Digitisation has received an unprecedented boost since strict measures surrounding Covid-19 have come into practice around the world.
People have turned to video chats and video conferences to stay in touch; schools have ramped up their online learning functions. With millions globally working from home, companies have scaled up connectivity and adding security measures. Experts say these changes will be reflected in a post COVID-19 world going forward. For example, work from home policies are likely to stick, noted Bloomberg.
Investors in the Ultra High Net Worth (UHNW) segment are taking note and we are seeing an increased interest from our clients in investing in technology companies in the private markets. Although investors are taking a more cautious approach, deals are still being done with a focus on tech companies with long-term viability.
IDENTIFYING THE BRIGHT SPOTS IN A TROUBLED TIME
The UHNW investor has already been partial to the technology space for several years. They typically invest either directly into companies or through their global family offices. A report by Campden Research took into account responses from 360 family offices and found that 49% of those surveyed had invested in tech, followed by real estate and rental / leasing (42%), and finance and insurance (30%).
The impact of COVID-19 has been to shift or accelerate the shifting of people’s day to day behaviour and willingness to adopt technology solutions to fulfil needs that traditionally may have been completed offline.
UNHW investors are considering several tech sectors in the private markets as primary opportunities. Education is high on the list because many schools globally, from primary schools to universities have switched their lesson models from classroom settings to virtual ones. For instance, Snapask, a popular on-demand tutoring app which was launched in Hong Kong, raised $35 million in Series B funding in late February, and is set on further expansion in Asia.
Online food and grocery platforms are hot items as well. According to TechCrunch, Korean grocery startup Kurly raised around US$150 million in a recent round of financing, and Indian platform BigBasket raised US$60 million. Both are examples of companies scaling up their businesses to meet consumer demand from those working at home as a result of COVID-19.
Finally, distancing measures are leading to a greater need for online payments. Silicon Valley digital payments start-up Stripe extended its Series G funding round amid the COVID-19 outbreak. In past weeks, it has seen a rise in the number of customers as distancing measures continued in the US. Stripe has just raised US$600m in new funding, boosting its valuation to some US$36 billion, according to media reports.
Other aspects of technology these investors are considering, fall into the more ‘traditional’ bracket that address ‘the basics’ that any organisation would need. Those include IT services, cybersecurity and enterprise software. These ‘infrastructure’ companies are the ones to keep an eye on as they perform necessary business functions and are embedded in workflows, making them more resilient in economic recessions, according to a recent Bain & Company report.
The report notes that the technology sector in general tends to outpace other industries in terms of growth. Companies set to do well separate to any pandemic situation would likely be those that have technology-related solutions for human resources and software development.
When it comes to selecting a company to invest in, typical due diligence processes which financial institutions follow include reviewing the latest audited financials (preferably going back at least three years). It would be prudent to interview shareholders and customers, and check that all agreements, such as with suppliers, are legal and valid.
Sometimes, as part of the due diligence process, external consultants are engaged to evaluate the business model from end-to-end. They would also be consulted on the fine details of the technology being deployed. While these are standard markers of good due diligence at any time, investors are paying strict attention to checking these off before they buy in.
It is worth noting that no matter what the market environment is, the basic rules to investing still apply – follow a structured approach and ensure a broadly diversified portfolio.
Strong discipline needs to be exercised in assessing opportunities and providing clients access to investment opportunities in private companies where the technology and business model are already validated. These companies have already built a solid track record, and for investors this means a higher certainty in their valuations.Disclaimer applicable to recommendation
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Version: December 2019