From the Chief Investment Office - Market report - Barclays

10 September 2021

 From the Chief Investment Office

  Market report
  US economic data continued to show the strain of the ongoing battle with the Delta variant this week. Stock markets
  around the world softened a little as a result with core government bonds finding support.

 Our perspective
 The path to the end of the year remains complicated, as this week’s news-flow and corresponding market action hints at.
 Nonetheless, there is plenty for optimists to cling to. The UK and Continental Europe, areas further into the Delta wave,
 continue to demonstrate impressive economic resilience. Data do show various supply chains under considerable pressure,
 with the major players in this area warning of no immediate relief. However, that should not be confused with more
 permanently compromised supply. It is still reasonable to expect these pressures to abate in the next year, pointing to an end
 to the ongoing spike in inflationary pressure around much of the world.

1 | In Focus | 10 September 2021

This week’s theme: Europe’s unicorn windfall
In the field of venture investing, a unicorn is defined as a private newly-formed company
with a valuation of $1bn plus. Recent data from Dealroom1 revealed that Europe has
produced 76 unicorns so far in 2021, more than three times that of China. This is an
intriguing milestone for a continent maligned by slower economic growth, oft criticised by
commentators for its declining global relevance, over-bearing bureaucracy and conservative
leadership. According to World Bank figures, economic output in Europe & Central Asia as
recently as 2019 was actually lower than in 20082. Over the same period, China tripled its
gross domestic product3.

Renowned investor George Soros infamously described Europe as “sleepwalking into
oblivion” in his 2019 political commentary, Europe, Please Wake Up4. Yet, Europe appears
to have emerged from its slump to defy the doomsayers. The region has attracted €49bn of
venture investments so far in 20215, exceeding not only China, but even the United States          David Doberman
and its venture hotbed Silicon Valley.                                                             Portfolio Manager

A cursory glance through the list of Europe’s most successful start-ups reveals an array of ‘fintech’ or financial technology
businesses. Danish smart-card innovator Pleo has built an expense capture solution aimed at small and medium-sized
enterprises which automates employee expenses and travel cost claims. The company serves more than 17,000 customers and
recently raised $150m in a recent funding round at a $1.7bn valuation6. Austrian start-up Bitpanda, a crypto-currency
brokerage, is aiming to license its technology to banks and fintech companies. The company recently raised $263m at a $4.1bn
valuation and has been backed by successful financiers, Peter Thiel and Alan Howard. Unlike many of its loss-making fintech
peers, the business has been profitable for the last five years.

Some 65 cities across Europe host a unicorn5. Outside of financial services, Berlin Brands’ runs a direct-to-consumer multi-
channel platform dedicated to acquiring and scaling brands. Oslo-based Gelato has built a ‘print-on-demand’ platform enabling
customers to connect with suppliers to create customised products incorporating their own designs sold under their brands.

Time will tell whether these start-ups will become as successful as prior venture cohorts which spurned a succession of coveted
initial public offerings (IPOs) in recent years, including Adyen (payments), Deliveroo (food delivery), Klarna (payments), Zendesk
(software), Elastic (data analytics), Wise (foreign exchange) and FarFetch (luxury e-commerce). Many of these companies were
financed by UK-based Index Ventures, a venture capital provider which has gained a reputation as one of the most prodigious
venture capital providers in Europe. The UK itself ranks as Europe’s largest unicorn and decacorn ($10bn+ valuation) producer,
an achievement which inspired Sequoia Capital, one of the world’s foremost venture investors, to establish a London-based
office7.

Whilst some of these unicorns will be acquired or remain privately owned, many will go on to list on European stock exchanges,
which will expand the universe of growth companies available for public market investors. Some fund managers are astutely
commencing their due diligence of promising companies early in their life-cycle when they are still private. Once the companies
list on stock exchanges these fund managers command an edge over other public market investors by virtue of their superior
understanding, knowledge, and insights on the company’s business model, growth trajectory, and management capability.

Not all unicorns will perform well post-IPO. Some will fail to grow into their valuations whilst others may encounter regulatory
headwinds or competitive threats. In some cases, growth may stall if the drivers of customer demand prove to be transitory. For
instance, the participation of younger cohorts of investors in crypto-currency trading and meme stock investing has yielded a
boom for low-cost trading platforms. Robinhood, the cutting-edge online trading platform, recently disclosed that half of its
second quarter revenue was attributable to crypto trades, of which 62% was singularly accounted for by controversial crypto-
currency Dogecoin8. Whilst younger demographics of investors have embraced higher risk crypto-currency markets, it remains
to be seen whether such trends are sustainable.

1https://guce.advertising.com/collectIdentifiers?sessionId=3_cc-session_f0fcac9f-16ee-4e42-b6eb-

639e7eae5e64https://app.dealroom.co/unicorns/f/slug_locations/anyof_europe/tags/allof_verified%20unicorns%20and%20%
241b%20exits/year_became_unicorn_min/anyof_2021
2https://data.worldbank.org/region/europe-and-central-asia?view=chart
3https://data.worldbank.org/country/china
4https://www.project-syndicate.org/commentary/political-party-systems-undermining-european-union-by-george-soros-2019-

02
5Europe has now created more billion-dollar companies than China, Techzine Europe
6https://guce.advertising.com/collectIdentifiers?sessionId=3_cc-session_ad37fd3c-57a2-4123-a953-7aac8145b743
7https://www.cnbc.com/2020/11/26/sequoia-capital-vc-firm-looks-to-europe-for-start-up-success-stories.html
8https://www.cnbc.com/2021/08/18/robinhood-crypto-revenue-jumped-over-45-fold-in-q2-to-233-million.html

2 | In Focus | 10 September 2021

Important information
All investments can still fall in value as well as rise and you might get back less than you invest. We don’t offer personal
investment advice so if you’re unsure you should seek that independently. Funds are designed for the long term so you should
only consider them if you can stay invested for at least five years. These are our current opinions but the future, as ever, is
uncertain and outcomes may differ.

3 | In Focus | 10 September 2021

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4 | In Focus | 10 September 2021