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Heliad’s New Year Letter

Dear Investors, Founders, Friends, and Family,

As we return to our desks from spending precious time with our loved ones, we at Heliad review the past eventful year and like to share our thoughts regarding the promising year 2024 lying ahead of the Venture Capital universe.

Heliad 2023 – A demanding year with many achievements

Successful merger: We successfully concluded the merger of FinLab AG and Heliad Equity Partners, creating the new combined entity named Heliad AG in Q3 of 2023. This pivotal move has elevated us to the forefront of Germany’s VC ecosystem, as we positioned ourselves with investments in some of the most promising German start-ups, including Enpal B.V. and Raisin GmbH, a competitive cost structure without management or performance fees, a governance-friendly AG structure with ~40% free float, and a combined NAV north of € 150m*. Thereby following our mission to provide public markets access to first-class companies in this vital, yet traditionally exclusive, asset class.

*NAV as of 31.12.2023, preliminary and unaudited.

Launch of crypto on chain fund: Although still in stealth mode, we kicked off our new crypto multi-strategy vehicle Heliad Crypto Partners, led by newly hired field expert Christopher Garlich who joined from previous top positions at Raymond James and Morgan Stanely. With a finely tuned mixture of early-stage VC investments, and directional and market-neutral crypto investments, the internal validation phase delivered promising results outperforming Bitcoin and Ethereum in the closing months of 2023, creating excitement about future performance.

Strong performance of our two largest portfolio companies: Our major portfolio companies Raisin and Enpal both managed to close significant late-stage funding rounds, confirming their unicorn status and setting new benchmarks in the fields of GreenTech and Savings Solutions. Enpal doubled its valuation by raising over € 200m at a € 2bn valuation in January before it doubled the count of installed solar systems to 30.000 in 2023. Additionally, Raisin impressed with the doubling of its Assets under Management to over € 50bn in 2023 after starting the year with its successful Series E, injecting € 60m in equity funding. We are strongly confident that these two portfolio frontrunners will extend their potential and generate further value appreciation. This also holds for our stake in flatexDEGIRO, with its share price rising by ~71% in 2023 due to strong top- and bottom-line performance growth.

Double down on winners: Our confidence extended to reinforcing investments in strong followers, including the fast-growing D2C BBQ brand Burnhard, the transformative global B2B payments provider Modifi which is now the embedded solution for major B2B Platforms like Airwallex, and the AI-driven B2B market research company NewtonX. These investments underline our commitment to diversifying and strengthening our portfolio and more are in their final stages, so stay tuned!

Being impacted by the market environment: Nonetheless, the portfolio was not untouched by the effects of the hardening market environment. The 2021 invested company InstaFreight emerged overindebted and was forced to file for insolvency.  And the consequences of the comprehensive restructuring measures undertaken by Nextmarkets remain to be seen. These instances have been valuable lessons in the importance of resilience and adaptability.

New investments: Furthermore, we’re excited about our new investments, including AI21 Labs, the anti-hallucination Generative AI player from Tel Aviv, Israel. The company attracted renowned investors like Intel, NVIDIA, and Google, culminating in an oversubscribed $208m Series C funding round.

Next to diligently nurturing our portfolio, we are actively crafting a complementary strategy, designed to maximize the utilization of opportunities we see in the VC landscape. Keep an eye out to witness how Heliad is further expanding the traditional venture capital model!

State & 2024 foresight
VCs and Startups alike, suffering through the persistently challenging market environment for the financing of young growth companies, which fuels the engine of the European Small- and Medium sized companies like no other, finally see some awaited light at the end of the tunnel. The recent years laid the foundation for an unprecedented prospering European ecosystem with innovative breakthroughs in trend-setting industries including GreenTech and AI. Fueled by a substantial number of highly educated and talented people, driven by the ambition to address fundamental challenges of our century to accomplish the social and economic transformations necessary.

