Insights

We recently read that since 2015 almost a third of European companies who expanded to the US did so even before they had raised a Series A. That’s a big step at such an early stage. Expanding to the US is a strategic decision for a startup, and expanding too soon could potentially be at the expense of continued growth on your home turf. But expand too late and you risk losing the US market to a competitor.

The ideal scenario for any scaleup is to get traction and to position yourself both in your home market and in further growth markets – at the same time. Getting your business to a place where you have users in a target market already engaging with you, rather than going in cold with full commitment and a big investment risk, can make executing your growth plan a lot easier. And that’s a strategy that can pay dividends if it’s executed the right way.

Axial Capital has established a presence in key markets including the US and Europe to support our portfolio companies with a lean platform for accessing these new markets, providing a soft-landing approach for accessing the international marketplace. The creation of a US subsidiary will immediately bring you within the US tax net in one sense or another, so a soft-landing approach can be the ideal way for ambitious business operators to spearhead in-country market testing and business development ahead of making a more substantial commitment.

By investing our resources in first phase US expansion for British and European scaleups – or vice versa for US businesses that want to enter the UK market – our portfolio companies can manage this expansion from their home operating base until it feels right to ‘follow that growth’ with a new corporate entity in-country. As the post covid-era of growth businesses increasingly have a tech-enabled bias and are scalable by nature, the obtainable market for so many of them is as exciting as it’s ever been!

Technology advancements in indoor farming are revolutionising agriculture. When you think of the thousands of food varieties being farmed differently across countries and continents, the impact is truly global.

These innovations promise more sustainable and efficient food production, even in urban settings, and Axial Capital is leading investment and research collaborations for AgriTech startups in a number of these verticals. 

How do you define ‘AgriTech’? In short, broadly! Cutting-edge lighting and imagery systems provide tailored spectra for optimal plant growth while conserving energy as compared with legacy methods. Automated climate control systems adjust and balance temperature, humidity, and CO2 levels precisely across the breadth and varying height levels of each indoor environment – pivotal for accurately managing rising heat and pockets of humidity.

And further yet: hydroponic and aeroponic systems deliver essential nutrients directly to plant roots, enhancing yields and reducing water usage. And sensors driven by AI algorithms continuously monitor plant health, detecting issues before they escalate – a particular vertical we are supporting very actively.

These advancements not only boost crop productivity but also reduce the need for pesticides and herbicides. The very real threat of food shortages is an increasingly common news piece, but we’re highly conscious too of the long running use of chemicals and excessive water consumption in our food chain, and as new technologies improve yields across global centres it is slowly but surely contributing toward a healthier planet at the same time. Indoor farming’s future looks promising, being more than a glimmer of hope for the world’s food security and environmental challenges. A worthy commitment of time and resources in our view!

In the ever-evolving world of a business growth, traditional funding source of venture capital is no longer the outright lead provider of capital that it once was. As the funding landscape shifts, entrepreneurs are turning to alternative strategies like growth-debt, government-sponsored funding, and accelerator programs to fuel their ambitions. Let’s take a closer look at the current funding environment and the innovative pathways that are increasingly driving capital models and avenues for growth.

The funding scene in North America has experienced some stagnation across all stages, with later-stage startups and tech-focused companies taking the hardest hit. Since the first quarter of 2023, investments in these sectors have notably decreased by 33%. The root cause can be traced back to a broader market decline affecting technology and life science companies generally, leading to lower valuations and delayed pre-IPO rounds for startups.

Nearer to Axial’s HQ in the UK and Europe, a similar situation is unfolding. External factors such as the war in Ukraine and a struggling global economy have contributed to surging inflation and increased interest rates. These economic challenges starkly contrast with the record-breaking cash inflows that high-growth businesses enjoyed 18 months ago. As a result, startups in Europe are facing familiar territory in the cultural expectation that they should establish robust market positioning and demonstrate growth in topline income before funding might flow more freely.

