🙂

• Granted, that smaller player can have fresh eyes, be more ambitious, and Schibsted, its main investor, is experienced in doing marketplaces in Europe.

🎙️ 20VC acquired a media agency I like this deal, though I suspect it was not exactly made as part of a strategic execution plan but rather because Harry got tired of handling the overheads of a podcast business, and, lo and behold, he ended up here.

• It makes a lot of sense from a media business perspective, as content building and a media agency are complementing operations. It frees more time for content strategy while the agency handles the production, the channels comm and the advertising management - each of those is a whole business in itself. Add to the P&L the paying customers and Harry's got himself a nice little media group.   

• Does this play make sense from a portfolio manager perspective? I guess so, if you look at it as a marketing asset. 20 VC has become a great PR machine in a small industry = the network already built from all the guests + the content reach. Besides, the media inventory can be a nice touch when selling your investment expertise to founders - i.e. will sell you audience access at favourable rates, if you let me in your captable.

• But if you treat it as marketing, is this effort worth it? Many other VCs have achieved similar market awareness with (a whole lot) less effort and $. The answer is depends. It may pay off in the long term and it is subject to an overall objective - but is 20VC a product or just a marketing gig? Doing marketing is different than doing product and in general business strategy, and 20VC looks like a marketing output, not like a product i.e. the site feels like an unfinished placeholder for selling audio content - its search sucks, it is not SEO-able, there's not a funnel strategy whatsoever etc etc. In other words, the package doesn't seem aligned with the content quality, which is great btw.

• And, of course, you can look at it as a problem, or as an opportunity - that is to say that the product upside can be very interesting with the right strategy around the audience/content 20VC already has built. Because for now, that's not at par with a great asset that you can quantify in a balance sheet. 

🤔 Put your money where your mouth is. This week, everybody in the VC community went up in arms about a deal made by a16z with Adam Neumann, of WeWork fame. The reason is Neumann's business reputation - how he treated both his investors and his employees, people even calling him a failed founder. 

• But are the critics right? I mean, sure, they do have a good point - Neumann is maybe an asshole and f-ed up his investors in the past, but that is just emotions not exactly addressing the quality of the current deal. And it looks like an odd deal, of course, but the devil is in details, as always. Here's a quick take on the fundamentals.

• The social risk. Neumann's rep is preceding him. Everybody in the community knows that he was reckless and difficult to deal with, to say the least. Add to that the books (1, 2) and the TV show and you don't really see the portrait of a guy you would like to be in business with. Unless, uhm - he's changed? I believe in redemption and giving people second chances, and think that any smart dude can learn from mistakes and become a better version of themselves. And Neumann is not an idiot. Not least, look at it this way: Adam Neumann is a guy who has built from zero a company that today is worth $5 billion and in the process it has disrupted the huge commercial real estate industry to its bones. Leave aside the drama around it, that is a simple fact. Any VC and their mothers would die to write checks to this kind of founder - smart ones would only ask themselves how they can mitigate the risks.

• The company risk. Neumann already took a lot of risk before raising VC money as Flow, the company in case, already has 2000 properties in the balance sheet. That is hard collateral value and a solid hedge for investors if things go south. 

• The market risk. The residential real estate is the largest asset class in the world, and, just like the commercial one when WeWork was founded, it is ripe for disruption. Everybody agrees on that, and if Neumann figured out how to tackle its smaller sister, I think he has an idea or two on how to go about this one. And even though if there's no particular specifics on how they wanna go about it (should it?), you gotta give Marc Andreessen and Adam Neumann a little credit that they have a cogent plan about it. 

• The deal risk. The 350 million transaction is mostly debt, and includes just a 50 million equity part. That looks like a regular series A deal from when the market was at peak, a bit pricey because you have a serial founder tackling a huge market. Not least important, the deal is part of a larger relationship, as this is a16z's second deal with Adam Neumann in a couple of months - back in May it invested in Flowcarbon, a crypto project that was called a scam within a scam at that time.

Those facts just make sense to me, am I missing something? And if we're to judge by the theory trumpeted by anybody from entry levels to senior VC guys, this looks like a super investable business:
- the founder has a compelling background with experience both in the space and building a sizeable business
- he has a big vision that generates excitement
- he already has thousands of properties aka a live product that others are using.

The only real question is how you mitigate the risks coming from being a bad boy? And that's easier to fix than say, a bad market. There's always some middle ground including contractual clauses and the need of redemption combined to proving the people wrong. And as an investor, this also depends on your individual fabric - are you the type of guy who gives second chances?

 

---

 

Tech tapas reloaded

We have started working on a new edition of Tech Tapas, soon with more details. Related to that - we've been doing pitch preps with a select few founders looking to raise and in need to get feedback as how they're perceived by the other side.

If you're interested (or know somebody who is), we're taking applications for the next session here - super informal, direct and personalised sittings, also free of charge.

