The Opportunity
Accessing Innovation and Growth
While many investors can identify structural growth trends, it can be challenging to act upon these insights. It may be difficult for many investors to access high-performing private companies, be they start-ups or more mature businesses. This is where private equity can help.
Many start-ups are staying private for longer and only going public at more mature stages of their development. This is particularly true for technology companies.¹ The significant dry powder now available to private equity funds makes scaling via private funding rounds feasible. Indeed, it is often preferred by business owners, as private capital is far more patient than public capital. Growth rates in the early years of a start-up tend to far exceed those in later years, thus offering significant upside for investors who can access them. Yet mature companies and industries are not immune to disruption, and there are excellent private investment opportunities across the business spectrum. This makes private equity top-of-mind when investors are considering how to access structural growth trends.
1 Average of median ages of tech companies going public over five years from 2014 to 2018 was 11.4 years, up from just 7.6 years in the first five years of the new millennium. Source: Jay Ritter, Initial Public Offerings: Technology Stock IPOs. December 31, 2018.
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Innovation and the Emerging Consumer
The fundamental investment opportunity presented by disruption is consistent, but the prevalence of these trends in each region varies. This report will explore the exciting themes of innovation and the emerging consumer across Europe and Asia Pacific.
Innovation includes both inventing new technologies as well as taking new technologies and combining and applying them in creative ways to meet consumer or business needs. Start-ups in Europe and Asia Pacific rival their US counterparts in the innovation stakes: As of October 2019, 195 of the 413 global “unicorn” private companies – those valued greater than $1 billion – were based in Europe or Asia Pacific.
Disruptive Influences
413
Number of unicorn companies globally
101
Number of unicorns in China
$1.29T
Combined value of global unicorns
30.3%
China’s share of total unicorn value globally
Source: HarbourVest analysis of CBInsights data, as of October 29, 2019. Note: Company values used in calculations may be estimated and subject to rounding.
The emerging consumer theme is primarily an Asian phenomenon as incomes continue to rise in rapidly developing markets. The potential for growth is huge in India and China as well as across several countries in Southeast Asia.
In China, for example, average yearly wages increased 122% from 2010 to 2018, contributing to the creation of a large and demanding new consumer class.² There are therefore significant opportunities for savvy consumer companies in a land where both online and offline retail are rapidly going fully digital.
2 China Ministry of Human Resources and Social Security. In Chinese Yuan terms. Average yearly wage of CNY82,461 in 2018, up from CNY37,147 in 2010.
China’s Emerging Consumer
Where We Are Now 20 years of rapid household consumption growth…
…but plenty of room for more
$4,103 – Per Capita Disposable Income in 2018 (compared to $49,094 in the US)
Looking Ahead to 2027
Sources: China National Bureau of Statistics; US Bureau of Economic Analysis; Bain & Company, Consumption in China: Ten Trends for the Next 10 Years, June 2018.
Combined Market Opportunity in Europe and Asia Pacific
Fundamentally, the combined opportunity in Europe and Asia Pacific is one that investors should not ignore, accounting for nearly three-quarters of global GDP growth.
