Investment funds: post-COVID trends and expectations for 2021
Interview Duco Sickinghe, Fortino Capital
Source: AGEFI January 2021
1. Brexit, an opportunity for Luxemburg?
Following the Brexit deal, major British banks have en masse transferred their employees to the European mainland, with Luxemburg proving to be a particularly popular destination. This can be explained through a number of reasons: its central location in Europe, its stable political climate and favorable business regulations, its reputation as a finance and tech hub with an extreme concentration of knowhow and expertise…
Yet, over time, it is the historical legal stability, more than anything else, that has made the Grand-Duchy such an attractive business proposition: for the financial services industry, notably fintech, as well as (high)tech and other sectors. For investment fund managers too, this legal security is a major asset, as it allows to set up funds very quickly and offers investors all the stability they desire.
Now that a Brexit deal has finally been struck, we will be following developments on the Luxemburg market even more closely at Fortino, even if one thing already seems clear: thanks to the unique combination of factors described above, Luxemburg is very well placed for the future, and its economic potential perhaps greater than ever.
2. 2020 and Covid-19: impact, trends, and consequences
Despite the ongoing crisis, the investment fund sector is booming, as it is becoming increasingly common for companies to seek financing other than via the stock market: via institutional investors, private companies… While the stock market remains a popular option for potential unicorns as well as in specific sectors, many other, often older companies, make their exit in search of renewed focus and stability.
Simultaneously, new sectors are emerging in Europe that almost exclusively seem to call on private funds. The investors behind them are demanding they develop a strong focus or specialization, geographically or per sector, which in turn leads to what is known as a fund of funds: a portfolio of various niche funds, popular among private investors due to its naturally diversified character. Currently, we are seeing a big shift towards these funds-of-funds.
For 2021, a high number of IPOs (Initial Public Offering, i.e., when a private company takes to the stock market, publicly selling its shares to raise capital) seems to be on the cards, as due to the pandemic a lot of equity and debt has been sold over the past year. In tech specifically a lot of movement is to be expected, as following our collective digital leap forward, digitization is now very much becoming palpable for everyone, causing the appetite in Europe to grow and making people want to invest in it.
3. The opportunities and potential in tech remain unparalleled
Currently, 3,4 billion people worldwide are using technology. The total number of potential users is double that: 6,8 billion. So, the demand for digital solutions will keep growing, a lot. On a technical level too, there are still enormous gains to be made, with the speed of chips doubling every 1,5 year – Moore’s law, as it is known in technology. Add to that the ever-expanding reach and improving quality of mobile networks across the globe, the increasing availability and accessibility of data, the developing Internet of Things, the influx of capital from China through the ‘One Belt, One Road’ programme… And you get the picture.
On top of that, more users mean more data, who, as they become more accessible, will make up fertile ground for new business models and the further development of AI.
Today already, a wealth of funds is capitalizing on this potential, offering investors of any kind the opportunity to join in and benefit from the tech boom.
4. What makes software so attractive, now more than ever
Of course, there’s tech, and there’s tech. The hardware market, for instance, has been affected by the current crisis, whereas the software sector is doing fine and, in many cases, even flourishing. The latter can be explained by several factors. First of all, software solutions tend to be key, unmissable products for their users. Secondly, they are a ‘very liquid asset’, that can be used by or sold to pretty much anyone all over the world. Third: the majority of software solutions these days, and cloud-based B2B-solutions in particular, work with a SaaS subscription model, which guarantees a stable stream of recurring revenue – a dream for investors. Fourth, and as explained above: an enormous potential for growth remains, both on technical level as in terms of the number of users.
5. The great thing about funds
As the venture capital sector is reaching maturity, funds are not only becoming more advanced, they are also getting increasingly specialized, which makes it possible for investors to invest in highly targeted fashion, using sophisticated parameters and criteria. Every investment society thus has or can develop its own ‘DNA’, identity, and expertise.
The importance of this expertise for a high-level investment fund like Fortino cannot be overstated, as in fact, investing is only half of the story, or even just the beginning. The bulk of activities for an investment fund – and where it can really make a difference – is about guiding and accompanying societies on their growth trajectory, to help them realize and maximize their full potential. Crucial nuance: we are there to support, not take over from the management team: the quality on management level should already be there. For this mentorship, Fortino has a large team at the disposal of its companies, boasting expertise and knowledge in a wide array of fields, from financial analysts to industry experts in management, technology and other.
Their job is to actively think along with the entrepreneurs, and ask the questions that need to be asked: is there an addressable market for the product? Is the model economically viable? Can we easily and efficiently reach our market? What is our unique selling point, how big a competitive advantage do we have? What are our weaknesses, and how can we counter them? Etcetera. After that, it’s up to them!
Duco Sickinghe is founder and managing partner at Fortino Capital, a European enterprise software investor managing a €240 million growth private equity fund and two venture capital funds for earlier stage software opportunities.
He is an expert in assessing management and evaluating business strategies and frequently speaks about leadership as a core lever for results.
Before founding Fortino, Sickinghe had a long and successful career in the TMT industry, notably as CEO at Telenet and chairman at KPN. Earlier he worked with Steve Jobs at NeXT Computer.