European Venture Capital Hits Eur12.9Bn In 2015 As Activity Plunges

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European Venture Capital Hits Eur12.9Bn In 2015 As Activity Plunges by PitchBook


This report is the second installment of what was previously the European PE & VC Breakdown. We’ve broken the reports into two separate publications in order to provide more complete coverage of both spaces. Accordingly, this report on the European venture capital industry delves into one region—the United Kingdom—in particular, while also including expanded datasets on rounds by sector and size, among others. One final note: This report is entitled 2015 Annual according to our new report naming convention, wherein the timeframe in the title reflects the timespan of the datasets.

As we pored through the datasets when assembling this report, we couldn’t help but notice that, much like in the U.S., European venture capital activity peaked last year in terms of value, following a high tide in overall round count seen in 2014. The lag is illustrative of a typical venture investment cycle, wherein investor exuberance crests in terms of overall activity, before shifting somewhat to a focus on what is considered more of a sure thing—in this case, more mature venture-backed companies with considerable momentum in need of injections of funds for scaling—until both activity and sums invested decline, with caution trumping in the short run. In Europe, as opposed to the U.S., the decline is not so much due to the severity of a funding hangover of sorts after an overexuberant period—although certain niche industries have become overheated—but more a pullback by investors apprehensive of risks centered around growth potential. Consequently, the dip in activity is and will be largely dependent on perceived stability, which, given the heightened volatility persisting throughout financial markets worldwide, is in short supply.

Given the outsize role played by outside VC investors, particularly from the U.S., aggregate numbers will be overly subject to uncertainty, with fund managers likely whittling down their focus more and more. On the other hand, relative to the rest of the world, Europe still presents one of the better investment opportunities for startups capitalizing on particular niches such as fintech or pharmaceuticals & biotechnology—of course, that will continue to breed considerable competition within those spaces, but selective investors can still find opportunities. Activity in those sectors in particular, as well as potentially consumer, could help amend any prospective plunge in venture investing in the year to come.

European venture capital activity slides as value soars


European venture capital numbers exemplify both the issues facing the U.S. venture industry as well as the continent’s own particular challenges. Much like the U.S., although in relatively greater scale, European venture financing activity plunged between 2014 and 2015 even as overall value boomed, the former down by 29.5% and the latter soaring close to 40%. Such dramatic disparities, as well as the steeper slide in early-stage investment compared to the late stage, highlight how VC investors began to pull back some time ago, yet continued to ply the companies perceived to be less risky with large sums. But as quarterly totals reveal, overall, European venture capital invested began to slide in the back half of 2015.

European Venture Capital

The slide came too late to affect median round sizes overly much, thus resulting in massive inflation at the late stage in particular. A preponderant amount of VC from U.S.-based sources contributed mightily to those medians, more telling of how U.S. firms began to diversify their financing efforts to perhaps more attractively valued European startups than anything else. Yet it must be noted that the fact mature European companies can garner such sizable sums from non-domestic investors speaks to how the continent’s entrepreneurial ecosystem is not lacking in the production of viable businesses, rather, it is lacking sufficient European funding.

European Venture Capital

Granted, the steady decrease in the percentage of Europe financings with U.S.-based investor participation indicates the situation has improved since the past, and it’s not necessarily a bad thing for European entrepreneurs to receive their funding from abroad, but for a truly vibrant European venture capital industry, hurdles for local fundraisers must be cleared. As the most successful European venture funds tend to be on the larger side—as is common across the industry worldwide—the need for a pan-European focus is apparent, necessitating elimination of regulatory obstacles. Proposals range from the establishment of European Capital Markets Union to wide-ranging funds-of-funds with special fee discounts to entice larger, private investors that can supply sums necessary for funding across all venture stages.

European Venture Capital

Establishment of such robust, investor-friendly frameworks could help spur growth in European venture capital investment. For now, as activity dips low in both the U.S. and Europe, the industry is likely in for a period of regrouping, in which round sizes and consequently capital invested must be dialed back. The duration of such a period is uncertain, however, as relative European valuations could continue to attract outside capital, particularly at later stages.

European Venture Capital

Amid a plunge in activity, pharma & biotech declines less comparably

Rounds by region & sector

As European venture capital activity took a dive from 2014 to 2015, few sectors remained as unscathed in relative terms as pharma & biotech. Although 2011 and 2013 saw more financings of startups within that space overall, it experienced only a 14% decline in round count from 2014, while hitting a record for the decade in terms of VC invested, at nearly ¤2 billion. Such interest illustrates how European biotechs are growing more popular, with investors doubtless perceiving them as better bargains compared to their U.S. counterparts. Furthermore, at least over the past couple years, there has been robust performance in public markets by European biotechs, illustrative of overall investor appetite for the space as well as potential liquidity. Overall sums invested are still on the smaller end, relative to the U.S. pharma & biotech space, but the European sector’s resilience amid the downturn bodes well, even amid the ensuing investor competition for toptier businesses.

European Venture Capital

European Venture Capital

Spotlight: U.K.

Overview of VC activity in the U.K.

European Venture Capital

On a yearly basis, 2015 stands out considerably. Despite a steep plunge in the number of financings to a pre-2012 level, capital invested managed to tally £3.0 billion, far and away the largest yearly sum in a decade, and exceeding the prior record by no less than 26%. A handful of massive financings in the past year indicate some of the primary trends behind U.K. venture capital activity, not to mention the state of the venture industry worldwide. One of the most significant, in terms of the total value of rounds, was the entrance of nontraditional VC investors, which has contributed to a surge in latestage financing numbers overall.

European Venture Capital


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