Europe has a new VC firm focused on secondaries: Giano Capital. The Geneva-based investor has raised roughly €20m in the first close of a new fund to buy shares from existing investors in late-stage private companies. The team, led by entrepreneur and angel investor Alberto Chalon and former Axel Springer executive Andreas Wiele, is targeting €50m with a hard cap of €100m.
It’s also announcing its first transaction: a primary investment into German car subscription company FINN. FINN declined to disclose the size of the investment.
What kinds of companies does Giano want to back?
Giano is looking to back mainly European companies by buying shares from early employees, founders or early investors who would like to sell before the company has a liquidity event.
The fund wants to back companies that:
- have at least $30m-50m in annual revenue;
- are cashflow positive or on the way to being cashflow positive;
- show a 30%+ annual growth rate;
- are a market leader in their segment.
The firm will back both B2B and B2C companies.
To ensure that Giano can meet its target returns, it’s looking at companies that are roughly two to four years from an exit, whether that's a trade sale or IPO, and have a “clear plan to exit”. If companies don't exit within a certain timeframe, Giano can consider re-selling its assets on the secondary market.
Giano is looking to deploy this fund’s capital in 18-24 months. Because portfolio companies are closer to exit than those in other VC funds, Giano’s investors could see returns faster.
The fund is also looking to co-invest alongside its LPs and other investors. “Fundamentally most of our investors are family offices or high-net [worth individuals] who love to have direct exposure to a single asset,” says Chalon.
“Some of our investors might create value to the company. Maybe they are very exposed to a [certain] country and they can facilitate operations, they can open a new country.”
The opportunity in secondaries
Europe has a handful of longtime secondaries funds such as Hambro Perks, but more have launched in recent years as companies stay private longer and early investors and employees look for a chance to take some cash off the table.
Wiele says that more investors are looking for liquidity because the valuations of their portfolios have dropped and they've not yet realised many gains. Those kinds of investors could help generate some cash by selling stakes in companies to a fund like Giano.
“From the founders to the business angels to the funds, there is a need for liquidity, and on the other side, in Europe, there are very few structured offerings for that,” he says.
Chalon also sees more secondaries as a natural evolution in Europe’s tech ecosystem.
“Secondaries are also important to retain and attract talent. Imagine a private company that gives you an amazing stock option plan but it’s fully on paper, but then you fly to the US where this paper becomes reality,” he says. “If we want to grow as an ecosystem in Europe, we need to be capable of competing with the US and China, and have the best talent working here.”
While Giano is a first-time fund, the team has experience in secondaries. Chalon and the team have made eight secondary investments since the end of 2016 to test the strategy. He says they have returned 120% of the capital since then, generating an internal rate of return of over 40%.
Pricing and the outlook
Most stakes in companies sold in secondary transactions are at a discount; the sellers are essentially paying a fee to get liquidity early. Wiele says that Giano might not buy stakes as cheaply as some investors. The firm applies a discount of 20-50% to the valuation determined in-house by the startup’s management, he says, and then looks at other criteria such as the time since the last round to determine an offer price.
“The secondary market had an image of ‘discount chasers.’ We are to the contrary helping founders clean up the cap table a little bit. It’s never nice to have someone who wants to get out. It’s in the interest of the founders,” says Wiele.
