Atomico's Need-to-Know, 28 June 2017 - Essential Information for Founders and VCs

1. 25 July 2017
1
Atomico Need-to-Know

2. 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
This issue also guest starring @adragic6 & Ross Caton
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3. ● What’s the best way to position ‘scout’ schemes to different stakeholders? What
guidelines should VCs provide to their ‘scouts’ in terms of how to communicate
with founders?
● What’s the next step in the evolution of ‘scout’ programmes? Will we see more
differentiated programmes emerge that seek to organise around a specific set of
expertise?
● In a world where there are competing ‘scout’ programmes, what does this mean in
terms of how to engage with potential ‘scouts’? Should there be exclusivity? If not,
what terms should exist where ‘scouts’ can invest on behalf of multiple LPs?
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What do you need to know?
Why does it matter?
Key questions
● Following the announcement of two recent ‘scout programmes’ by Flybridge
Capital Partners (XFactor.Ventures) and First Round Capital (Product Co-Op), the
WSJ took a deep dive into the prevalence of similar programmes run by VCs in
SV.
● While A16Z and Sequoia received attention back in 2014 for their activity in this
regard, it’s apparent that programmes have become more commonplace. Firms
identified by the WSJ that have active programmes in place include: Accel
Partners, CRV, Founders Fund, Index Ventures, Lightspeed Venture Partners,
Sequoia, Social Capital and Spark Capital.
WSJ identifies 10 active ‘scout’ programmes in SV
Source: https://www.wsj.com/articles/scout-programs-spread-in-silicon-valley-1500377402
https://hunterwalk.com/2017/07/19/three-questions-founders-should-ask-scouts-before-taking-an-investment/
Funds identified in WSJ article as operating
variants of so-called ‘scout programmes’
● Accel Partners
● CRV
● First Round Capital
● Flybridge Capital
● Founders Fund
● Index Ventures
● Lightspeed
● Sequoia Capital
● Social+Capital
● Spark Capital
● Scout programmes have emerged as an increasingly frequent means by which top
VCs build bridges with the angel community to dealflow, but also, importantly, to
create strong, engaged networks/communities with some of the most influential
entrepreneurs/operators in their localities, which can be valuable to e.g. stay close
to potential future founders or, for example, as a pipeline for future VC talent
● As these programmes have grown in popularity, questions have started to be
raised (captured neatly by Hunter Walk at Homebrew) about how founders should
approach dealings with ‘scouts’. While there are clearly legitimate question marks
(e.g. knowing who is the source of capital, information rights), the seeding of new
potential angels that may have have limited access to capital is generally viewed
as a boost to local ecosystems
● As these schemes proliferate in number, models are emerging that aim to be
differentiated in their approach. The First Round Capital ‘Product Co-Op’ is a good
example: it’s a group that is composed solely of ‘Product’ experts (e.g. Slack,
Google) that work collectively to support founders to build their product & achieve
product-market fit. They’re explicitly matching capital with expertise at the earliest
stage.
1. Are you a scout?
2. Are you a Scout for multiple funds? Do I have the
option of taking money from just you, or will you only
invest from the Scout pool?
3. What information about this investment do you share
with the sponsoring VC?

4. ● Will the largest Asian player - who have already been active in e.g.
South-East Asia - look to become active in western markets?
● How will the role of banks change in the payments space as fintech
providers scale larger and take on more of the processes
traditionally done by banks? Will they become more acquisitive?
● Where is there white space in the payments landscape (e.g.
in-vehicle payments, VR payments?)
● Recent spike in M&A reflects continued trend of move from
cards-and-cash to digital and other forms of payments, as well as
decreasing importance of banks in the payment sphere
● Payments industry is consolidating while a number of small, very
specialized players are also emerging
● Likely to see more fintech start-ups given amount of interest in space
and size of market opportunity
4
What do you need to know?
Why does it matter?
Key questions
● Five recent major deals in the payments processing space are in
process/have taken place including both strategic and financial buyers:
○ Blackstone and CVC bid £3.8bn for Paysafe
○ Nordic Capital sale of Bambora to Ingenico for €1.5bn
○ Vantiv acquisition of WorldPay for £7.7bn
○ Worldline has agreed to buy Digital River World Payments
○ Permira, Nordic Capital, and others contemplating take-private
of Nets A/S (Danish payments services provider)
● Notable fundraises have also been occurring:
○ Visa and Permira investments in Klarna
○ Revolut Series B raise
○ Early stage fundraises: Curve (London, $10mm, Series A),
Form3 (London, $5mm, Series A)
Payments landscape seeing fresh wave of $15B+ M&A
Sources: https://www.wsj.com/articles/payments-business-gets-a-10-billion-jolt-1499272304,
https://www.ft.com/content/860958de-6d33-11e7-bfeb-33fe0c5b7eaa
https://www.wsj.com/articles/blackstone-cvc-join-payments-sector-deal-frenzy-with-3-8-billion-pay
safe-bid-1500637450
June Deal July Deals

5. ● What impact is SoftBank having on valuations at the late-stage? To what extent is
Softbank pushing out competitors in these deals?
● Where does Fortress play in this picture? Will we see SoftBank evolve into a
one-stop investment shop across asset classes, more akin to a KKR or
Carlyle?
● SoftBank has become a major player in late-stage private tech investment and has
already moved quickly to deploy significant sums, for example putting $5B into
Didi, up to $1B into Grab, and $500M into Improbable. It has already become a
force to be reckoned with in doing so.
● Under Son, SoftBank has an impressive investment track record. On its
investments, SoftBank’s internal rate of return is 44 percent overall and would still
be 42 percent without Alibaba, according to the company
● Of note, is how SoftBank looks to be developing into a “Berkshire Hathaway of
tech”, becoming something akin to an umbrella organisation that manages
tech-related investments across a wide range of investment types, including
minority VC-like investments, large-scale growth equity, majority-stake buyouts
resembling a PE model, as well as public market investments
5
What do you need to know?
Why does it matter?
Key questions
● SoftBank’s Vision Fund has ramped its investment activity quickly, announcing
major ($100M+) deals for Grab, Plenty, Brain, Nauto in the space just a few days.
The breadth of his investments from indoor farms to smart robotics has raised
questions about its overall investment strategy.
● Masa Son used a SoftBank event to share more details on his vision for the $93B
SVF, explaining: “The Vision Fund is not about taking on the world with one
specific technology, business model or brand. It’s about people sharing the same
vision coming together to start a revolution”, i.e. building a portfolio of
groundbreaking entrepreneurs
● As a mission, Softbank wants to become “the company that contributes most to
humankind by driving the Information Revolution”. The key areas of interest for
SVF are: AI, IoT, Robotics, particularly when applied to areas that serve to
improve the human lot, e.g. healthcare, agriculture, accidental death (e.g. in cars).
Masa Son outlines vision for the Vision Fund/SoftBank
Source: https://www.bloomberg.com/news/articles/2017-07-20/softbank-s-son-finally-explains-how-all-those-deals-fit-together
SoftBank increasingly becoming an asset manager
that combines deep tech and financial expertise to
underpin deals that span a variety of deal structures
Overview of known SVF investments to date
+Grab
+Nauto

6. ● How can VCs better work together to share best practices around
decision making?
● How can VCs work to help entrepreneurs better understand internal
decision making processes and organizational structure?
● Valuation and product are viewed as more important to larger firms
and more successful funds, as they are able to win deals when with
lower valuation term sheets given their reputation
● The decision making process of VCs is still viewed as a “black box”
to many entrepreneurs and LPs
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What do you need to know?
Why does it matter?
Key questions
● Report out of Chicago Booth looked at how VCs make decisions
around the entire investment process from sourcing to exits and the
internal organization of firms
○ Study was based on survey data from 900+ VCs ranging from
early to late stage primarily focused on IT/software with some
healthcare focus across different geographies
● Early stage firms focus heavily on team and consider ability, industry
experience, and passion to be the most important characteristics
● Interesting, later stage firms on average offer +50% more term
sheets per closed deal, indicating greater competition and less
proprietary deals
Survey of 900 VCs analyses how funds make decisions
Source: https://medium.com/pnr-paper/venture-capital-decision-making-c3258bc1b09c

7. Chicago Booth VC survey, cont...
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Source: https://medium.com/pnr-paper/venture-capital-decision-making-c3258bc1b09c