In response to these shifting dynamics, founders and operators are exploring various avenues to sustain and grow their businesses. M&A has increasingly offered a mechanism to bolster market share (and ideally a stronger combined balance sheet) with businesses consolidating their funding via strategic partnerships – and at Axial we are leading on transactions on this basis both for accelerated growth and for more urgent defensive strategies. The realities for founders is this often requires a considerable amount of time and may even lead to valuation down-rounds.

Financing driven by forward revenues is another funding model that we build into our support for growth-companies. In this approach, a company receives an upfront sum of capital and future recuring earnings serve as both the rationale for for the financing and for repayment. This model aligns the interests of investors with those of the startup, promoting sustainable growth without the burden of traditional debt.

Corporate partnerships and sponsorships are also proving to be lifelines for businesses looking for growth. Larger companies are investing in startups, often in exchange for access to innovative products or supply chain advantages, and cross-border partnerships can be a pivotal catalyst for accelerating new business. These strategic partnerships can provide startups with the resources and expertise they need to thrive – whether in a new market or a challenging market – and with our offices operating across the US, Europe, UK and Canada, Axial’s team takes this approach with many of our portfolio clients.

Despite the challenging funding landscape, entrepreneurs are natural risk-takers and innovators, and the current funding dynamic is likely to drive even more creativity and open up unique opportunities for those who can adapt and pivot effectively.

The road ahead for ambitious business operators may be unchartered in many cases, but there’s nothing like a challenge to truly define the entrepreneurial journey. By embracing alternative funding avenues, strategic partnerships, and a resilient mindset, startups and growth-driven SMEs can weather the storm and re-shape the future of their industries. The entrepreneurial journey is ever-evolving, and those who navigate the changing tides with creativity and determination will undoubtedly find success in the new landscape.

Is it time to hand important financial decisions to GPT? The answer to that question was a resounding No not too long ago, but the ‘intelligence’ bit of AI has moved on rapidly in just the recent year, notably enhancing precision and adaptability, to the point where a recent market-review article illustrated how AI was fed technical data to undermine Reuters’ bullish stance on Rivian stock – ultimately giving a result of ‘under-perform’ when taking into account previous stock data, and suggesting a sell recommendation on stock that Reuters was openly positive about. Right or wrong, that’s interesting.

Across our client portfolio we are increasingly seeing AI (or at least an attempt at it; automation is not AI) bolster services and solutions that are being deployed across sectors from agri through to InsurTech and workflow management. If, like us, you have asked Bard or GPT the same question in different ways to ultimately get to a reasonable answer, you’ll appreciate that even if a certain level of manual intervention is still relevant, the emotive or ‘human factor’ is not – and that’s where the potential for value (and to outmaneuver a human) really runs deep.

One reason we really like the concept of bringing AI into the markets or sector applications across our client portfolio, is that it generally means the degree of scalability for that business is greater than before – and with our operational model being focused on expansion as much as investment, supported by our team across multiple geographies, the results from our collective efforts with each client can be all the more enhanced. A great case in point is a client in the AI process automation space, whose technology we are introducing across our portfolio for testing and circular feedback, so ultimately the collective financial returns can be incredibly impacting. It’s not quite a focus on financial decisions in the end, but the financial results speak for themselves!

Having our team located across North America, the UK and Europe gives our clients access to a uniquely international network of investors and strategic partners. By involving Axial team members from multiple geographies on many of the transactions we manage, we help to open new market opportunities through our extensive relationships – further enhanced by the pull effect of engaging new capital from multiple regions. In periods when capital markets & private equity in general face headwinds it’s our multi-channel, multi-region operating model that allows our clients to continue achieving more forward momentum than a single market might provide – and with a view to achieving enhanced operational outcomes through those strategic financing activities.

So what does strategic growth capital look like? Ultimately this is a factor of sector, geography, corporate objectives, and a multitude of more nuanced considerations that will see the process managed differently for each founder going through an exciting period of growth. Through distribution and partnership collaborations our clients gain access to know-how and networks in new markets, and potentially enhanced opportunities for deploying their services and technologies – and with scope for resource sharing and cost efficiencies as a result.

