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Cool Summers and Hot Markets

Although it feels like summer never quite arrived in the UK, financial markets have continued to be on fire.

Although it feels like summer never quite arrived in the UK (or is it making a late comeback?), we are now in September, and autumn lies ahead. However, in contrast to our somewhat tepid British summer, financial markets have continued to be on fire, with the SP500 setting new records and being up roughly 22% this year (roughly 4,500 as of September 5th). Let’s unpack that and also put it in a context for what’s happening in the startup market.

What’s ahead for financial markets? The crystal ball

So far this year, stock markets have grown on the back of continued positive earnings and a benign interest-rate climate. Of course, nobody knows precisely what the stock markets will do in the future but Goldman Sachs’ recently released a comprehensive analysis of what the S&P500 might do over the coming 18 months (“Sharpen your pencils” Goldman Sachs Global Investment Research August 2021).

Their report analyses the historical drivers of stock market returns. They also look at what will drive returns in the near future.

The headline takeaway is that GS expects the S&P500 to continue growing, with estimates of 4,700 by the end of 2021 and climbing to 4,900 by the end of 2022.

GS sees the main drivers of stock market movements as being low corporate tax and interest rates. The expectation is there will be an adjustment to corporate tax rates and that treasury yields will climb modestly.  

Interest rates and inflation

Interest rates continue to be one of the key drivers of valuation. And as we have discussed in recent posts, inflation is the key driver of interest rates (Inflation and Venture Capital Returns, the End of Inflation?) that in turn drive valuations:

  1. Interest rates are used when discounting the expected future cash flows of public companies.
  2. Low interest rates mean that more business projects can deliver positive expected net discounted cash flows. This leads to more projects being financed, fueling future growth and corporate earnings.
  3. Low interest rates have, over the last decade, been accompanied by quantitative easing. This has provided liquidity to markets, pushing valuations up further.

So like many others, we look to inflation for signs of where the macroeconomy is headed.

And if we further break down the sources of inflation, the main driver has been raw material prices. In fact, raw materials have risen almost universally throughout 2021.

Is this inflationary spike likely to be permanent or transitory? Economists at both GS and the Federal Reserve view the spike in raw materials inflation as temporary. They point to disruption to global supply chains caused by the pandemic. And both sets of economists see inflation as pulling back to more manageable over the next 18 months (see chart).

How is this likely to affect the startup and venture landscape?

Different sectors are affected in different ways. However, based on the scenario above, we see the B2B and specifically the business automation segments as heading further towards a Goldilocks zone.

It looks like there will be a modest increase in inflation which will likely lead to upward wage pressure. This strengthens the business case for automation and investment in technology (Martin Sandbu on Wages and productivity – FT paywall).

At the same time, if inflation remains at a modest 2-2.5% (rather than anything more dramatic), this means that major interest rate increases are unlikely. This in turn means that capital will continue to be available to support private and public market companies.

There are still many global issues we need to resolve – not least climate change (and we see intelligent business automation as a key part of addressing this). But when it comes to venture capital for B2B companies, it looks like we are entering ideal conditions for continued growth.

Portfolio News

We mentioned last month that several of our portfolio companies were moving towards their Series A. Around half of the current cohort of 15 are currently jockeying to reach the milestone, with Kluster, Kleene, SeeQuester, Thingtrax, Vaticle and Ai Build all racing ahead. The rest are making solid progress to catch up by focusing on product-market fit.

  • Kamma (the property licensing startup) is hiring 2 new mid-level sales resources. Referrals welcome. The company is also seeing good traction for their partner agency product which helps unlock further revenue streams as explained here by one of their clients.
  • Scribeless is hiring a senior sales leader to amplify the company’s recent 61% MoM growth.
  • Integrated Finance has just signed their 6th customer and are continuing their solid growth. They’ve just hired a new account manager and are looking for a solid CSM, product designer and to extend the dev team.
  • Techsembly is soon to release a multi-store e-commerce solution for the Chinese markets, which was extremely difficult to execute but has huge revenue potential.

If you’d like to know more or can help the founders in any way please let us know


We are excited to be trying our first fireside chat hosted by the inimitable Dan Bowyer. He will be joined by a special guest to talk through their experiences in industry, business and investing. The event is at 16:30 on the 14th of September 2021.

Registration is free for investors: HERE

SuperSeed Fund II

Subscription forms are now ready, and we have started taking commitments for Fund II. The strategy remains to back Europe’s best entrepreneurs in the business automation space. Please get in touch if you would like to learn more about the fund and SuperSeed’s investment strategy (only open to qualifying investors).

Oh, that’s interesting

With best wishes, Dan, Mads and the SuperSeed team

This article is published by SuperSeed Ventures LLP, authorised and regulated by the Financial Conduct Authority. The article does not constitute substantive research or analysis and should not be construed as an investment recommendation. Please note, investments in unlisted companies are illiquid and expose investors to a significant risk of losing invested capital. Please always seek independent financial advice before making investment decisions.