Netherlands: Venture Funds Embrace Technology While Retaining The Human Touch

Last Updated: 3 October 2019
Article by Stacey Palker
Most Read Contributor in Netherlands, September 2019

Relentless technological advancement is the new normal of our times – no sector remains immune. Technology is responsible for upending long-standing business models and digitalising sectors ranging from accountancy to aviation. The world of investing is no exception.

The ongoing digital revolution in the world of finance is enabling Limited Partners (LPs) and General Partners (GPs) to explore new investment opportunities, enhancing their business practices by equipping them with smarter tools for better decision-making. This trend was highlighted by a panel of experts in a recent webinar co-hosted by TMF Group and SuperReturn, titled 'Raising Funds in an Era of Digitalisation - What do LPs and GPs Really Think?'

The ubiquity of digitalisation

The forces of digitalisation extend well beyond the technology industry, the panelists pointed out, percolating across sectors to improve existing processes, be it for delivering services, streamlining supply chains or strengthening customer feedback mechanisms.

"Digitalisation transforms industries in myriad ways," observed Jie Gong, Partner, Pantheon Ventures.

While its reach is extensive, the adoption and impact of digitalisation is seen to vary. The healthcare sector has been at the vanguard of digitalisation, noted Eric Marchand, Principal, Private Equity, Unigestion. Fintech and proptech companies, meanwhile, are "embracing technological change and changing the paradigm in typically archaic sectors" such as financial services and real estate, he added.

Gong agreed, citing the development of telemedicine and 3D bioprinting and the progress made by fintechs in upcoming fields such as mobile payments, instant loans and robot asset management. "It's a fast-moving space to watch," she said, predicting that the use of digital-enabled services in healthcare, e-commerce and real estate will continue to grow.

Marchand struck a note of caution, specifically about the growth potential of e-commerce companies and their ability to generate profits, especially under increasing regulatory scrutiny. "That might really change the paradigm for these companies ... Yes, it's a growing industry ... but, ultimately, it comes down to: 'When the going gets tough, are you actually generating profits?'"

The risk-return equation

Because investments in the rapidly evolving tech industry are inherently risky, investors should ideally have a good understanding of the business, although there are ample generalist funds considering investments in the tech sector, the panelists noted.

"Domain expertise is extremely important and the GP's ability to dig deep into a space and have a demonstrable track record of success in a particular sector is very important," Gong said. "In GP land, there are venture capital companies that focus on early-stage businesses and many of those have a pretty heavy innovation element. To be fluent in the subject of digitalisation is a must-have skill."

Marchand agreed, adding that, for generalist funds, having a specialisation in any given sector provides an edge from a sourcing perspective. Entrepreneurs typically feel more comfortable giving control of their company to investors who have the sector knowledge and a track record of delivering on that knowledge, he observed.

The expert panel also recognised the need to correctly assess the high valuations typical of technology firms and navigate through a crowded field towards the right investments. Gong noted that her firm has always had a preference for early-stage ventures, as they are regarded as a defensive play from a valuation perspective.

Because most technology investments happen in the venture stage when a company's business model is still evolving and revenues and profitability are absent, she added, investors expect a higher level of return commensurate to the risk they are taking.

High valuations are concentrated in the late-stage venture capital space, especially among those nearing unicorn status, and are driven less by hard details such as business models, competitiveness and profitability and more by market sentiment, explained Gong. "It's less a statement on technology than which part of the life cycle the business is in and how stable and how long their track record is."

While looking at established or mid-market technology companies it's crucial, according to Marchand, to consider two factors: whether the digitalisation efforts of such companies give them an edge over the competition and support revenue growth.

"It's really making sure that you're paying a high price for a high cash-generative and high-growth company. Otherwise, your value breaks somewhere," he said.

Embracing tech, being human

While an understanding of technology helps make the right investment calls, GPs are increasingly using that knowledge to digitalise their internal business processes.

These efforts include building online interfaces to help clients access research reports and slice and dice data to assess the performance of their funds. A growing number of GPs are using big data analytics to assist and vet their commercial due diligence process, while others are hiring experts to perform digitalisation for portfolio companies, according to Gong.

"Big data can help inform decisions in many ways. I think it's a very powerful tool ... to enhance underwriting and to add to the confidence of pricing on deals," she said.

GPs are also building capabilities to roll out digital strategies for their portfolio companies. Technologies such as blockchain have the potential to reduce the time and cost involved in forming a fund while making the whole process simple, secure and fair.

"Digital transformation has become central to most investment strategies," Marchand said.

Despite the onslaught of technology, the industry's digitalisation is still in its infancy, the panelists agreed, and the fund-raising process remains a "very person-to-person business," Marchand noted.

"We still have the use of placement agents. They're far from being replaced because the placement agent is not only someone who's trying to raise capital for you, it is someone who advises you, kind of a marketing consultant for your fund ... technology will always struggle to replace that."

Gong agreed, pointing out: "In the foreseeable future, the use of digital tools is really to speed up efficiency in the storage of information, exchange of information, due diligence and quantitative analysis. I don't see it replacing the role of a broker because private equity is a human business."

But, given the inevitability of digitalisation, Marchand emphasised the need to get the processes right as businesses move to adapt technology and build digital tools. Failing which, it matters little how good the technological solution is, he said. "Digital is great but if your processes are rubbish, it's not going to help."

Moderator Rajindar Singh, Sub Regional Director APAC, Fund Services, TMF Group, sounded an optimistic note about the impact of technology on fund-raising. "The webinar confirmed TMF Group's view that digital transformation is changing the way firms compete across sectors in ways that will benefit consumers and investors. Digitalisation promises to create exciting new business models and increase the speed and transparency of commercial information. This will support faster decision-making and more informed investment strategies. However, the human element remains critical. GPs will always need to leverage their fundraising track records and knowledge to present their fund offerings to LPs."

How TMF Group can help

TMF Group supports investment managers by providing bespoke back- office solutions that enhance their global operations. We specialise in administering complex international investment structures and supporting portfolio companies expanding and operating abroad.

Our comprehensive fund services for private equity, infrastructure, real estate, securitisation and private debt funds cover fund domiciliation, including set-up and SPV management, fund administration, fund accounting and NAV calculation, fund governance and fund reporting, fund depositary, transfer agency and fund trustee services.

As an independent third-party fund administrator, our specialist team provides flexible solutions for every fund administration need - from formation and ongoing administration, to depositary and shareholder services. We offer a full range of globalisation services, helping funds stay compliant. We work with structures across the full investment spectrum, from private equity and real estate funds, to trade financing, debt and fund of fund structures.

With offices in over 80 jurisdictions, TMF Group offers a single point of contact and cohesive, professional service, delivered by proactive, responsive, multi-lingual, local experts. Contact us to find out more about how TMF Group can be your global partner of choice to realise your Capital Markets ambitions and needs.

Listen to the entire webinar here.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Events from this Firm
3 Oct 2019, Webinar, Rotterdam, Netherlands

To view this Webinar in full click here

24 Oct 2019, Business Breakfast, London, UK

Join TMF Group and ACCA for breakfast and a briefing session dedicated to the latest VAT changes and how they affect the UK.

21 Nov 2019, Conference, Shanghai, China

Retail remains a significant growth opportunity even as GDP slows, but the challenge of recruiting and retaining quality staff must never be underestimated and managing these issues successfully can define the winners and losers. TMF Group’s 2019 Annual Retail Summit in Shanghai brings together industry professionals to share opinions on the key differentiators that can lead to achieving growth targets and maintaining momentum for your retail business in China.

 
Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Related Topics
 
Related Articles
 
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions