Atomico's Need-to-Know, 21 March 2017 - Essential Information for Founders and VCs

1. 21 March 2017
1
Atomico Need-to-Know

2. All eyes on US enterprise IPOs, but most significant
offering is Korean
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What do you need to know?
Why does it matter?
Key questions
● Netmarble’s planned IPO garnered little tech industry coverage, but
not only would it join ranks of the largest tech IPOs by proceeds
raised, it could have outsized impact beyond Korea as the company
looks to use the massive funds to support its M&A plans to build a
global business. It already acquired Kabam (~$800M) and Jam City
in past year
● In China, meanwhile, there is a very strong pipeline with companies
such as Zhong An, Meituan-Dianping, Toutiao & Didi all IPO
candidates (and all likely at significantly >$10B+ valuations)
● Will Singapore’s Garena, another big player in mobile gaming on an
IPO course, follow Netmarble into another potential large-scale
public offering from Asia?
● If Next Games can successfully IPO, will others look at this option as
an alternative source of funds to the more traditional VC + growth
equity path?
● Will China’s fat tech IPO pipeline start to empty in 2017 and where
will they choose to list? US? HK? Singapore? China?
Next Games, the Finnish gaming
company, set its IPO price range at
€7.50-7.90 for an initial market cap of
€138-143M, or 6.6-6.8x net revenue of
€31M in 2016. The company is looking
to raise €30M on the NASDAQ First
North Exchange. Lowercase, AMC
Networks, IDG Capital are investors
Alteryx, a data analytics software
provider, has set its price range at
$12-14, indicating a valuation of
$783M at midpoint of the range, or
9.4x LTM revenue of $86M
Mulesoft priced at $17, above its initial
range of $14-16, & then climbed 44%
to close first day at $24.75, for a
market cap of $3.1B, or 17.4x LTM
revenue (vs median public SaaS
multiple of 6x LTM revenue)
SaaS identity management company,
Okta, has filed to IPO. Okta has raised
$228M (A16Z 20%, Sequoia 21%) and
its last private round was at $1.2B.
Revenue in 9M to Oct-16 was $115M
Yext, the NYC-based location data
company, has filed to IPO. Its last
private round was at $525M and it has
raised $117M. Yext reports LTM
revenue of $124M, up 38.5% YoY.
Sutter Hill ventures holds 23.6%.
Insight also a large shareholder
Netmarble, South Korea’s largest
mobile gaming company, is said to
raise up to $2.4B in what would
represent Korea’s second largest ever
IPO. Netmarble is raising the funds to
support its M&A plans and to expand
globally. The company is backed by
$500M from Tencent (22% ownership)
and could be worth >$10B, according
to analysts
● MuleSoft’s strong first-day performance reflected growing confidence
in US enterprise software IPO pipeline. MuleSoft was first to list of a
set of four US enterprise software IPOs (Okta, Yext & Alteryx)
● In addition, reports say four other enterprise software companies,
ForeScout, AppNexus, Carbon Black & Cloudera, have all also filed
confidentially to IPO, but further details are not yet available
● Outside the US, mobile gaming is set to deliver two IPOs of very
different sizes. At one of scale, Finland’s Next Games looking to
raise €30M, while Korea’s Netmarble plans to raise a huge $2.4B