As every founder knows growth is not without its challenges, and the investment of time with the support of Axial’s network of consultants can put shape and structure to the milestones a business wants to hit as it passes through funding rounds. Every founder talks about their roadmap, and the trick is making sure it’s the right one!

Ultimately commercial and strategic alignment in the growth objectives of a business can be a great way to accelerate growth, and to leverage the strength and collective knowledge of a more significant network. With our consultants having backgrounds from private equity, capital markets, and international consulting firms the perspectives that our project teams bring to each client engagement makes each year of expansion all the more enjoyable!

The boom in the European CleanTech startup sector, and in the capital markets that have poured billions of pounds into accelerating those enterprises, has seen an incredible array of waste-repurposing and pollutant-reducing innovations come to market. We’ve been fortunate to see a few of these in our client portfolio, from green energy storage & managed-distribution systems, through to conversion technologies that bring cleaner outcomes to the fossil-fuel-driven logistics industry.

Deal values last year across the CleanTech space once again increased significantly on previous investment levels, rising from €7.3 billion to €9.7 billion across Europe. Looking at the stats behind the headlines, the number of transactions being financing is flat-lining, whilst the value of those deals is increasing. The average size of a financing round has risen from €3.3m in 2020, and €6.6m in 2021, to reach €10.7m average investment ticket in 2022. And there’s logic behind those numbers.

The upward trend we’ve witnessed is largely due to the industry maturing from its emergence as a nascent sector just a few years ago, which has led to a higher number of later-stage and follow-on financings at higher ticket levels. On top of this the sector has witnessed a number of notable megadeals including Northvolt, Climeworks, Sunfire, and Infarm to name a few – all of which booked rounds in the hundreds of millions. Impressive values, irrespective of the sector.

So if you’re a CleanTech founder pushing the boundaries – and pushing on the doors of venture capitalists – where is the optimal country to put down roots? If we look at recent stats (yep, we keep going back to the stats) Sweden tops the table, at least by deal volume. With a cumulative financing volume of €6.4 billion over the past four years, Sweden is significantly ahead of second-runner, the UK, with €4.0 billion, and Germany in third with €2.8 billion. Admittedly these numbers are a tad misleading, with Sweden’s Northvolt running four successive mega rounds, single-handedly taking €4.7 billion of that funding.

And if you’re still contemplating which vertical to delve into for your next CleanTech venture? The recent few quarters have seen energy-storage & E-mobility attract the highest funding. With a deal volume of €6.8 billion, the energy storage sector leads the way across Europe. Interestingly this is driven in part by the rise of the second largest vertical, e-mobility, as well as the expansion of renewables, which collectively create additional storage demand. Again, without Northvolt’s bull run the energy storage vertical would only be ranked 4th, with energy generation running up alongside storage.

A clear pattern has emerged through this first era of CleanTech, with the largest verticals being notably synergistic and helping to spur growth and innovation interconnectedly, whilst still remaining specialist enough in their own right to evolve independent industries unto themselves. Though, as time has shown us on many occasions, convergence and consolidation are never too far into the distance. Nevertheless we see exciting times ahead for a welcomed and warranted industry of innovators.

In advisory and capital raising we provide strategic support and financing to businesses in many sectors, and one that we particularly enjoy spending time on is the broader UAV space. When drones are put to good use it’s impressive to witness. We have seen drones that make emergency blood deliveries in Italy, drones that are launched from remote bases around London to inspect potential crimes in real time, and drones that monitor and report on industrial assets from the North Sea to the Middle East.

Where does the true value lie in each of these innovations? Primarily it’s a question of genuine IP and proven engagement with the markets that those drones are designed to serve. To move beyond the realm of being a short-term solution, and into a position of being integral – even pivotal – to the operations of their client base, is where long term value can be recognised. And in turn this is fundamental to the sustainable value proposition that we present to our institutional investor base. After all, when asking for investment to accelerate the market rollout, a clear return on that investment – and a clear path to liquidity – will sway the argument for choosing one opportunity over another. With both private capital and listed investment vehicles in our network looking at these investments with us, the market continues to simmer with some heat.

