Latest news with #PeterSpecht
CNBC
a day ago
- Business
- CNBC
VCs use this 'power law' to decide whether to invest in startups: We want 'outsized-outcome potential'
As pitches from founders come flooding in, one investor has revealed how VCs use a historic "law" to identify the best investments. "The power law in venture capital basically means that a small number of investments generate the vast majority of returns. So essentially, one or two massive winners outweigh all other investments combined," Peter Specht, general partner at European VC firm Creandum, told CNBC Make It in an interview. He described it as "significant in decision-making for VCs." The power law originates from the work of late-19th-century Italian economist Vilfredo Pareto. He noticed that 20% of the pea pods in his garden produced 80% of the peas, and applied this observation to economic conditions and wealth disparity. Specht explained that, as VCs often finance ideas that are risky and innovative, they know that some of these startups will fail. But the returns from the companies that succeed can become "massive winners," which "outweigh all other losses or smaller exits," he said. "From a return perspective, you want to really hit the outliers. We want the Spotifys, the Revoluts, the Klarnas," he said. "Outcomes at that size, or that scale, return more capital to investors and founders than five, billion-dollar exits. A $50 billion exit is way bigger than five $1 billion exits." Although the route to securing venture capital in Europe is improving, there's still some way to go, according to Atomico's State of European Tech Report 2024. In fact, the average seed round — the first official round of fundraising — in Europe was $1.4 million last year, compared to $3 million in the U.S., Atomico found. It's even harder at the growth stage, with American startups twice as likely to raise funding rounds of more than $15 million. Some 60% of respondents told Atomico in 2024 that it was harder to raise external finance compared to the previous year. Specht said one key way to convince VCs that you're building the next Spotify or Revolut is to show that your company has "outsized-outcome potential." "You need to pitch why it can become so big, why it can become a category-defining company," he said. This includes explaining how you're tackling the market and how the product can expand over time. At the seed stage, having an early product or pilot users with positive feedback can help. If you don't have the product yet, there needs to be evidence that the product is filling a gap in the market and is offering a genuine solution to customers. VCs also look for "exceptionally strong and ambitious founders," Specht said, adding that he wants to understand their motivation and drive. "One thing we obviously ... like to see is if founders have a spike in a particular area, or a skill, and shown excellence in that," he said. This could be work-related, such as having technical or leadership capabilities, or even excelling in sports or studies. Given the gap between fundraising in Europe and the U.S., Harry Stebbings, the founder of 20VC, identified a difference in the way founders pitch. American founders tend to be more bold and ambitious, Stebbings said, compared to their counterparts across the Atlantic. "I don't think Europeans are as good fundraisers [as Americans]. We need to tell better stories. We need to market ourselves better. We are too self-deprecating," he told CNBC Make It. Some founders have even been "badly" advised to include "exit slides" in their pitches, Stebbings added. "That makes me feel sick, like I'm planning my divorce when I get married." While Specht disagrees that European founders lack ambition, he thinks that startups in the region could tell better stories. "We have people and founders that dream really big and want to build massive companies," he said. "In the general culture between Europe and the U.S., I think U.S. founders and Americans are pretty good in storytelling and also pretty good salespeople." "There, we can focus on being even more bold, having an even more refined and visionary storytelling," Specht added.
CNBC
10-07-2025
- Business
- CNBC
Startups love the UK. Its IPO market? Not so much
U.K. capital markets are at a crossroads. The country's startups raised $8 billion in the first six months of the year, according to a report from Dealroom and HSBC Innovation Banking — more than France and Germany combined. It also found that the U.K. was Europe's top destination for venture capital for the 30th consecutive quarter, claiming 30% of all capital raised across the continent so far this year. But there's a flip side. Dealogic data shows fundraising from London IPOs in the first half of 2025 fell to its lowest level since data was first collected in 1995. Just five companies made their debut on the London market in the first six months of the year, raising £160 million. The dismal figures follow a number of high-profile blows for the London Stock Exchange. These include money transfer firm Wise's decision last month to move its primary listing location to the U.S., and reports that British pharma giant AstraZeneca could follow suit. Peter Specht, general partner at Creandum, one of Europe's most successful early-stage VCs, said he sees some momentum in the IPO market, but called for much greater collaboration between the different stakeholders. "I think what's most important is the dialogue between the tech leaders that are soon going to IPO and the next generation that will do so in a few years, and the regulator," he told CNBC's "Squawk Box Europe" Thursday. "I think we need to foster that discussion even more and act on it, because what we need in the U.K. and Europe is make it as attractive as possible for companies to IPO here." The Confederation of British Industry has called for a new narrative around the LSE and publicly listed companies, saying that "bold action" is required to revitalize U.K. public equity markets. London Stock Exchange CEO Julia Hoggett told CNBC that "a language of risk" has been created in the U.K. over the last 30 years, "rather than the language of the opportunity that comes from investing." She called on the government to think with an investment mindset, saying "we've so protected people from the downside, we haven't exposed them to the upside, and as a nation, we haven't had a conversation about the opportunity cost of that." This risk-averse approach is something Edward Knight, president at VC firm Antler, has witnessed, telling CNBC that the appetite for risk that exists in some corners of the world "certainly doesn't exist" in the UK. He urged the country to learn from the past, saying: "We had the opportunity to welcome crypto into our arms when the SEC under Gary Gensler was rejecting it, but we passed up that opportunity. We let it go … Let's not do the same thing again on AI." In its report, the CBI called for policies that would improve liquidity and competitiveness, while strengthening the IPO pipeline. The London Stock Exchange's Julia Hoggett has hailed its reform agenda in recent years, telling CNBC, "we have really made our markets match fit." Meanwhile, Nigel Morris, managing partner at fintech VC platform QED Investors, told CNBC via email that the U.K. government is working to address concerns from U.K. business leaders. These include "the current tax scheme, which some say punishes employees of growth stage companies, or the limited ability to access capital for scaling fintechs." So where does all of this leave the outlook for London IPOs? Hoggett says the pipeline for listings is growing. "It's a bit like an iceberg below the surface … but that pipeline is building very rapidly, and from around the world, because I think the reforms that we've seen in the U.K. have actually enabled the U.K. to be a really compelling proposition." Norwegian software giant Visma has chosen London for its IPO next year, according to news first reported in the Financial Times, but the pipeline beyond that appears to be quiet. "I think the founders of these businesses have to have a long, hard think about where they think their interests are best going to be served by going public," said Antler's Knight. "And there's a lot of complications and dynamics to being a public company, and so they need to discuss these with their boards, go through this with their investments, find out where those interests are best served."
CNBC
10-07-2025
- Business
- CNBC
'The window is opening again': Creandum's Peter Specht talks IPOs
Peter Specht, general partner at Creandum, discusses the challenges facing startups considering a potential European IPO, and why he thinks the U.K. is well positioned for the AI wave.