 

---

 

Cheat sheet reports

150 hot early stage* startups in Europe
• climate-focused (20)
• cybersecurity (20)
• financial services (50)
• marketplaces (30)
• web3 (30)

*curated from the ones that raised rounds less than $2 million in H1 2022

A curation of 80 deals led by American investors in Europe in H1 2022
• seed (34 deals)
• series A (40 deals)
• series B (16 deals)
+++
• European startups at Y Combinator in summer 2022 (30)

The most active investors in Europe in H1 2022
🇸🇪 in Sweden
🇫🇷 in France
🇩🇪 in Germany
🇬🇧 in the UK
🇺🇸 Americans
🇪🇺 top 250 

Note: the reports are available for Nordic 9 paying customers only. You can become one from here - use code SundayCET at checkout to get 10% off.

 

---

 

ICYMI

 

---

 

Watercooler talk

🇮🇹 Italy will join the other European countries doing digital nomad visas aka issuing temporary residency permit for foreign remote workers letting them stay in a country for anywhere between six months and two years. This kind of visa is useful particularly for citizens from outside the European Union, such as the Brits or the Americans - if that's your thing, Sifted put together a list with a few other EU countries providing a similar visa. 

🇺🇸 The Americans buy all sorts of assets from Europe coz it's cheap, the French high-end real estate edition. The dollar is strong, the euro is weak, more value for the same money etc

 💲 Winter is coming Robinhood cut its offer to acquire British crypto exchange app Ziglu from $170 million to $72.5 million, meaning some Ziglu investors will lose 41% on their original investment. The 100 million question is - if you were a founder, would you accept the revised deal or you go out of it and take another stab at the market by yourself?

🇩🇪 Is there enough video streaming in Europe? Because if there's not, the Germans are at it with their own clone solution billed as the first of its kind - RTL just launched a streaming platform providing access to movies, series, news and music, and targeting to steal local market share from Netflix, Disney and the likes. And of course they didn't invent the lukewarm water - there's no differentiation other than the low price and that it's in German.The German way.

🇬🇧 TikTok is TV - in the UK that is. Britons aged 15-24 spend an average of 57 minutes a day watching TikTok. More time than they spend watching all traditional TV broadcasts, which is for old people.

🏟️ Spotify started selling live music tickets to fans directly - ticketing is a super hard avenue, very resource intensive, and with multiple ramifications and strategic impact. Really hope there's a bigger thinking thread here and not an impulsive reaction to TikTok doing a partnership deal with TicketMaster.

🇫🇷 Cherchez la femme There is a new French record label, La Boîte à Pépites, dedicated to raising the profile of female composers whose works have been neglected.

🤡 Selection bias 87% of 133 startup employees that participated in a Sifted survey said that working at a startup had negatively impacted their mental health at some point. That's leading to a bit of an unfair generalisation and somehow it is an useless effort just for drawing some attention - i.e there's many other mid-sized or big corporations that have similar impact, we're coming after two years of covid which was super impactful on all the working people, and yeah, on top that doing startups is hard, can take a toll on people and is not a suitable environment for everybody. And btw, the sample is also small and not exactly representative + there's also people enjoying working for startups as well, which is not a contradiction to the main conclusion of the article. :-)

👋 Real talk - quiet quitting is due to how many industries expect workers to regularly exceed expectations for very little recognition or reward and how people recognize it's not sustainable or worth it. 

🇬🇧 The UK is getting better and better Cyclists in the UK may be forced to get license plates. Can't wait till Lizzy shows up for work. 😀

🚴‍♂️ Bikes are the future and the e-bikes are the real electric vehicle boom.

🚄 Eurostar has closed its customer phone lines for the entire month of August for staff to get through a backlog. No, not a prank.

🇨🇭 Switzerland's secret sauce - link

📱 Apple takes everything About 75 percent of iPhones have Apple Pay activated, up from 50 percent in 2020. That's a fantastic conversion rate.

🔌 Crappy chargers and sky-high prices are huge roadblocks to EV adoption - in US, that is. A marketplace aggregation can be a solution, there's a well funded European startup doing exactly this.

🤔 Annual vs monthly renewal rates Does subscription duration impact renewal rates? TLDR yes!

🍲 Restaurant norms - great thread on restaurant service norms in the US vs Europe/Israel.

🍕 Pizza innovation American pizza maker Papa Johns started selling pizza toppings, without the crust, wrapped up in bowls, as a healthier alternative to the pizza itself. They say they want to get people excited about pizza again - don't know about you, but I do pizza for carbs. 

 

---

 

Don't dig for deals

Discover how Nordic 9 can make your life easier with access to the most important Euro VC deals of the week.  

• Concise, easy to scan format of what's relevant, structured by early/later stage and geography - in your inbox every Monday early in the morning.
• You get smarter quick via a clean, faster access on the deals, trends and lists of who is transforming your industry.
• Proprietary, manually curated databases of 10,000 Euro startup transactions every year. Not scraped from others, nor licensed from third parties. 

Use code SundayCET at checkout to get 10% off your subscription.

 

---

 

Did you find this useful? 🤔

Great    •    Good   •    Meh

 

---

 

Questions or comments? Let us know!