Italy gets its first unicorn as Scalapay raises $497M from Tencent
sifted.eu
sifted.eu
I feel like in a decade us Europeans will be sitting around wondering why we sold off promising startups to China like we did US tech companies the previous decade.
Buying something to own/control it and investing in something for an expected future return are very, very, extremely different things and even more so in this context.
Both formally (terms and conditions signed by all the parties involved, and there are many here and it's Series B, the clauses regarding equity, control, debt, exits and so forth) and practically.
The distinction is that "acquire" means controlling interest. Investing $497 million when the valuation is over $1 billion means... (doing the math) ... Tencent has less than 50% ownership. At this point, Tencent only has an investment and not a controlling interest. Therefore, Tencent did not acquire Scalapay (yet).
This isn't being pedantic about semantics. Instead, it's being very clear about who controls Scalapay based on how much ownership percentage was purchased.
Another example of the difference... in 1997 when Microsoft invested $150 million in Apple, it did not purchase enough ownership % to consider it an acquisition. The $150m is a lot of money but MS didn't acquire Apple with that transaction. (https://www.google.com/search?q=microsoft+invests+%24150+mil...)
EDIT reply to: >Valuation has nothing to do with controlling interest. They are unrelated.
Setting aside a multi-class stock arrangement with 10x voting rights which would be unusual for non-public company at this early stage because it requires approval by the previous investors & founders, the post-money valuation is mathematically related to the ownership percentage purchased -- and therefore determines if there's a controlling interest.
> This isn't being pedantic about semantics.
You are quite simply wrong. Valuation has nothing to do with controlling interest. They are unrelated. A company can have 100 shares, each worth $1, and be valued at $2,000,000,000.
Not OP. But that company is worth $100.
“Worth” is an ambiguous term, however, as it encompasses value in both par and market. One case makes you right. The other, the other.
If you say a company’s shares are “worth” $1 per share, you imply that’s what people are willing to pay for it. If you’re playing with the word “worth,” it’s your incumbency to explain that deviance from the common use.
Par value is a legal term. Book value is an (increasingly anachronistic) accounting term; actually, several terms, since GAAP book is separate from IASB or Chinese book, but I digress. Each of which are separate from market value, which is also various; consider a public stock: does one take the bid or the offer or the mid market tick? At Noon or the closing or a VWAP?
Companies play with their headline valuation. In this you are correct. But they’re playing with the ambiguity that stumbles you.
> Technically, no. You can acquire control of a $100bn company for $1 if the shareholder agreement says so. Votes and dollars don’t have to correlate, particularly in Italy. [1]
In the case of pre-public companies, where there is not a robust, liquid market in shares of the company, it can be difficult to figure out what the valuation of the company is. In that case, we often revert to the most recent time when lots of shares were sold, and what they were sold for. In the hypothetical scenario you refer to, this is a bad approximation.
If a company has, for example, liquid assets worth several million dollars, no liabilities that need to be paid off, but someone is willing to sell the company for $100, then that's a dumb valuation, but it's still the valuation.
Technically, no. You can acquire control of a $100bn company for $1 if the shareholder agreement says so. Votes and dollars don’t have to correlate, particularly in Italy.
Practically speaking, you’re probably right.
For all consequential purposes, their huge preference means they already do. You can bet there is strong language where Tencent (China) can veto big decisions, and hold that over the teams head for smaller ones.
If you tax away capital formation (or vote for people who do it) it's useless to wonder why European entrepreneurs take foreign capital. Most of them outright emigrate anyway so you don't even get to notice it.
Chinese companies are a bit nationalist, and they definitely have some internal actors from the CCP there for purposes of oversight, and in a pinch can very easily have their arms twisted - but - they are just companies wanting to make money really.
Tencent is just Tencent. They will follow internal censorship laws, but it's likely just a matter of moderation much the way FB does it, but with different parameters, and taking some direction from the state. My guess is that for the most part Chinese companies are fine with it. For products they control outside the country my estimation is that it's censored in a completely different way, much more liberally, but some things might get scrubbed.
Of course investing in a company is different than owning it (i.e. >50%) and it's very different if it's based in China vs. a European company.
China has huge trade surplus. What this means, is that we send them USD/EUR for 'stuff'.
