Venture capital funds in Europe share many similarities with venture capital funds in the United States. However, there are several important differences between venture capital funds in Europe and those you find in the United States. For example, venture capital funds in Europe tend to be not as large and have smaller exits than their U.S. counterparts. Additionally, despite having a much larger population (740 million for the EU versus 350 million for the U.S.), venture capital funds in Europe are far less active than VC funds in the United States.
In looking at overall VC activity, the United States ranks first; China second, with Europe coming in as a strong third, with a long way to go before reaching the top. In terms of venture capital deals, the United States is the strong leader, with China coming in second, followed by Europe.
In looking at venture capital funds in Europe, 2017 was a record year, with €16.9 billion in capital invested—the highest number PitchBook has recorded. This compares to more than $84 billion in the United States for 2017, and about $40 billion (USD) in China for the same year.
Venture Capital Funds in Europe Investing in Startups
The investment trends in Europe for the past five years show that the region remains a “smaller round, smaller exit” market. Part of the reason for this is that the European exit market is not yet completely developed. While the average exit in the United States is around $250 million, the average exit for venture capital funds in Europe is just $70 million. This shows that investors in Europe put more into businesses that give smaller returns in a successful exit.
But recently, venture capital funds in Europe are changing as investments among larger European VC funds are gaining momentum. 2016 was a record year with an increase of 12% in funding and 32% in the number of deals.
European Venture Capital Investments by Industry
Over the last several years, venture capital funds in Europe have mostly focused on the enterprise software industry, which invested €3.1 billion through 767 rounds in 2016. A close second is Fintech with €2.8 billion invested through 478 rounds. Billions in capital were also invested in the Healthcare and Transportation sectors.
Countries with Strong Market Conditions
Europe’s most mature venture capital markets are the United Kingdom and Germany, both of which both suffered a decline in VC funding in 2016. For that year, VC funding in U.K. was down by 16% and 31% in Germany.
At the same time, the other countries exhibited strong growth because of the expansion of local funding options. France’s market saw the biggest jump from €1.5 billion to €2.7 billion delivered through 590 rounds. Israel and Sweden also showed promising development with an increase of €0.9 billion and €0.6 billion in funding respectively. The growth in other areas was mostly driven by Norway, Finland, Switzerland, Spain, Italy, and other parts of Europe.
But in 2017, the U.K. jumped back to the top with €6 billion worth of investments across 597 deals. Germany came in second with €2.4 billion total funds raised via 257 deals. France attracted more deals at 309, but it only received €1.7 billion. Sweden, Switzerland, and Spain also saw an increase in funding and deals this year.
How Venture Capital Funds in Europe Compare to Those in the United States
The U.S. has different and higher standards of what is considered a good exit deal. The average VC exit in the U.S. in 2012 to 2016 was almost $200 million against Europe’s $70 million. To be fair, these numbers are pretty close to what the respective countries consider to be good exits. In the U.S., a good exit is $250 million or more, while it’s $100 million in Europe. Between 2012 and 2016, there were 166 ‘good’ exits in the U.S. and only 22 exits in Europe valued at $250 million or more.
This proves that the U.S. VC industry is more mature and developed than its European counterpart. However, this is due to a couple of decades’ worth of head start.
Now that more European firms are getting more experience and knowledge, over the next few years, we can expect venture capital funds in Europe to mature in much the same way as those in the United States. Interested in learning more about venture capital funds in Europe? Contact me today and let’s talk!