With so many factors influencing how the UAV market can evolve, whether it be regulatory restrictions, advancements in other technologies that bring about new opportunities for drone applications, or societal considerations such as privacy that present ethical boundaries in some use-cases, we will continue to watch the industry with interest!

As one of the world’s oldest markets, London is as much a destination for a dual listings as it is a primary market for companies with global ambition. Equally, Frankfurt remains a gateway for access to liquidity and broader investor exposure – and collectively this is proving a draw for Canadian and Australian companies at an increasing rate. It’s not surprising, given the Frankfurt and London markets have a long track record – offering deep pools of institutional capital, high liquidity, and sophisticated long-term investors.

Access to longer-term capital is a common driver for expanding market presence, but it can also be about developing an international profile and gaining greater liquidity for existing shareholders. Using our extensive network of investor and banking institutions, we build an ecosystem around listed companies that want to create a presence in the European and London markets, to broaden shareholder spread and strategic partnerships, ultimately providing those companies with access to international pools of capital.

The AIM market was launched in London to help smaller-mid-cap companies raise equity and engage with investors, and with over 3,000 companies from around the world having listed in London to date many of these come from international roots. Via Frankfurt those same companies can also access a broader European support base. For those companies already listed on exchanges like the ASX or the TSX, adding a Frankfurt or AIM listing can accelerate access to a new pool of liquidity, active in a separate time zone even when the home exchange is out of hours, opening doors to a global investor base.

The international investment profile of Frankfurt and London is increasingly geared toward advancing ESG, which in itself is a major attraction for resources and mining groups that want ensure they are not just making money for investors but also demonstrating commitment to a better world. With major investor conferences scheduled for this month both in Frankfurt and London, we expect this will be integral for strategies going into next year.

The way in which Canadian and Australian companies can approach these markets is also flexible. While it is helpful to raise money on listing to create local liquidity, various dual listed companies have chosen to build up a local profile through research and PR, so that when they are ready to raise funds the investment community will be more aware of their relevant activities and keener to invest. We continue to welcome international business growth!

Investor relations activities are fundamental in broadening your shareholder register, whether your company is climbing the startup ranks or is already a small cap listed company. Ultimately this is where your ongoing liquidity and financial support will come from, so the importance of a continued process of investor engagement shouldn’t be underestimated.

For early stage and private companies it’s typically your cornerstone and strategic investors that warrant the most attention, and for listed companies a broad spread of supportive investors – both institutional and retail – should be kept engaged and informed on operational updates and news releases. To communicate that news flow positively for the greatest investor response, an investor relations team is core to your financing activities and your valuation objectives.

With our associates on the ground in key centres across the UK and Europe, North America and Australia, those relationships can be managed for enhanced investor engagement, so each client we work with can benefit from a focused approach to an efficient capital structure. The combined effect of supporting your valuation, and maintaining a sense of positive presence for your investors, puts your business on a stronger footing as you progress through funding rounds and expansion strategies. All the better for those who keep ahead of the curve!

With Axial associates now based in the UK, EU and US, our reach into investment and capital markets is extensive. Following the addition of two advisors this year we look forward to 2022 being a stellar year for providing investment.

We want to say well done to our team member Chris in the US for securing the mandate for AVM’s current investment round, to accelerate the development of their immuno-therapy technology. This immuno-response basis to their treatment may also result in a reduction in the number of chemotherapy cycles needed for a complete response, bringing about greater efficacy with reduced side effects.

Whilst medical isn’t Chris’s only focus area, it’s great to see our advisory services bringing value to such a worthwhile technology.

Taking a look at three of the direct investments we’ve made at Axial, they offer very different solutions to entirely different markets – but where they show similarities is in their ability to scale. By adopting a tech-enabled delivery model each of these businesses runs a fluid user experience that drastically lowers barriers to rapid and far reaching expansion. That’s something we like, and is fundamental to our investment rationale.