8. ● Will the promise of dramatically lower operating costs hold true? If
so, will lower cost sea transport impact other forms of freight
transportation? Yara claims one seaborne trip in Norway could save
the equivalent of 40,000 truck journeys. If these types of numbers
prove correct, it could drive change how certain goods are shipped.
● How quickly can regulation be adopted to enable the movement of
autonomous ships in national and international waters?
● There is currently no regulation in place for the operation of
autonomous ships and none is expected until 2020, at the earliest,
so it’s possible that the technology may advance faster than the
regulation in this field
● According to the developers of the ship, the technology is no longer
in question, but rather the business case. Will ship operators be
prepared to pay the significantly higher upfront costs, but at the
promise of dramatically lower operating costs? There are, of course,
still other challenges, such as safety, security, tech (connectivity), etc
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What do you need to know?
Why does it matter?
Key questions
● Two Norwegian firms (Yara International ASA and Kongsberg
Gruppen ASA) unveiled plans for a fully-electric, fully autonomous
cargo ship that is planning to commence shipping in 2018. The ships
are operated using GPS, radar, cameras and other sensors.
● This particular 100 container vessel (on the small side given ships
can take up to 10,000 containers) will cost $25 million (approx. 3x.
an equivalent standard, container ship), but it is claimed it can
theoretically operate at 90% lower operating costs due to lower
requirements in terms of fuel and operating crew
● The ship is scheduled to be in the water toward the end of 2018. The
first ships will be operated at first with humans able to take control.
Norway takes global lead in autonomous cargo ships
Source: https://www.wsj.com/articles/norway-takes-lead-in-race-to-build-autonomous-cargo-ships-1500721202
“In addition to reducing fuel and labor costs, the Birkeland
project (to start sailing fertilizer 37 miles down a fiord from a
production facility to the port of Larvis) is being pitched as a
way to cut emissions. The ship is expected to replace 40,000
truck drives a year through urban areas in southern Norway, the
companies say.”
“The Birkeland will become autonomous in stages. At first, a single
container will be used as a manned bridge on board. Then the
bridge will be moved to shore and become a remote-operation
center. The ship will eventually run fully on its own, under
supervision from shore, in 2020.”

9. ● McKinsey recently released a report that suggests organizational
culture is one of the main barriers to companies’ success in the
digital age
● Functional and departmental silos, fear of risk taking, and weak
customer focus are the main barriers to digital effectiveness
○ Study found clear negative correlation with these cultural
barriers and negative economic performance
● Report argues that executives need to be more proactive in
re-shaping organizational culture or risk falling behind as digital
penetration grows
● What role can Europe’s tech ecosystem (startups, investors) play to
build relationships with European corporates to help overcome some
of the cultural and operational barriers to succeeding in the digital
economy?
● This type of corporate cultures contributes to sluggish responses to
rapidly changing customers needs, market dynamics, and
technological advances
● Startups can serve catalysts for strategic investment to counteract
some of the problems driven by corporate culture to successfully
compete in the digital age
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What do you need to know?
Why does it matter?
Key questions
McKinsey Report on Organizational Culture in Digital Age
Source: http://www.mckinsey.com/business-functions/digital-mckinsey/our-insights/culture-for-a-digital-age

10. ● What learnings from other VCs can Atomico take to promote and
support and more female founders?
● Are female founders aware that this a priority for Atomico and the
initiatives the firm is involved with?
● Only 17% of startups have a female founder based on a report by
Crunchbase in Q1 ‘17 and it is flat lining
○ The statistics are even more bleak for non-white women with
black women received a negligible 0.002% of VC funding
● Additionally, only 7% of partners at the top 100 venture firms are
women based on Crunchbase data
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What do you need to know?
Why does it matter?
Key questions
● Coming off of the recent news around inappropriate behavior
towards Female founders in Silicon Valley various funds have
launched or publicized their initiatives towards female founders
○ Mangrove Capital recently launched Europe’s Female
Founders, a series of meetups across various European cities
○ LocalGlobe and Accel Partners have also launched similar
initiatives aimed at building community for female founders
● Multiple funds targeting female female founders have launched
including: Rethink Impact, Babel Ventures, and XFactor Ventures
Female Founder Initiatives are Expanding
Sources: https://techcrunch.com/2017/07/19/mangrove-raises-170m-for-its-new-fund-to-invest-in-europe-and-israeli-startups/amp/
https://techcrunch.com/2017/04/19/in-2017-only-17-of-startups-have-a-female-founder/
https://www.wired.com/2016/02/its-embarrassing-how-few-black-female-founders-get-funded/

