News & Insight

August 1, 2018
European VC report Q2 2018: fewer deals, but higher value

European VC report Q2 2018: fewer deals, but higher value

 

F

inancial and investor data firm PitchBook has reported that the second quarter of 2018 has seen the lowest number of completed venture capital deals in nearly seven years in Europe, while capital invested has risen, recording four times more total deal value than in 3Q 2011, representing €4.8 billion.

Key takeaways from its analysts are:

  • 2Q 2018 saw 660 completed deals representing €4.8 billion of capital invested into European companies. This represents another quarter of declining deal count but higher capital investment. Late-stage deal counts have been the most resilient to the drop.
  • The VC-backed initial public offering (IPO) market in the second quarter saw 19 public debuts—the most in a quarter since 4Q 2015—that raised €1.6 billion from public market investors.
  • European VCs raised €2.1 billion across 13 funds in 2Q 2018. The proliferation of larger funds has pushed median fund size to €100 million, up from €83 million in 2017. Fund count continues to slide, with the 2Q total marking a 43% decline year-over-year.

Also, it says demand and capital availability for large venture deals resulted in three new European unicorns (companies valued at a billion dollars) in 2Q 2018. The three companies – Revolut, Taxify and Celonis – are all software companies.

A summary of its findings is as follows:

  • Increase in deal size pushes up median, with late-stage VC proving the most resilient
  • VCs favour software startups more than usual, continuing the trend from last year
  • Corporate venture activity remains healthy, spending €4 billion across 323 deals
  • Nordic region still on track despite cooldown, with several multibillion Euro exits
  • 2018 exit value set to surpass last year, on track to better €10 billion for the sixth year
  • IPOs keep up momentum, with 19 in Q2, the most in a quarter since Q4 2015
  • Fundraising stays strong while fund count lies dormant, likely to exceed 2017
  • UK & Ireland maintain fundraising dominance while Germany, Israel grow

 

The Humphreys Law take on this:

Interesting to see that the volume of VC deals is decreasing but the median size of deal is increasing across the board.  That tallies with what we are seeing in the market, particularly at the foot of the cap table. 

We are seeing a growing consensus that stringing ventures out on a diet of comparatively miniscule cheques does foster fiscal discipline within management and builds capability to do more with less, but ultimately most companies can’t compete in major markets at scale without firepower in the form of readily available cash. 

In e-commerce, and for SaaS businesses particularly, management can either wait many years to slowly build a customer base and start to see an annuity on those recurring revenues as the years go on; but there is always a risk that a better funded and larger player will come by and eat their lunch.  It’s no surprise that industry veterans usually mutter when asked “you can never raise too much”.

The full report with data can be found on the PitchBook site, here.

 

Humphreys Law

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