Luka Gubo is CEO of the investment platform Equito, Capital Markets Director at Cryptix, founder of Blocktrade.com, currently on the Advisory Board, and quantitative fund manager of FT Quant. He has extensive experience in trading, investing and risk management. Recently, his focus has been on blockchain technology and its implementation in capital markets. He leads a team that is developing tools, methodologies and models that will disrupt capital markets on primary and secondary markets.
Since financial markets are facing a bumpy ride in 2022 (or even for more years to come), and that also has a great influence on access to funding for startups, we talked with Luka about the macro view of what’s happening on the markets, what this means for new and growing ventures and how to adapt in the fundraising activities, especially in Europe.
Luka, can you tell us more what’s happening on the financial markets?
After the crash of 2008, we saw one of the largest expansions of financial markets in history. Until the COVID shook the whole world. In the first few months COVID took a big toll on the financial markets, but right after we could see an even faster expansion until the beginning of this year. Now the music has stopped. At the moment, there is a real bloodbath on the markets, as the saying goes.
Interest rate hikes (due to inflation) have put enormous pressure on stock and real estate market valuations. On top of that, the global economy is slowing, there is a war going on in Europe, many companies are struggling with supply issues, and so on. As a result, markets are down 20 – 30 %, and even more for high-flying tech and internet stocks, that almost completely collapsed. Unfortunately, we might be at the beginning of a new recession.
What that means for ventures raising fresh capital?
Financial markets have a major impact on venture capital activity. Thus, sentiment among professional investors on private markets (business angels, venture capital funds, private equity funds, …) is becoming more pessimistic, as it is on public markets. In practice, this means a lower number of new deals, lower valuations for startups, many failed capital raises and fewer exits.
But let us not be pessimistic. Even in tough times, there is always a way to raise money for outstanding companies. There’s a lot of dry powder at VCs that have raised funds recently, as 2021 saw a new record in fundraising and funds available. Europe has more and more experienced investment managers. There’s also a lot of money held by households looking for great investment opportunities.
The bottom line is that it may become harder for startups to raise money, and valuations will go down in general, but there is always enough money available for quality projects. As an additional plus, all this could encourage startups to brush up their business models and pitches to an even greater extent.
Do you see any difference in what’s happening on the EU private markets compared to the US?
Since Covid, we have seen rapid growth in the number of VCs, money raised, number of deals, and deal sizes on both continents. Still, there are big differences between the two markets. The EU market is not as nearly developed as the US market, there are problems with different jurisdictions in each country, not to mention language barriers, smaller markets and so on.
Europe is trying to catch up with the U.S. and Asia and we’re on a good path. There’s a lot going on in startup ecosystems across Europe, there are more and more success stories, the EU members states and ecosystems are getting more and more connected etc., but we all still have a lot of work to do.
Where do you see the greatest advancement in the EU regarding new ventures and access to capital?
Many positive things are happening in Europe at least on three levels. The first, already mentioned, is the fact that there is more and more venture capital available in Europe and let us hope that the coming slowdown will not have too much of a negative impact. The second level is the vibrant ecosystem. As we can witness here at the Podim conference, the startup ecosystem in Europe is very alive and developing fast. The number of high-quality startups is increasing every year.
The last level to mention is that of policy makers, especially when startups want to raise money from retail investors (general public). The EU has unified its rules for raising capital from investors, with some small differences between countries. Today, it is easy to approach professional investors, and a simplified prospectus allows for a public offering and public fundraising marketing. Companies can offer securities to 150 retail investors per EU member state even without a prospectus.
How does Equito help startups to raise capital?
In our experience, it is very important for the success of a company to have the right investors and not just any investors. That’s why at Equito we help companies raise money from their perfect “crowd” of investors. This can be their customers, specific business clubs, or a mix of institutional and retail investors. We also handle all aspects of a crowdfunding campaign, from setting initial goals and setting up crowdfunding tech infrastructure to advertising and execution, so that the companies we work with can focus on growing their business.
Raising funds from retail and other investors can be a good solution to raise money in times of negative sentiment among professional investors. We have helped companies raise more than EUR 22 million using such a strategy. And we are always in search for good companies to help them with fundraising.