3. 3
Source: http://webfoundation.org/2017/02/delivering-digital-equality-the-web-foundations-2017-2022-strategy/
https://www.theregister.co.uk/2017/03/12/tim_berners_lee_web_at_28_letter/
What do you need to know?
Why does it matter?
Key questions
● Tim Berners-Lee, the creator of the WWW, singled out algorithmic transparency of
one of three key challenges for the future of the web in a new strategy document
● Similarly, governments are also increasingly focused on the topic as algorithms
look set to take a major role in decisions that impact people’s daily lives. For
example, the EU’s General Data Protection Regulation, set to be implemented in
2018, currently proposes a “right to explanation” to enable citizens to challenge
decisions taken by algorithms. The UK Parliament’s Science & Tech Committee is
also now launching an investigation into algorithmic decision-making
● DARPA, meanwhile, is funding 13 different initiatives focused on making AI “more
explainable”, e.g. through interfaces that make workings of AI systems more
explicit through data, visualisations and natural language explanations
● The more that algorithmic decision-making enters into areas that impact the daily
lives of citizens, the more momentum will build to ensure that people can
understand how decisions are taken and to ensure that there is accountability for
any ‘poor’ outcomes that result from ‘bad’ models.
● In preparation, companies will need to be ready to explain and justify their
algorithmic models or face the risk of major pressure from users, media & other
stakeholders, as exemplified by controversy around ‘fake news’
● How realistic is it to be able to “explain” how decisions are made by complex deep
learning processes?
● How ready are companies to be able to respond to demands from regulations to
provide greater transparency about how their algorithms make decisions?
● What role should companies play in helping governments to understand if and how
any regulation should be rolled out to increase algorithmic transparency?
Momentum is building behind calls for greater ‘algorithmic
transparency’ as AI becomes a more pervasive presence
“We also want to see stronger transparency and
accountability in the use of digital resources and tools
such as computer models (algorithms) that help
determine the information and opportunities available to
citizens. Hand in hand with this, we will continue to push
for responsible policies around the collection and use of
personal data by governments and companies.”
Web Foundation (Sir Tim Berners-Lee)
Delivering Digital Equality: The Web Foundation’s
2017 – 2022 Strategy
1. Power: All People Can Make Their Voices Heard
Equally
2. Accountability: Citizens Hold Governments and
Companies to Account
3. Opportunity: Women and Other Excluded Groups
Gain Economic and Social Opportunities and
Resources
Web Foundation’s Key Challenges for Future of Internet

4. 4
Source: http://tinyurl.com/z82e72s
What do you need to know?
Why does it matter?
Key questions
● Ve Interactive, which had previously raised at a £1.5B valuation, has
seen its valuation reduced to £300M, following an emergency £3M
bridge funding round. The company has also replaced its Founder &
CEO. Former ARM chairman, Stuart Chambers, has pulled out of
becoming the company’s new chairman. Company has 1,000 staff, a
number that seems like to reduce as it goes through a process of
“re-organisation” and “rationalisation”.
● Ve Interactive was notable for raising all of its £50M+ funds from
high-net-worths & other “non-institutional investors” and for
implementing a “complete ban on venture capitalists”
● Ve Interactive joins a list of UK startups (Powa, Fling, Karhoo) that
have all experienced major issues or been deadpooled that had not
raised money from any VCs
● High profile failures, such as Powa, can have a negative knock-on
impact on the perception of UK tech, even if the founders and their
companies have largely been (by their own choice) on the outside of
the development of the UK’s tech ecosystem
● Can Ve Interactive turn things around with a new management team
and successfully raise more money from outside the VC circle?
● Given the large sums of capital being deployed by high-net worths
into some of these failed or struggling businesses, is there an
opportunity to support investors that would like to invest in tech, but
that lack the expertise and experience of the sector to channel this
capital into more sophisticated investments?
Ve Interactive latest non-VC funded UK startup to ‘struggle’

5. China to double down on importing foreign tech talent
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Source: http://tinyurl.com/jp5auvn
http://www.caixinglobal.com/2017-03-13/101065518.html
What do you need to know?
Why does it matter?
Key questions
● Robin Li, the founder & CEO of Baidu, declared Trump’s victory as
an opportunity for China to attract global talent and urged the country
to do even more to simplify the process of issuing permits to foreign
talent
● China has responded with initial moves to relax visa rules for foreign
workers & students. The changes reduce the complexity of applying
for extended work permits, while also decentralizing management of
‘green card’ issuance in order to speed and simplify the process
● Recruitment forms part of a broader strategy to build China’s
technological might alongside efforts to restructure its industrial
policy through a scheme known as Made in China 2025
● Further evidence that important countries such as China will not sit idle and will
look to exploit any potential changes in global talent flows that result from the rise
of populist administrations in key ‘destination’ markets for global talent
● Technology competitiveness is increasingly seen as having significant alongside
economic & sovereign might as one of the three key pillars of building a global
superpower. Forward-looking nations such as China are increasingly putting
technology right at the very heart of their Government plans in order to base their
long-term strategy on being highly competitive technology-focused economies
● While governments in the US and Europe look set to tighten controls on overseas
talent, will other countries follow China’s lead to exploit this opportunity to position
themselves more attractively in the global war for talent through easing controls on
visas for overseas talent?
● Will we see a reversal of the trend to put R&D centres and innovation labs in
Silicon Valley? Will global tech companies choose to create more talent bases in
Shenzhen or Shanghai or London or Paris?
“China's government knows that recruiting the world's
top talent is key to developing better homegrown
technology, and even has a State Administration of
Foreign Expert Affairs that drafts strategy, coordinates
rules for hiring overseas experts and holds an annual
conference to discuss ways to attract top talent.”
Bloomberg Gadfly, March 2017