If we take a look at each of those three companies we can begin to see how it’s increasingly possible to create a scalable delivery model in almost any industry.

RXLive is a MedTech in the digital pharmacy sector, and our investment into the company was part of enhancing its automation capabilities as the company rode the growth curve. Whilst automating operations is typically a good step toward improving efficiency, it doesn’t in itself facilitate scalability – and it was the underpinning architecture that the founder created at the very beginning that has allowed the business to scale so rapidly.

Creating a business model around a national digital pharmacy license was the primary platform, operationally speaking, that brought down borders for RXLive. Implementing a great UX and logistics function was fundamental to truly leveraging that ‘borderless’ business model, but it was the fore-thought that the founder had in implementing a primarily non-physical methodology for serving clients that opened his store-front to a customer base in the millions.

Outside of the UK, our investment in the blockchain based gun licensing platform ARMM was grounded on a similar ethos of putting the objective of increased safety directly into the hands of an entire nation – not just those people within physical reach of the company’s offices. For transparency and accountability of gun ownership to have significant impact, the user base must be as extensive as possible. And when it’s something as important as gun safety the mechanism for capturing and managing the details of firearm ownership must be as infallible as possible – and this is where deploying record keeping functionality over the blockchain can give all users instant and equivalent access to ARMM’s gun license ledger no matter which state or city they live in. Putting this broad thinking into action allowed ARRM to successfully IPO in the US this year.

Aspiring musicians have trailblazed a shift to digital, and even virtual spheres, across much of the sector in the recent decade. We invested into Shodement when their service offering was predominantly a centralised curation and PR solution for artists from anywhere in the world where those artists lacked the capital and capability to coordinate these functions. That founding ethos has allowed Shodement to bring together artists from multiple continents, and more recently to underpin their core offering with a fintech-for-artists service in order to release royalty payments to even the most fledgling artists. This is a huge shift in the music ecosystem when those royalties would otherwise be locked up in the corporate mechanics that tend not to favour small, independent artists. Again, it’s the accessible, digital delivery model that the founder employed from the outset that has allowed the business to reach audiences as far as Latin America and Africa

Ultimately it’s less about the sector when we look at the viability of an investment proposition, and it’s more about putting innovation and accessibility into action in whichever industry you’ve chosen to make a difference.

Just into the second quarter of the year and 2022 is already shaping up to be broadly a high performing year in terms of investment into growth companies. To put a spotlight on this article, it’s the emergence of the European scale-up ecosystem that has caught our attention. As a 2023 update to this article, a notable trend has been the reduction in the number of new innovative companies coming to market – in spite of what we expected from the era of lockdown-startups. Some great coverage from Crunchbase looks at this in more detail: https://rb.gy/w0ty8

Prior to 2021, a smaller proportion of Europe’s venture investment went to late-stage growth rounds. In 2021 a shift began to take place, with more significant amounts allocated to late-stage funding. Funding for those companies came from equity-led investment firms in the private capital markets and from a number of small-cap public listings where those scaleups could get access to public markets liquidity.

Let’s look at the numbers. Quarterly funding in Europe in 2020 ranged between USD$10 billion and $13 billion in each quarter. This trended upward through 2021 when it totalled $24.6 billion in the first quarter alone. 2022 is set to dwarf those numbers with venture investment already up by 21% on an annualised basis. Through our client portfolio alone we have seen offers of co-investment into companies in the EV, battery-tech, medical, and SAAS sectors to give a combined post-money value of more than $300m in private and public capital markets.

The six countries that led in scaleup funding over last quarter are the UK at the forefront with France, Germany, the Netherlands, Switzerland and Spain also showcasing support for stellar growth companies.

At a global level capital flows into VC backed companies in fact fell in the first quarter, but in Europe the picture was quite different with scale-ups receiving more investment on both an annual and quarter-over-quarter basis.  Europe is a growing venture market with an increasing number of high-performing scaleup companies, and clearly those businesses that prove their revenue model and their market fit are attracting the bulk of funding in 2022. The message is clear, where there’s traction money will follow.