Eventually, they have to use those USD/EUR for 'something'. What are they going to buy? Well - stocks, real estate, companies etc..
It's actually rational for EU/USD to sell them things at hugely inflated price tags, it's a nice way to bring the cash back in on good terms.
If they are cash-flush, then they might just be looking to protect their money as much as anything.
In most cases, it's unlikely that having a Chinese investor will make a huge difference in terms of anything happening out of China. It's unlikely the could or would make censorship demands on anything happening outside of China, that said, if they gain control, it's a bit of a different story.
Not disagreeing or trying to get capital P political, just giggled a bit at "not profit" being the ominous factor. "Only in it for the profit" is now, perhaps, the devil we know.
More seriously, I get the point you are making. I don't know what I think of it all, honestly. There could be arguments in both directions. Maybe I'm overly considering the current crisis in Ukraine, but doesn't having holdings in the west disincentivize conflict and rifts? At some point along a conflict ladder, foreign assets get seized.
Maybe it's good to be exchanging hostages. I suppose it's just ambiguous/arguable what counts as who's hostage.
WWI and China’s accession to the WTO say no.
Lol. You think it would be so simple for Italy to take control of a Chinese owned company? You think they could just do that at the snap of their fingers, with no repercussions?
yes, because the profit in the future would be priced into this sale today - presumably owned by italian.
This means the funds could be reinvested in a different company today - a new start up perhaps - which creates more profit in the future.
The problem with buying control for more than just profit (or regardless of profit) is that those who are buying control is seeking to control more than just commercial interest. If an unfriendly gov't were to instruct such holders to perform certain tasks, they would comply.
So it’s usually safer to have a Korean, Japanese, W European or Anglophone company take a stake. Obviously, all companies have some ties with their governments but the difference is degree and independence as well as a non-rubber stamping judiciary. Revolving doors can be an issue but it’s much less an issue than actual gov officials embedded in companies.
Not when said asset is a movable one.
While what you're saying is true, might it be a brilliant time to sell a chunk to Tencent? If you believe that China is likely to invade Taiwan soon, and western countries will respond by freezing any Chinese assets overseas (see: Russia/Ukraine), might this be a great way to pocket cash and then have the equity revert back to you in a few months?
That said, Tencent seems to own a chunk of most important private tech companies and most mid-level game companies.
I recently visited Milan-Florence-Rome and these feel to me very much like the startup scene in San Francisco in the mid-1990s, ready to grow fast and big. I believe the missing ingredient is more VC startup ecosystem help, from incubators through Series A. If you're interested in this area, I'd love to connect because I see opportunities to grow the talent and money in Italy instead of having it leave for London & NYC.
Setting up shop or working as a freelancer just pays so much better.
Economists would argue that it's a mixture of things: high taxes, low productivity, broken justice system, slow and intricate bureaucracy that does not really work, etc.
I bet that if Italy's economy would be based on high value-added industries (like France and Germany), less people would complain about high taxes.
All of those things are absolutely true. I mentioned taxes because taxation at 46% of the GDP (pre-covid) is just ridicolous.
Of course I expect a different opinion from the top 3% income tech bro libertarian bent of the HN user base. But I haven’t seen a compelling reason here to think life for the average American is better than it is for someone in the EU.
For high earners the EU comes with a jaw-dropping price tag. The effective tax rate on a 200k income in Finland is over 50% for instance. In the US even the _marginal_ tax rate is nowhere near that.
For 200k (euros), that's $250k or so which is 35% federal (single filer), 9.3% California for 44.3%. (Which I would argue isn't that far off).
It would probably be more useful to compare effective tax rates and what you get for them. In the US, Social Security applies to the first $147k now (so on $250k that's 3.6% effective), but you also get a small retirement income. In Finland, I assume people get services in exchange for those taxes that you might be paying for in the US (e.g., healthcare, childcare, education, and retirement income), so you can't just compare using "what are relative tax rates like?" as a question.
tl;dr: taxes and services are nuanced!
Anyway, I like the EU, but it still is a harder place to build wealth on the whole. Where I am you pay tax on _unrealized_ gains in ETF's (called deemed disposal), CGT is high (33%), and you get much less advantage saving for retirement than in the US.
