SEATTLE, Jan. 18, 2019 -- Europe's venture capital investment eclipsed €20 billion for the first time ever, according to PitchBook's 4Q 2018 European Venture Report. Despite the 25.9% drop in deal volume year-over-year (YoY), swelling deal sizes and increased interest from nontraditional investors helped drive deal value to the high-water mark. As an example, median early-stage deal size increased 86.9% from 2017, while late stage median deal size increased by 67.9% over the same period. Europe's exit market witnessed three multi-billion-dollar liquidity events in 2018 – Spotify, Adyen, and Farfetch – which sent exit value soaring to €47.4 billion. However, with 30.5% fewer exits completed than in 2017, questions arose on the exit market's ability to ensure strong capital returns to a broader group of GPs and LPs. To support the larger check sizes required by more mature startups, European VCs raised fewer, larger funds in 2018, as evidenced by 0.2% YoY increase in capital raised and a 23.5% YoY decline in fund count. For this reason, international investors, nontraditional investors, and government programs have grown in importance as alternative sources of funding for angel & seed and early stage startups.
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"Despite declines in volume across dealmaking, exit activity and fundraising, Europe's VC ecosystem did sustain healthy investment levels throughout 2018 as a result of increased investor focus on targeting fewer, more mature startups," said Cameron Stanfill, analyst at PitchBook. "An important milestone to note was the exit market's ability to support three multi-billion-dollar liquidity events in 2018, as it inspires investor confidence in their ability to sponsor companies through the later stages of growth. An area that will be watched closely in 2019 is capital availability for early stage startups, with investors raising fewer, larger funds."
Capital invested in 4Q 2018 reached €5.1 billion across 586 deals, bringing 2018 annual totals to €20.5 billion invested across 3,384 deals – an all-time high for capital invested in the European venture ecosystem.
European deal value was driven largely by investments completed within the €10 million to €25 million range. This size bucket made up 25.0% of total deal value and represented an 5.4% increase over last year.
The DACH region secured €4.4 billion in investment and made up 15.8% of total deal count, up from 13.6% in 2017. The high concentration of mature startups in the region attracted VC investors, as evidenced by the elevated deal sizes – median late-stage deal size in Germany reached €15.0 million in 2018, compared to €6.7 million for all European late-stage rounds.
Both US investor and corporate participation reached decade highs in terms of deal volume, making up 20.9% and 21.1% of total deals, respectively.
Exit value reached a decade high of €47.4 billion in 2018, with much credit due to two outsized public listings, Spotify and Adyen, which combined drove €30.3 billion in exit value, or 63.9% of total capital exited.
While exit value reached a decade high, there were only 373 completed liquidity events in 2018 – the lowest count since 2012.
The drop in the number of exits pushed the investments-to-exits ratio over 9.0x. A continued uptrend in this ratio may signal a broader slowdown, as exits are typically affected by economic downturns sooner and more severely than dealmaking.
The annual count of closed VC funds in Europe fell to the lowest level in the last decade, with a just 62 vehicles raised during 2018. This represents a 23.5% decline from 2017's fund count.
In contrast, total capital raised reached €8.4 billion, a 0.2% increase from 2017 and 42.9% increase from 2014 levels. Moreover, median fund size reached an all-time high of €123.2 million, a sizable 59.3% increase from the previous year.
Taking a closer look, 2018 saw an uptick in the count of funds raised within the €250 million to €500 million size range, and a significant drop in the count of micro-funds raised (vehicles €50 million or smaller). This divergence in fundraising could present challenges for smaller, developing startups seeking traditional angel & seed or early-stage round sizes.
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