Luxembourg, take the initiative for a European Nasdaq market. Take your expertise in financial structures and pioneer this change.
This message emerged during a panel discussion on investment exits at Thursday’s Insights conference of the Luxembourg Private Equity Association, LPEA. The comments by representatives of leading European VCs captivated an audience of several hundred Luxembourg-based private assets professionals.
The lack of access to a listed market in Europe can feel like trying to sell a unicorn in a horse market, the discussion made clear. For European companies, the IPO to Nasdaq however remains a beacon of hope, according to Riku Asikainen, managing partner and founder of Evli Growth Partners, or EGP, in Finland.
With no tech giants leading Europe, Asikainen made a plea to Luxembourg to create a Nasdaq-like market where companies can go public: «Luxembourg, I beg you. Build it. You are good on structures and milking the money out of it,” said Asikainen, whose firm itself has been Nasdaq-listed since 2015.
Exits in Europe are difficult
From Helsinki, Evli operates as a private bank with nearly 17 billion euro in assets under management. EGP invests in fast-growing European companies with a 300 million euro investment program for companies ready to scale, with resources available to follow-on until the exit moment.
“The lack of access to a listed market makes it difficult to exit,” Asikainen said. “An IPO to Nasdaq still is the best option for European companies. How can we not have that possibility closer by?”
Some 1,251 European companies were listed on the US Nasdaq market at the end of 2022, with an aggregate market capitalization of 55 billion euro. During 2022, 38 European private companies became public with a Nasdaq IPO. The Nasdaq also runs an education programme for European investors.
‘What is an exit?’
«What is an exit?» Hans-Jürgen Schmitz of Mangrove Capital Partners asked as the LPEA panel discussion kicked off. It’s that moment when venture investors triple their investments, a moment of profound liquidity, and one marked by differences between angels, venture capitalists and the founders.
And also, “it is cash in my pocket, ultimately cash in my investors’ pocket,” said Schmitz, whose firm manages a billion euro in VC assets and was an early investor in the likes of Skype and Wix. Both European firms are Nasdaq-listed.
But wait! An IPO isn’t an exit, Schmitz commented. And a merger isn’t an exit either.
Business angels vs VCs
Enter the business angels, sometimes feeling like the stepchildren of the investment world. «VCs want to eject us from the coming round,» some complain. But VCs, as it turns out, just want to protect them, Schmitz explained, referring to the angels. VCs have limited exit options, unlike business angel counterparts who can tap out during a second or third financing round.
“We have to stay true to our convictions all the way to the end, whatever the end is. It could be the wall,” said Schmitz, speaking as a VC.
A Nasdaq-like market in Europe could reduce risks for VCs and make them less reluctant to invest. And let’s be real: VCs operate in an environment where only a handful of investments yield a return. The stakes are high and the path uncertain. It’s like a treasure hunt, but half the maps lead to empty chests.
To sell or not to sell
Berlin-based Ãltitude Capital Partners is a VC that nurtures mostly German software companies. Its general partner Ingo Drexler offers more insights. For founders, exits can be an unwelcome distraction, he said.
It’s about “getting the thought about selling your company out of your head,” Drexler said. An early partial exit can remove stress for founders. It “simply just keeps the back of the founder free; no more worries about personal finances. That enables a full focus on the operations,” he said.
While the market pressure mounts, it’s essential to determine value and, more importantly, understand your worth. The mental boost founders receive when given a market price is incomparable, said Mangrove’s Schmitz.
Remember Wix? Before going public, they had an offer of a cool 200 million dollars. After some haggling, they got it up to 400 million. But the moral is, sometimes saying no leads to bigger and better things. When Wix made its debut in a Nasdaq IPO in 2013, it was valued at 760 million dollars. Today it’s worth 4.8 billion dollars.
“It takes some courage to not do the deal for founders,” Drexler said.
Selling complexities
Selling is like navigating a maze. It’s intricate, multifaceted, and requires a robust owner’s agenda. Sometimes founders are so deep in the maze they don’t know their left from their right. VCs, on the other hand, have a clear exit strategy. They’re in for a good time, not a long time. They want the big win and then, it’s onto the next.
Or in Asikainen’s words, “once we are there we are going to sell. We are not going to stay there forever. This is a part time relationship. And we want 20x.”