Following a thorough revision of the VC landscape, desirable macroeconomic factors are beginning to fall in line, paving the way for the essential work to commence. Inflation is cooling off, global interest rate cuts are within reach, and the leaders of Europe finally seem to be acknowledging and supporting the approaching wave of innovation and value establishment. The diverse governmental initiatives on country or pan-European level like the InvestEU program, as well as legal framework revolutions like the German Future Financing Act to create, amongst others, the long-awaited incentives for employee participation, are a gamechanger in enabling Europe to regain its global competitiveness as a top-tier investment location.

In addition, major financial institutions like Goldman Sachs predict the reopening of the IPO window in 2024, implying large-awaited liquidity events to refuel young companies’ growth. After a long drought since its peak in 2021, a notable backlog of IPO candidates will bring the appetite of public market investors to the test. Potentially insufficient demand and valuation differences would place further pressure on private markets.

However, it is still far too early for hymns of victory. With ongoing conflicts in the Middle East, the Russian invasion of Ukraine, rising tension in East Asia and Latin America, as well as the upcoming election year in the US, the world faces geopolitical risks to an extent difficult to estimate. And as the world’s central bank governors never fail to emphasize, the battle against inflation and a feared recession has not yet been won.

Consequently, it is unsurprising that investors continue their risk-averse behavior, following the trend of flight to quality – defensive investing in companies with durable business models and sustainable competitive advantages, meaning low leverage, stable earnings, and high profitability. A trend observable for the public markets where the clear factor-tilt of quality returned ~31% (MSCI ACWI Quality Index) in 2023 and strongly outperformed other indices like the world-covering index MSCI ACWI (~20%), the American S&P 500 (~24%), or the German DAX (~20%). As soon as the first interest rate cuts become tangible, we expect investor confidence to return and SMEs, listed and private, to catch up.

Index Performance 2023 comparison, data by PitchBook

The trend continues when looking at VC funds, with first-time fundraisers almost disappearing from the headlines with a ~74% decrease in count in 2023, compared to the peak year 2021, and the average fund size raised reaching a new peak at $ 123m (Pitchbook, 2023 Q3 YTD).

In connection with the setback to 2015 levels of capital raised by VC funds in 2023, VC fund managers increasingly grab the chance to invest in tier-one investment opportunities through deal-by-deal syndicates, boosted by lower uncertainty and a lower hurdle of commitment for LPs than with an extensive VC fund investment. This structural development benefits both VC managers and funded startups, particularly informed LPs seeking to maximize control over their invested funds.

Beyond that, these public market investors also suffer from a structural shift in IPO dynamics. Nowadays, companies enter public markets at an increasingly mature stage, evident in the 3.8x larger average tech market cap at IPO during the last decade compared to the previous one, disregarding the latest outlier years. Therefore, not investing in pre-IPO increasingly compromises the ability to catch a major slice in value creation.

The current crisis-resistant cohorts indicate a strong quality for future sustainable value creation and inspire our view of the times ahead. Dry Powder remains near record high, indicating a temporary investment reluctance instead of missing funding volume. With flat or declining interest rates in 2024, we expect a significant rebound in VC deal activity. Regardless of the short- and mid-term macroeconomic difficulties, the long-term structural shift to a sustainable future with pioneering technologies generating large-scale impact at historical dimensions on our everyday lives, determining the VC case par excellence. More precisely, we are convinced that compared to the US, with 57% lower valuations across all stages, 2x more STEM students, and 1.7x more patent applications, Europe has great chances to lead the next wave of innovation and value creation. Check out our latest research “Unlocking European Growth Potential” to gain further insights into our conviction!

As a consequence of the ending capital abundance, we see capital efficiency as the decisive factor for a successful or failing startup. The intelligent use of all different sources of capital to finance growth is a major key to success and we look forward to continuing our active support for our portfolio companies in 2024.

We hope you are as excited and eager for 2024 as we are and wish you a successful and insightful year ahead.

Remaining with best regards,

The Heliad Team

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