11. General News In Brief
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Companies What happened?
SoundCloud
SoundCloud CEO Alexander Ljung says the company is not going away in the foreseeable future; SoundCloud recently announced the layoff of 40
percent of staff and the shuttering of two offices; lack of runway led to reports that the company could shut down or sell; Ljung says the changes will
enable the company to remain strong and independent
DraftKings / FanDuel
DraftKings and FanDuel cancel their proposed merger; regulators challenged the deal, saying the combined business would control more than 90
percent of the daily fantasy sports market; the pair agreed to the deal last November; Axios reports that merger documents indicate each company is
valued at $1.2B
WeWork
WeWork raises $760M Series G from undisclosed investors; Forbes and other sources indicate a $20B valuation; the coworking spaces company
launched in 2010; now serves 120k customers in 156 offices across 49 cities in 15 countries; raised almost $4.5B to date
US Inc...
Trump to halt entrepreneur-specific visa program, according to Axios sources; the Obama-era rule is scheduled to take effect July 17; would allow
foreigners to enter the US to start companies; U.S. Citizen and Immigration Services will reportedly take measures to postpone implementation
Monday
British Business Bank
The BBB released its annual report, disclosing it made 5 fund commitments during its last financial year. They were: Entrepreneur First Next Stage
(£26M of £40M first close), Seraphim Space Fund (£30M of £50M, up to £50M of £83M at final close), Active PE (£24M of £40M), Accelerated Digital
Ventures (£41M of
£85M but up to £50M of £150M), Scottish Equity Partners (£10M to £260M fund)
The Boring Company
Elon Musk tweeted that his The Boring Company had received verbal approval from the US authorities to build a tunnel to connect the East Coast
(New York, DC) via Hyperloop and enable travel in 29 minutes. Its unclear how far actual discussions or plans have actually proceeded and the
viability of the proposal. Hyperloop is emerging as an interesting new form of transit to change the dynamics of intercity travel.
Google
A report in Bloomberg claims Google is preparing to enable access to its quantum computing capabilities via the cloud (QCaaS). This follows on from
a major funding round into Rigetti Computers (A16Z led), who are also pushing to build a cloud platform for developers/enterprises to access
quantum computing.
Mercari
The Japanese second-hand mobile marketplace is said to have applied to IPO on the TSE in Japan and could raise as much as $900M (100 billion
Yen).
Bitcoin
More than 90% of Bitcoin miners have given their support to a solution called BIP 91 to introduce ‘SegWit2X’ to the blockchain in order to increase
the transaction capacity, and thereby increase the ease, speed and cost of transactions on the network.. The support for BIP 91 is important as it
should avoid a potential split of the cryptocurrency, known as a ‘hard fork’. SegWit will still need to implemented on the network, a process that will
play out over the next couple of weeks. Bitcoin price has surged again on the news, pushing close to the ATH
Microsoft
Microsoft unveiled further details of its core AI research initiatives that has come together under the Microsoft Research AI umbrella. All told,
Microsoft is said to have up to 7,500 engineers working on AI efforts across its business units. It’s also announced a new 100-strong AI lab is said to
be Microsoft’s equivalent of DeepMind and has been tasked with working on some of the most

12. M&A Wrap Up
Acquiror Target Target desc. Amt Comments
Sizmek Rocket Fuel
AI-based advertising
solutions
$126m
Sizmek, owned by Vector Capital, acquired public ad-tech company,
Rocket Fuel, to combine technologies and improve positioning vs.
leading Ad-tech platforms
Spectrum
Equity
bit.ly
URL shortener that allows
users to share and track links
$63m
bit.ly sold a majority stake to growth equity firm Spectrum Equity and
is planning to use the proceeds to scale the business; last raise was
in 2012
Amazon Graphiq
Contextually-rich data
visualizations
~$50m
Amazon recently announced acquisition of Graphiq closed in May
for an undisclosed amount to improve Alexa’s search function
Zeta Global Boomtrain
AI powered marketing
platform
N/A Zeta Global plans to incorporate Boomtrain’s AI-based technology to
power their SaaS-based marketing cloud
HyTrust DataGravity
Data visibility and security
company
N/A
HyTrust made the acquisition announcement in parallel with its latest
funding announcement ($36m Series E)
Symantec Skycure Mobile threat defense N/A
Strategic play for Symantec to bolster their integrated solutions for
defend against sophisticated attacks across multiple endpoints,
including mobile
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