6. Why does it matter?
● VC as an asset class is gaining increasing recognition from LPs
● LPs are increasingly looking to make direct investments, whether through their own
initiative entirely or by co-investing alongside their GPs
Upfront Ventures LP survey reveals general optimism
about VC, but also highlights some concerns
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Note: 2016 n= 73, 2017 n= 82
Source:
https://www.slideshare.net/msuster/upfront-lp-survey-of-the-venture-
capital-startup-industry/1
What do you need to know?
Key questions
● Upfront released their annual LP survey, though note is US-centric and likely also is
biased towards the views of LPs active in VC only, not the full LP universe
● LPs over past few years have become more optimistic about VC (coming off a low
period in 2009-2012) and growing number seeking to grow their allocations to VC
● LPs see co-investment as increasingly important with 29% flagging it as “very
important”
● Two-thirds of LPs shared concerns around trend for faster fundraising pace, while 71%
also expressed concerns about investment pace, valuation upticks & burn rates
● How does the LP view stack up differently in other regions, i.e. Europe or Asia?
● How should GPs respond to increased importance of direct investment for LPs?
● Will LP concerns on fundraising & investment pace lead to a slowdown from GPs?

7. M&A wrap up
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Acquiror Target Target desc. Amt Comments
Intel Mobileye Autonomous vehicle sensing $15b
34% premium to last unaffected share price. Intel paying this giant premium keen to avoid
repeating its failure to the smartphone era and build a strong position in automotive, which it
sees as the next giant semiconductor & software market
Pinterest Jelly Crowdsourced Q&A platform N/A
Founded four years ago by Biz Stone (Twitter); whether Jelly will integrate with Pinterest or
remain separate is undecided; Pinterest has raised $1.32B
Geopost Stuart B2B last-mile logistics network N/A
Geopost, an existing investor, has acquired the company outright. This follows a recent
transaction that saw Hermes, a German parcel delivery company, acquire a majority stake in
the German last mile delivery startup, Liefery.
Google Kaggle
Hosts data science and machine learning
competitions.
N/A Raised $11m from Google;Hal Varian;Index Ventures;Khosla Ventures;Max Levchin
PVH True&Co Vertically-integrated online lingerie startup
“Tens of
millions”
PVH, the fashion company owner of the Calvin Klein & Tommy Hilfiger brands, made the
acquisition to drive deeper into online sales & increase the level of sophistication of how it uses
data to connect with customers
Didi Chuxing 19Pay Online payment & ecommerce platform
RMB
430M /
$62M+
Transaction is still unconfirmed, but Didi reportedly acquiring 19Pay to obtain a highly-valuable
& hard-to-acquire Chinese payment processing license. The number of independent payment
processors is declining as more deals of this nature have been driven by players wishing to
offer their own payment capabilities
CA Technologies Veracode Cloud-based app security testing $614M
Another transaction indicative of the trend of consolidation in the enterprise SaaS space. CA
Technologies has been looking to expand beyond its core application performance monitoring
(APM) market to increase the total potential spend amongst its customers with security seen as
a key adjacent market to enter through this acquisition. Veracode has raised ~$115M, last
raising primary equity in 2014.
Travelers
Simply
Business
UK-based online insurance broker for small
businesses
$490M
Acquisition price of £400M represents a quick turn of 3.5x for PE fund Aquiline Capital
Partners, who acquired Simply Business in April 2016 for £120M. Travelers is a $34B market
cap US insurance company looking to build out its digital capabilities in the face of a rise of
insurtech startups. A ~$500M UK tech acquisition that pretty much passed under the radar.
Wal-Mart/Jet.com ModCloth
Online retailer of vintage-inspired fashion
and decor
$50-$75M
ModCloth had raised $78M from VCs. Wal-Mart is increasingly focusing on the apparel/clothing
category and this is its third acquisition in 2017, following the purchase of ShoeBuy and
MooseJaw.
Sodexo
Xpenditure/
iAlbatros
iAlbatros: a travel booking specialist /
Xpenditure: a paperless expense
management system
N/A
Sodexo, a 50+ year-old food services & facilities management company ($16B market cap) has
acquired two early-stage companies to build out its digital capabilities in travel and expense
management.

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