Yield-starved LPs pouring capital into European VC funds have helped early-stage investors deploy a record amount of capital into startups in the region in Q2, new research shows.
More than 1,080 deals worth €8.1bn were completed last quarter according to PitchBook’s latest quarterly European VC report – the highest quarterly figure by value in the research firm’s dataset despite being the lowest quarterly volume since Q3 2013.
PitchBook said the record deal value would have skewed even higher if the UK’s Competition and Markets Authority hadn’t put a hold on Amazon’s proposed €514m Series G investment into Deliveroo.
Pitchbook said rising deal sizes and valuations had contributed to the increase in overall deal value, thanks to a maturing of the European VC ecosystem now willing and able to fund larger rounds.
It said LPs desperately hunting for better returns have fostered a robust fundraising environment, while VC-backed companies are commanding premium valuations as they grow cash flows, become more efficient and scale rapidly, as well as staying private or in the VC lifecycle longer.
Although there were no outlier deals in the quarter, PitchBook said that a considerable uptick in the volume of VC investments over €25m drove the quarter’s lofty deal value.
Almost 70 transactions worth close to €5.2bn were closed in Q2, well up from the 48 deals worth €2.3bn that closed in the same quarter last year.
PitchBook said that indicates more European startups are able to secure bigger cheque sizes from VC investors as they progress through the VC lifecycle.
The rife demand and capital availability for larger venture deals resulted in four new European unicorn announcements in 2Q 2019 – Meero, GetYourGuide, Checkout.com and Gett, with the latter three all software-based entities.
Although early-stage VC has accounted for the majority of deal volume since 2017, Q2 logged its lowest quarterly figure since 3Q 2015.
Just over 480 early-stage transactions closed in the second quarter, a 17.1 per cent QoQ drop-off, PitchBook said.
A similar trend was evident with angel and seed, which registered its lowest quarterly deal volume figure since Q4 2012.
First-time financings declined rapidly in Q2, accounting for 245 closed transactions, the lowest quarterly figure recorded since 3Q 2010 – a result which helps explain the overall drop-off in European VC deal volume.
European VC activity continues to be dominated by the software industry, which accounted for 921 closed rounds (39.5 per cent) worth €6.6bn (41.4 per cent) through H1.
The energy sector raked in €476.4m through H1 2019, eclipsing all full-year deal value figures on record apart from 2010 (€677.3m) and 2011 (€705m).
Pitchbook said, “With the figures logged midway through 2019, we could see the sector flirt with or surpass the deal value figure clocked in 2010.
“Historically, the energy sector has not been a VC darling. The complicated nature of modern day projects related to renewable energy production, storage and transportation, among other areas of the space, can deter many investors.
“In addition, many such investments can be capital intensive, while also requiring longer holding periods and investors that can stomach the significant risk of failure.
“As renewable energy and alternative forms of energy creation have become increasingly important on a global stage, we’ve begun to see increased backing from private investors.
“These investors also include a plethora of stateowned energy outfits, government-backed special interest groups and large corporations, in addition to philanthropic investors who aren’t necessarily interested in financial gain, but instead looking to make significant investments in their own national electric grids or to make ESG and impactdriven investments.”
On the fundraising side, PitchBook said the plunging VC fund count over the last decade had abated so far in 2019.
A total of 40 funds have closed in the year to date, pointing toward a potential stabilisation or even increase by year end, given less than 100 have closed in each of the last two years.
Capital raised came in healthy too, with €5.3bn poured into vehicles through 1H.
PitchBook said that at the current rate €10bn should be in reach, a feat achieved in three of the last four years, and well above the full-year totals for 2009 to 2014.
The report said the first half of the year put a halt to the evolving threat of European VC first-time micro-funds (sub-€50m) becoming obsolete.
Nevertheless, the fundraising strategy has seen a sharp decline in the last decade in the face of heftier rounds and valuations.
Three funds within the €500m to €1bn bucket have collectively raised €2bn this year, beating every annual total on record.
PitchBook said, “As recessionary forecasts have swept across Europe, the gap between invested and raised capital has shrunk this year, as was the case during the global financial crisis.
“GPs are now pivoting tactics toward a more frugal, selective approach. This is magnified by the fact that the European VC ecosystem has been on a tear in recent years.
“Further, the median time to close for VC funds has declined to only 7.4 months this year as GPs capitalize on myriad LPs who continue to pump capital into the venture ecosystem in search of outsized returns.
“Furthermore, as funding rounds become larger, fewer and more substantial outlays are appearing within the ecosystem.”
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