Viktoriya Tigipko, Founder and Managing Partner at Ukrainian venture capital firm TA Ventures, explains why European markets should stay the funds’ investment destination even despite the high inflation, looming recession, and soaring energy prices on the continent. AIN.Capital publishes her LinkedIn post.
It is difficult to find reasons for optimism in the markets now. On the European ones — even more so. The continent is struggling with high inflation, a looming recession, and soaring energy prices. Despite this, we at TA Ventures continue to invest in Europe, which makes up about 50% of our portfolio. Among the investments, for example, Goin from Spain (savings app), Casc from Germany (home medical tests) and Party.Space from Ukraine (virtual events platform).
Here are three reasons why it is still worth investing in Europe:
- Europe remains home to many quality companies.
Investing in the continent does not necessarily mean betting on its economy. More than half of the revenues that go to its companies come from outside the continent. Here are just a few examples of successful European companies from our portfolio that do business outside Europe.
- DeepL, a German neural machine translation service, supports 24 different languages and, by the way, is ahead of Google Translate in its accuracy.
- SumUp, a British fintech unicorn, now operates in more than thirty markets worldwide.
- Sheep Inc, a British clothing brand with a negative carbon footprint, sends its products worldwide.
Europe is home to international luxury clothing, spirits and car brands such as LVMH, Hermès, Kering, Richemont, Pernod Ricard, Ferrari and Porsche. The recent market downturn could be an excellent opportunity to buy their shares at a bargain price.
Of course, the luxury sector is not immune to the recession. However, its dependence on ultra-high-income consumers puts it in an advantageous position. These brands can raise prices without significantly affecting demand from their wealthy customer base.
- The second reason is that local companies have longer-term incentives to cut costs.
In the same industries as US companies, they have historically traded at lower price/earnings (P/E) ratios. The reason is that, all things being equal, European companies tend to have a more inflated cost structure than their American counterparts. All because of higher tax rates, labor costs and regulatory burdens.
Rising energy prices will undoubtedly worsen the situation. But it is also a much-needed incentive for companies to focus on cutting costs. It will help to be competitive on a global level.
- The third reason is that Europe is also one of the leaders in the field of “green” technologies.
High gas prices and the urgent need for energy security will only accelerate the region’s transition to renewable sources.
At the same time, Europe offers better investment opportunities in the field of “green” technologies than any other market. For example, it is home to leading wind turbine manufacturers Vestas, Siemens Gamesa, and Nordex. And also leaders in producing “green” energy — Iberdrola, EDP, Enel, and Orsted. And the measures of the European Green Deal will continue to stimulate the growth of companies in this area for many years.
About TA Ventures
TA Ventures is an early-stage venture fund, backing companies in Europe and North America at Seed and Series A, alongside high-profile co-investors, across a wide range of tech sectors. Its typical ticket range is between $250,000 and $1 million. It also provides follow-on investments.
Previously in 2022, TA Ventures participated in a $17 million round closed by a New York-based biotech startup Gameto, together with private investor club ICLUB in a $125 million round of orthodontic Barcelona-based startup Impress, and invested in German fintech startup Forget.Finance.
