While global e-commerce sales are on course to grow to 4.8 trillion…
Investors continued betting on European tech at a record pace. Preliminary Dealroom data shows that €19.4 billion in Venture Capital was invested into European companies in 2017, a staggering 36% increase from €14.3 billion in 2016.
Including Israel the combined figure was €22.3 billion in 2017, a 31% increase from €17.0 billion in 2016. As a result, European tech companies have more capital at their disposal than ever before, available to grow their workforce, invest in technology, in marketing and make acquisitions.
The number of rounds declined, from 3,900 in 2016 to 3,377 in 2017, a decline of 13%. A caveat is needed here however, because many 2017 rounds will appear with a 12-24 month delay (especially smaller rounds, which often appear only once a follow-on round has been announced).
Pro tip: click below and customise the chart by adding/removing keywords (e.g. Germany as location or Series A rounds). Talk to us on Intercom (bottom-right) for help.
Insight #2: Bigger and more mega-rounds than ever; but even excluding those mega-rounds 2017 was still a record by far
There were 19 rounds above €100 million in 2017, compared with 10 in 2016 (90% increase). The rise of mega-rounds was driven by corporate investment activity, involvement of big global funds like SoftBank, and an overarching trend towards big tech (i.e. market consolidation).
Importantly to note however, that even excluding the top 3 or even top 10 rounds in each year, 2017 was a record by far, as the below interactive chart shows:
Insight #3: UK tech companies defied Brexit and doubled the amount of capital raised in 2017 to €7.5 billion; that’s 38% of all venture capital invested in Europe
UK companies received €7.5 billion in venture capital in 2017, a 103% increase from €3.7 billion in 2016. That’s 38% of Europe’s total! The number of VC rounds declined by 7%, from 811 in 2016 to 757 in 2017. However, this 7% decline will likely turn into an increase, once all smaller rounds have been announced.
What about Brexit’s impact? As Dealroom stated a year ago (when VC activity in the UK did decline), Brexit unlikely impacted those numbers. We’re opposed to the idea of Brexit, but high-growth tech companies are among the least vulnerable constituents, at least in the short term. Manufacturing, hospitals, and finance employment are more vulnerable. The long-term ramifications on tech have yet to play out (macro impact on consumer demand, ability to attract foreign talent). Luckily for the UK, big tech like Facebook, Amazon and Google all placed firm votes of confidence on the UK in 2017.
That said, there are two worrying signs in the UK: the decline of seed investment and of fundraising by VC firms. More on both further below.
Insight #4: By number of rounds, France and the UK are going head-to-head
Companies in the UK raised almost 3x more capital than Germany (2nd) and France (3rd). The below heatmap provides a real-time view of venture capital investment by country. Click on change view to switch to number of rounds and/or show quarterly data.
By number of rounds the trend is not skewed by mega rounds; France and the UK are going head-to-head, as the below heatmap shows. Moreover, if crowdfunding rounds are excluded, the 2017 number of VC rounds in France (679 rounds) is higher than the UK (629 rounds).
You can also switch view to cities, industries, business models and topics. Europe’s leading tech hubs of 2017 are: London, Paris, Stockholm, Berlin, Barcelona and Amsterdam.
Insight #5: Investment from Asia tripled in 2017; investment activity from the USA doubled (after a dip in 2016)
After a dip in 2016, investment into Europe from the USA is back at record levels. In 2017 there were 444 rounds with USA investors. The total amount doubled from €4.1 billion to €8.1 billion (total value of rounds with at least one USA investor).
And it’s not just the UK, increasingly USA investors place large bets in continental Europe. Examples include: Roivant, ADC Therapeutics, Letgo, Soundcloud, Tricentis, Snow, Cabify and others.
Investment coming from Asia is rapidly catching up however, with 138 rounds in 2017, up 68% from 82 in 2016. The amount of capital invested tripled from €1.3 billion to €4.1 billion.
The number of rounds without any participation from European investors declined in 2017. That’s a positive sign, but European investors did completely miss some landmark deals like Roivant and Improbable.
