Venture capital investment in European startups is predicted to reach a record-high amidst fierce competition and growing deal sizes.
A mammoth 2,434 deals amounting to €14.8bn have been made in Europe so far in 2018, which is around €4m shy of the €19bn invested in 2017.
If this trend continues for the final quarter, predictions state that 2018 will hold the title for the most venture capital invested in Europe in a single year.
Meanwhile, the UK is set to be crowned the most highly invested in European region for the tenth year running.
A pressurised funding environment
These results were published in PitchBook’s “3Q 2018 European Venture Report”. The promising predictions are being attributed to increased competition among investors and larger fund sizes, which have put upward pressure on deal sizes and valuations in 2018.
Cameron Stanfill, analyst at PitchBook, explains the current state of VC deals: “While European VC deal activity was slightly tempered in 3Q, the impressive ascent in capital invested in the first part of the year has set up 2018 to be a landmark year for the European venture capital industry.
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He added that investors are increasingly raising larger funds, making it more efficient to allocate larger amounts of capital to more mature companies in the early and late stages. “However, a shortage of late stage investment targets led to a subdued third quarter, in stark contrast to the US VC ecosystem where outsized deals in the late stage are commonplace,” he continued.
“From our perspective, the major difference is a current lack of widespread VC support or ability to execute €100+ million deals. As Europe’s venture ecosystem continues to mature, so will its ability to complete deals in the late stage and further drive up capital invested,” Stanfill concluded.
Majority of VC is invested in the UK
Regardless of the wider European trend, the UK is predicted to remain as the leading region for VC funding in Europe. KPMG’s Q2 report showed that the UK had once again beat its European counterparts in terms of attracting venture capital funding.
Even more impressively: PitchBook’s report states that the UK & Ireland have garnered the majority of deal activity every quarter for the last nine years.
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And that trend appears to be continuing for yet another year. In the first three quarters of 2018, 39.0% of European VC deals were raised by UK companies. Also, this represents the fourth straight year that capital invested in the region has exceeded €5bn.
The UK and Ireland has raised €2.bn across 16 funds, the most commitments to date. However, German VC investors secured the largest amount of capital in 3Q 2018 (€700m), driven in large part by Munich-based Digital+ Partners debut VC fund (€350m).
Conversely, the two largest exits of the third quarter of 2018 were both IPOs of London-based companies valued at more than €1bn, namely Farfetch and Funding Circle.
The UK VC environment matches the trends seen across VC activity in Europe, where deals are becoming fewer yet larger, as evidenced by a 50% rise in median fund size from 2017.
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Startups come out on top
Early stage companies received the most capital in 3Q, at €2.3bn across 295 deals. Landmark early stage deals include Dfinity, clinching a reported €102m and SEBA Crypto raising around €1034m.
A favourable exit environment has also encouraged investors. In Q3, €7.2bn exited across 67 deals, pushing year-to-date exit value to €20bn, already the highest total since 2014. Exits over €100m account for a larger proportion of exit value in 2018. If this pace holds, 2018 could see the highest exit value achieved in a single year. Meanwhile, IPO’s are on the rise, accounting for 66% of exit value so far in 2018.
And so, Europe continues to boast a very fruitful fundraising environment. Only time will tell whether this accelerating pace will continue and make 2018 a record-breaking year for venture capital.