European Venture Capital Trends You Need to Know

Whether it is needed to get their company started, or take their business to the next level, venture capital (VC) funding provides new startups with vital collateral, just when they need it most. In this article, we look at emerging trends in the European VC market.

European venture capital investment has accelerated over the last five years. According to figures from the European Investment Fund, despite the black cloud of Brexit, Europe has seen exponential growth in VC investment.

Over the last five years, European Investment Fund figures show that venture capital investment in new startups has grown fourfold, to around €23 billion. In addition, venture capital fundraising has doubled in Europe over the last three years, to €9.9 billion.

Trend #1: There Are Fewer Deals, but They Are Larger.

The number of VC deals in Europe has fallen since 2015, although volume continues to rise. Sources indicate that while there has been a reduction in the number of deals, those that have reached the finish line have been higher in value.

Trend #2: The UK is Europe’s First Startup Market.

Despite the economic uncertainties caused by Brexit, the UK continues to dominate the European venture capital market. Today, the UK accounts for 37% of all new business startups in the region. Next comes France, Germany, and Spain, followed by Sweden.

Trend #3: Spain’s Venture Capital Market Is Showing Rapid Growth.

The Spanish venture capital and private equity market has grown considerably since early 2017, fuelled by solid economic growth in the country. Dealroom estimates that venture capital investment in Spain grew from €900 million to €1.4 billion between 2017 and 2018.

In terms of venture capital deals, this represents an increase of around 11%. Experts attribute much of this increase to the intense investment activities of international funds fuelling the number of “megadeals” (i.e. deals worth in excess of €100 million).

Sectors of the Spanish economy that are seeing huge growth include consumer products, the hotel and leisure industry, the financial services sector, transport and logistics, information technology, and life sciences.

Trend #4: London Remains the Capital of the EU Venture Capital Market.

Economists attribute this to three primary factors. First, despite Brexit, London retains its stronghold as Europe’s financial center. Second, the UK’s startup eco-system is robust. There are a myriad of accelerators, incubators, bankers in tech, and business angels, not to mention the sheer size and number of British venture capital funds.

Finally, the UK’s venture capital fund managers have longer track records, enticing investors with impressive returns. Dealroom suggests that London will retain the number one spot as the go-to destination for European startups.

Trend #5: European Venture Capital Funding Exceeded €23 Billion for the First Time in 2018.

Europe continues to struggle with political and economic volatility across all corners of the continent. This is bad news for many industries. However, the venture capital market appears to have weathered these uncertainties and emerged unscathed. Europe has also seen a surge in venture capital investment across all transaction types.

Trend #6: The US and Asia Continue to Dominate the Venture Capital Market.

Europe invested approximately €23 billion in venture capital in 2018. The United States invested somewhere in the region of €130 billion, with the Asian market, investing €92 billion.

The population of Europe is more than 700 million, while the population of America is less than half that figure. It is easy to see the integral role the United States plays in the venture capital market today.

Trend #7: Europe Attracted More International Venture Capital Funding in 2018.

The only exception to this rule was Asia. The United States and other non-European countries increased their investment throughout 2018, whereas Asian funding dropped from €2.5 billion to €2.2 billion from 2017 to 2018.

Trend #8: Deep Tech Attracts More Investment Than Any Other Sector.

Deep tech is the convergence of engineering, science, and technology. It provides revolutionary technological innovations that, put simply, make our lives easier. From computing architecture innovations, to electronic systems, to machine learning and artificial intelligence, deep tech is proving to be the industry of the future.

Takeaway: Europe’s Venture Capital Ecosystem Continues to Thrive.

There are many positive signs for European VC investors. The Wellcome Trust, a London-based charitable foundation, reported a 32% return on its £2.8 billion investment in venture capital for 2018.

In 2018, VC funding in Europe peaked at its highest ever level. Almost 10% of venture capital in European countries came from investors in North America, according to the trade association for private capital, Invest Europe.

In April 2018, the European Commission committed to investing €710 million to VentureEU, a new initiative aimed at setting up pan-European VC funds of funds. With European policymakers citing venture capital as the birthplace for future corporate leaders, the market looks to continue to thrive in Europe.