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Professional Investor - Netherlands
21 February 2023

Disruption is getting expensive

Since capital is no longer available at zero cost, investors have regained interest in profitability and cash flow generation. That works in favor of dividend investors. In the past decade, there has been relatively little interest in established, cash-generative companies, as was the case during the tech bubble. It is possible that 2022 was the beginning of a new chapter, in which incumbent companies will be rediscovered. 

Goodbye free money
Last year, central banks around the globe significantly raised interest rates to temper soaring inflation. With money not being freely available anymore, investors started to demand higher expected returns as compensation for taking investment risk. The adjustment transpired through a price reset of assets, resulting in a broad selloff in markets. 

Not entirely unexpected, especially more speculative and early stage companies sold off sharply as these had also benefited most from the low rate environment. The latter group includes numerous examples of companies across sectors that were expected to ‘disrupt’ the established players in their end market. The consequence is that for most of these ‘disruptors’ raising additional capital is much more expensive, and more dilutive for existing investors as we will show with some examples below. 

Within the financial industry, ‘buy-now-pay-later’ was seen as a disruptive force that would rapidly gain share in the unsecured consumer lending market. Companies such as Klarna, Afterpay and Affirm were some of the darlings of the industry. Although the basic economics do not differ materially from using a credit card, several operators successfully integrated their services in high-growth businesses, such as online retail. This enabled them to also grow at a rapid pace. 

Affirm IPO’d in 2021 at a valuation of 12 billion USD. The shares jumped 98% on the first day to a market value of 24 billion USD and subsequently grew to over 45 billion USD. By now the shares have plummeted and the market value has dropped to 4 billion USD. 

As the company is still loss-making at an operating income level, chances are that they need to raise additional capital going forward. To raise 1 billion USD at a market value of 35 billion would require less than 3 percent additional shares. This stands in stark contrast to the 25% additional shares at the current valuation. The high cost of raising additional capital will likely force the company to slow growth and focus on cash generation. It appears that also investors that have bought in paid (the price) later.

Expensive car lessons
In recent years, the automotive industry has been flooded with start-ups, which were supposed to take over the car market with their shiny electric vehicles (EVs). In the era of free money, raising capital for these types of companies, which had not even produced a single car, was not a problem. That has changed dramatically in the current environment.

Take, for example, the American EV company Rivian. The company went public at the end of 2021 at a valuation of 67 billion USD and at its peak recorded 153 billion USD. The market value has since decreased to 19 billion USD. 

Investors are no longer lining up to fund their loss-making growth. Meanwhile, traditional car manufacturers have woken up. They have improved and accelerated their own EV strategy and have become serious contenders in the EV market.

Beyond ‘Beyond Meat’
In the food industry, many companies with plant-based product assortments were launched. The most famous names are Beyond Meat and Impossible Foods. The idea was that plant-based burgers would turn the meat industry upside down.

However, the demand for plant-based burgers appears to be lower than expected, which means that the outlandish growth expectations have been jettisoned. The market cap of Beyond Meat was over 12 billion USD dollars at the peak. That's now just over 1 billion USD.

In the meantime, traditional food producers, such as Nestlé or Unilever, have developed their own plant-based product range. Unlike unprofitable start-ups, they do have the cash flows to continue financing the innovation of these kinds of new products.

Unicorns and big tech
Of course not all disruptors are listed companies. The last decade is known for ‘unicorns’, venture capital backed companies with a valuation of more than 1 billion USD, as companies have waited much longer to IPO compared to the past. It is hard to imagine that the dynamics described above will not also negatively impact private market valuations. 

Besides that, it is also not just new entrants who have fewer opportunities to disrupt markets. Big tech's innovation budgets are also being cut. In order to improve cash flows, they implemented cost cutting plans. Which growth initiatives add value and which do not? Companies across the board looking more critical at what they allocate capital to, has made competitive landscape a lot more rational. 

Incumbents revive
The likely consequence of all of this is that existing investors will not view high sales growth on the back of high cash burn so favorably anymore. They will push these companies to slow growth and focus on cash generation of their existing business. This should significantly moderate these companies’ disruptive impact.

Investors have regained interest in current profitability, cash flow generation and capital discipline. With the risk of disruption significantly diminished, industry incumbents are viewed much more positively. This works in favor of dividend investors, who typically invest in these types of companies.

While the MSCI World ended firmly in the red in the eventful 2022, dividend strategies fared a lot better. Our Global High Dividend Fund even managed to end up slightly in the green. If 2022 was a prelude of what awaits investors in the upcoming years, then dividend investors in particular can look to the future with optimism.  


Van Lanschot Kempen Investment Management N.V. (VLK IM) is licensed as a manager of various UCITS and AIFs and authorised to provide investment services and as such is subject to supervision by the Netherlands Authority for the Financial Markets.

This document is prepared by the fund managers of Kempen Global High Dividend strategy (‘the Strategy’), managed by Van Lanschot Kempen Investment Management N.V. (VLK IM). The Strategy might currently hold shares in the subject company. The views expressed in this document may be subject to change at any given time, without prior notice. KCM has no obligation to update the contents of this document. As asset manager VLK IM may have investments, generally for the benefit of third parties, in financial instruments mentioned in this document and it may at any time decide to execute buy or sell transactions in these financial instruments. 

This document is for information purposes only and provides insufficient information for an investment decision. This document does not contain investment advice, no investment recommendation, no research, or an invitation to buy or sell any financial instruments, and should not be interpreted as such. 

This document is based on information that we consider reliable, but we do not represent that it is accurate or complete, and it should not be relied on as such. 

The views expressed herein are our current views as of the date appearing on this document. This document has been produced independently of the company and the views contained herein are entirely those of VLK IM.

The authors

Reineke Davidsz Van Lanschot Kempen

Reineke Davidsz

Portfolio Manager

Luc Plouvier Van Lanschot Kempen

Luc Plouvier

Portfolio Manager

Van Lanschot Kempen Investment Management (UK) Limited is registered in England & Wales with registration number 02833264. Registered office at Octagon Point, 5 Cheapside, London EC2V 6AA Tel: +44 (0)20 3636 9400. Authorised and regulated by the Financial Conduct Authority (FCA) with reference number 166063.

Capital at risk. The value of investments and the income from them can fall as well as rise and are not guaranteed. Investors may not get back the amount originally invested. Past performance provides no guarantee for the future.

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