Last month, the UK government proposed a new National Investment Fund aimed at helping the country’s tech companies become unicorns. The move raised a few eyebrows.

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On the one hand, the admission that the fund would fill the gap left ‘should [the UK’s] relationship with the EIF end when the UK leaves the EU’ seemed like an acknowledgement that Brexit spells bad news for young companies seeking investment. What also stood out was the government’s apparent acknowledgement that more resources needed to go towards scaling businesses and creating ‘world-leading unicorns’, beyond just creating a startup-friendly environment.

And it’s not only UK politicians who have chosen unicorns as their new buzz-word: Unicorn fever is catching on throughout Europe. France’s newly elected President Emmanuel Macron has also said he wants to create a ‘country of unicorns’.

Yet this is easier said than done. Part of the challenge that European SMEs are facing is not only a pullback in financing at the earliest stage—just 354 angel/seed financings in the UK have been completed as of 6 September, relative to 854 in full-year 2016 and 1,000 in 2015—but also the lack of a continuous flow of private capital. In the UK, for example, just 13% of companies which received initial/seed funding since 2011 have gone on to receive a fourth-round investment, per the PitchBook Platform. In lieu of this, it seems that VCs are instead making bigger bets than usual.

Median VC deal sizes have been steadily rising over the past few years; however, the pace being set in 2017 so far is noticeable. While US median deal size has increased 50% this year over 2016, the UK median has risen 80%. And in France, not only has the median deal size overtaken the US (€2 million to €1.8 million), it has doubled since 2016.

Median deal size of completed VC investments by country

Europe's VCs Unicorns

Clearly the leap from a €2 million investment to a newborn unicorn is sizeable, yet the strides in France to build a startup paradise (Macron’s overtures and the creation of hub Station F), as well as the evident bump up in funding sizes, suggests that Europe’s governments are keen to see their young companies competing with Silicon Valley’s when it comes to attracting money. Yet they should bear in mind that bigger cheques don’t mean better businesses—and could mean harder falls.

Article by Sean Lightbown, PitchBook