On the other hand, if I lose my job, unemployment benefits more than cover our monthly expenses if we pare back a bit. Our overhead is low.
If it tells you anything I went back to California to start a company. Then, after someone drove a car in to my wife and the cop lied about her statement and she was lucky not to get a huge bill (it was the first few months of Obamacare before the horrific deductibles came in), AND she took her 1 week of vacation and that was it for the year, we decided to hell with that and moved back to the EU.
At a million dollars of salary, that is not going to make a difference to anyone, especially because most of the $30k premiums will be paid by employer, so you are left spending $20k out of pocket maximum including your portion of the premiums.
I would just add $15k for a single person / $30k for a family to tax expenses to compare relative taxes for an employer person in US vs EU.
But a very large chuck of the difference are “cotisations” a word that does not exists in English and is often inaccurately translated to “taxes”.
Those cotisations is money I will get back once old, sick, or un-employed. It can’t be spend on buying new fighter jet or fixing the roads.
Specially in a context where one side of the political spectrum is constantly pushing to reduce the tax burden. Cotisations can be set aside in that discussion ( because, they are not taxes, you are guaranteed to see the money back in a specific and personal way )
Another difference is that French folks rely and plan to use the equivalent of Medicaid more. Here; my understanding is that it’s a nice bonus. ( I might be wrong )
And I was surprised to see that on average I pay almost a net month of salary. ( I pay 10k in 2021 so far, I will get a small return )
While in France, I was paying a month of my salary as well. ( roughly 3k / year )
Listening to French media, I thought I was moving to a tax heaven while going here. Meh. I kinda pay the same thing.
Except I don’t get any benefit and half my salary needs to be stashed away to important, non négociable futur use. ( while that part is done for me in France automatically though socialized taxes )
I understand why you guy don’t like taxes thought : you really don’t get much back.
But quality of life… oh man quality of life. Or education, I don’t want my kids to deal with education here.
But y’all are lovely.
There are plenty of things to like about the EU but let's not kid ourselves, America is pretty nice if your goal is to be wealthy (and most people want that, even if they won't admit it).
The Americans the EU would be best for are, for the most part, the ones who can't get a visa.
You have high taxes, slow and intricate bureaucracy (it took more than 3 months to complete the house purchase process in Germany whereas in Italy is far faster), low productivity, tax evasion, etc etc but somewhat Germany works slightly better than Italy that generates far better results in the end.
you're bot not mentioning irregular work and tax evasions. that and the fact that some regions produce a net positive in terms of per-capita gdp while other produce a net negative (a significant net negative).
That's not horrifically abnormal. A 2x multiplier on salary is considered standard in the US for the cost to an employer. If you make 20% less than a US counterpart, the company is breaking even.
The term "Unicorn" hasn't been coined yet back then.
Source: my business partner was the co-founder of I.Net.
And BTW, congrats although 20 years late :)!
and before the boom: tiscali.
But before depop I'm not sure why people keep ignoring/forgetting about YOOX?
I complain about China here all the time, and the worst that has happened is a particular Hong Kong-based Frenchman disagreeing with me. ;)
This is not a very big company, this is one of those huge multiple type valuations we've seen of the 'SoftBank' type.
Tencent also put $50M in Kit a while back at a sky high valuation.
I think this is really about a lot of excess Chinese owned US/EU currency looking for a place to park, and so valuations are still lofty in this way.
Tiger Global et. al. have said they are pulling back from the later stage huge buy ins and this is the opposite of that.
TLDR : madness
And almost nobody is talking about what Scalapay actually do, not in the article, not in here. How is this payment platform different than the other ones ? What tech are they using ? Is crypto-currency involve ? Do they actually propose apps on android and iOS to do payment for shop owners ? Is it nice to use ? What the point of paying everything in 3 times ? What will they do with 497 millions dollars ? You could create 497 payment companies with that money.
How are they going to make money?
Genuine question - how would that work?
BNPL companies tend to have pretty low limits and demand repayment fairly quickly, so I don't think it could lead to a GFC-scale bad debt situation at the very least.
https://www.hrw.org/news/2020/09/28/chinese-tech-firms-fueli...