Insight # 6: Corporate investing grew to €6.2 billion, equal to 32% of European VC
Corporate investing has been on the rise for a while and this trend continued into 2017. Corporate investors include Naspers (Delivery Hero, Kreditech, Letgo, SimilarWeb), JD.com (Farfetch), SAP’s Sapphire Ventures (TransferWise), and many financial institutions (BBVA, Barclays, BNP Paribas).
Insight # 7: The so-called implosion of early stage investing is greatly exaggerated, at least in Europe; exception is UK
Reports emerged elsewhere about a worldwide decline or even implosion of seed stage investing. The following chart shows rounds €100K to €1 million (which you can adjust according to your own preference using “advanced” search) indicating no such trend in Europe . Even the modest decline shown in 2017 will likely disappear because, as mentioned above, many seed rounds are announced with a 18-24 months delay (after the first follow-on round).
A notable exception is the UK where early stage investing peaked in 2014:
Is the notion of an early stage crunch completely baseless then? There is sense of more healthy restraint in early-stage investing. As ecosystems mature, experience causes reality to set in.
Insight #8: VC industry in continental Europe is catching up to the UK
Halfway 2017 Dealroom reported that French VC firms overtook VC firms in the UK by amount of new funds raised, for the first time ever. For the full year 2017, UK and France are going head to head, as shown in the below new funds heatmap. Of course, this is based on only one year of data. Additionally, the UK remains the go-to destination for USA investors with a European branch.
For founders across Europe, funding options have vastly improved. Dealroom analysis has shown that for early stage funding (below €10 million) domestic funding is on the rise, while for larger rounds cross-border funding is on the rise (above €10 million). This seems like a very healthy development.
Insight #9: Investors doubled down on Healthtech and Fintech, which attracted the most venture capital in Europe in 2017, as in 2016
Fintech companies in Europe raised €3.9 billion, more than doubling from €1.8 billion in 2016. The number of fintech rounds was stable at around 519. Healthtech raised €3.7 billion, up 68% from €2.2 billion in 2016. The number of healthtech rounds was down from 606 to 467. The following heatmap shows the exact breakdown within Europe. Use the buttons highlighted in red to switch views.
Deep tech (which includes artificial intelligence, robotics, semiconductors) continues to be an important theme for European tech. Albeit a subjective term hard to define precisely, it is useful to track deep tech investment activity. Also see Dealroom’s October 2016 report on the Artificial Intelligence & Deep Tech in Europe. Blockchain and bitcoin investment is still relatively small, but growing rapidly. The below heatmap shows funding trends by investment topic:
Insight #10: VC-backed exits disappointed by amount of capital returned, but the number of exits grew significantly
VC-backed exits in 2017 returned about €10 billion in capital; a disappointing figure by any measure. By comparison, in 2016 €34 billion of capital was returned, a healthier number when compared against the €10-15 billion capital typically invested each year.
Should we be alarmed? The full picture is more nuanced. Returned capital tends to be extremely concentrated around a few large exits, and hence it is volatile. The number of VC-backed exits grew from 260 in 2016 to 282 in 2017. Moreover, Europe’s near-term exit pipeline is looking very promising (Spotify, Adyen, Transferwise, Deliveroo, Klarna, and many others).
Beyond that, venture capital have become firmly focused on potential mega-outcomes areas such as consumer banking, healthcare, and mobility. VC-backed exits deserve a more thorough review, which we will provide soon.
Notes on methodology:
- Venture capital funding excludes debt, lending capital, grants and ICOs (as can be seen from the query). It also excludes secondary rounds, buyouts, M&A and IPOs
- Europe excludes Israel, unless specified otherwise
- Atomico’s widely read 2017 State of European Tech report uses Dealroom data for capital flows analysis, but makes some adjustments, mainly by excluding biotech and converting to USD (€17.3 billion x 1.10 = $19 billion)
- Regarding heatmaps: some companies are active in more than one industry, so the total adds up to more than total funding
- Dealroom data is collected by consolidating manual research, web-scraped data, natural language processing of public news-flow, and verified user-generated data. Dealroom data is trusted by the world’s leading publications and used by world-class companies including Silicon Valley firms, VC and buyout firms, multinationals and governments