A Note to Our Investors, Partners & Portfolio Companies
The last few weeks have created a sense of uncertainty and chaos, as politicians grapple with the reality of the Referendum result. The implications for the UK are far reaching and every industry, without fail, will feel the winds of change.
The Tech industry is no different and we have received numerous requests from media, investors, and portfolio companies as to what we feel the future holds. This note is a specific address to that question, now that we have had the time to properly reflect on and digest this new environment we find ourselves in.
At a basic level, there are two macro factors affecting tech. The first is an attitude to risk. In volatile markets, there tends to be flight to safe haven assets such as gold or gilts. Venture has always been the sharp end of the stick from a portfolio point of view – high risk with very high rewards on offer. Given the volatility in the equity and bonds markets, allocation to venture may well suffer due to the denominator effect, especially in institutional portfolios. However, what is also true is that venture now represents a better investment proposition than ever before. The ecosystem in Europe is increasingly more mature, there are more funds supporting early stage companies than previously and you have a cooperative public sector in terms of state support. Further, compared to more stable asset classes such as equities, bonds and even real estate, venture is now a better risk-adjusted investment offering: it is still high risk of course, but these alternative “secure” asset classes have become more volatile recently, yet without the prospect of higher returns.
The second factor is the status of London as the pre-eminent tech hub in Europe. There have been plenty of other European cities putting their hands up in the last few weeks in order to lure start-ups away. But it is not happenstance that London is at the epicentre of this industry in Europe. It has a rare blend of finance, industry, creativity and arts & culture that serves as a perfect petri dish for innovation and technology. This combination has been years, if not decades, in the making and is not something that other cities can just replicate at a click of a button. Yet it’s the cultural diversity in the capital that is the key ingredient in making this possible and we must work together to ensure that it is preserved. There can be no room for complacency.
Pi Labs is clearly also influenced by the direct impact on the real estate industry. The last week has seen some panic seep into the sector with the closing of various open-ended property funds. Yet, our research and feedback tell us that investors had become circumspect about the pricing in the UK property market well in advance of the Brexit vote. Many felt that the market had become overheated with the influx of foreign capital and as such they had become sellers, not buyers. Indeed, a number of these investors have chosen to invest with us to switch their focus from real estate to tech, albeit with a close nexus to their core sector.
Pi Labs is a global investor in proptech and as such our investment remit extends far beyond the issues surrounding Brexit and the EU. We continue to see proprietary dealflow from Asia and the US; indeed we are in due diligence on two deals in these regions.
Regardless of geography, dislocation in the underlying real estate markets is a boon for proptech companies as it forces asset holders, investors, and owners to be creative in their search for yield and/or value. Property companies and investors will be forced to use new tools to deliver better returns – and technology will be at the front of the queue in terms of the methodologies that will meet this need.
Great companies will thrive in any environment; indeed Uber and Airbnb were both formed in the last recession post the GFC. US based Matterport’s acquisition of Virtual Walkthrough is testament to the enduring quality of the proptech market in the UK, despite recent events. Our portfolio companies all have the potential to be great – that is why we backed them in the first place. Pi Labs remains committed to investing in and supporting the proptech ecosystem and that applies as much to our existing stable of early stage ventures as it does to prospective start-ups seeking investment.
We are very much open for business: we have capital to deploy through our new Fund; continue to make seed investments such as Plentific and are now welcoming and receiving applications for our 4th accelerator programme which starts in October 2016.
The journey may be more precipitous and we must all, together, be vigilant as a result. But we have complete confidence that we are all up for the challenge: We look forward to continuing this journey with you.