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9 charts uncovering the state of European VC

With the end of the year fast approaching, we take a look at the makeup of Europe’s venture capital scene after the first nine months of the year.

As we head toward the end of 2018, Europe’s venture scene is continuing to grow and mature as investment, exit and fund values all carry on an upward trajectory. However, a deeper look suggests a continuing divergence between volume and value across investments, exits and vehicles, indicating an ecosystem of fewer but bigger. How long can this continue?

Take a look below at nine charts from our latest European Venture Report outlining the current state of European VC that could help answer that question.

Full steam ahead

With almost €15 billion poured into European startups in the first nine months, 2018 is on pace to smash last year’s blockbuster record of €19 billion. By contrast, just under 2,500 investments have been completed in Europe in the same timeframe, a tick under half of 2017’s total. This now marks three years of consecutive falls in terms of volume, even as capital invested remains at a historically high level.

Corporate crusade

A look at corporate venture trends highlights how stark the divergence is. After eight years of rises, CVC in 2018 looks set to decline for the first time since 2009 in terms of volume. Value, on the other hand, continues its tear, with €6.2 billion invested by corporates in the first three quarters of 2018. This puts it on pace to continue a three-year growth streak for European CVC value.

Software stronghold

While software and technology are traditional homes for venture funding, that grip has only got stronger and stronger in Europe. Nearly half of all deals in European venture this year have been in the software sector, compared with slightly over 20% a decade ago.

UK and Ireland spotlight

The continent’s largest market, in contrast to the larger European picture, hasn’t strictly followed the “fewer and larger” mantra. Although VC investment in the UK and Ireland has exceeded €5 billion for the fourth straight year, it is on track to fall short of 2017’s €7.6 billion total. Much of this can be attributed to plain-old timing: Last year saw a number of huge rounds for British and Irish startups, including companies such as Deliveroo ($385 million) and Improbable ($502 million), leaving fewer businesses this year looking to fundraise at those levels.

By contrast, investors in the region are toasting a boon year for big exits, with €8.2 billion in value generated for their LPs and themselves. In particular, backers of Farfetch, who won big after the company raised nearly $900 million in an NYSE listing, while Funding Circle‘s London IPO generated around €575 million. Exit volume, however, has cratered to 57 in the first nine months of the year, whereas the previous two years have generated 127 exits each.

Exits stall?

It is a similar story for exits across the continent, with sales looking likely to fall well short of 2017’s 515 figure. Value, in kind, is painting the opposite picture, as larger investments are leading to larger exits. In the first nine months of the year, VCs sold their portfolio companies in Europe and received €20 billion in return, already passing last year’s €17.8 billion total. A focus on hitting the “big score” rather than accepting smaller returns is driving this. By 3Q’s end, 92% of the year’s exit value has been generated by €100 million exits.

One noteworthy development has been the ascendancy of IPOs as a primary driver of value for European exits. The aforementioned Farfetch and Funding Circle examples are indicative of this, and with more €1 billion startups emerging in Europe, this could be an ongoing trend.

Fund and games

Fundraising is following a similar line to deals, with an emphasis on fewer and larger. Through 3Q, European venture firms’ 49 funds had collected €6.5 billion, compared with 76 vehicles racking up €8.2 billion for the whole of last year. While fund numbers will likely dwindle as firms deploy their 2016 and 2017 vintages, the rising amount of capital in European venture could well prop up fund sizes.

The rising fund size is indicated in the sharp increase in both median and average amounts this year. The average fund in Europe in 2018 is now over €150 million, while the median size clocks in at €123.2 million. Last year, these figures stood at €118.4 million and €79.7 million, respectively.

For more detailed analysis, check out our 3Q 2018 European Venture Report.

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    Written by Sean Lightbown
    Sean was a financial writer in PitchBook’s London office, working on the daily European newsletter. Previously, he worked in both London and New York for Mergermarket, writing and editing white-label reports for accounting firms, law firms and other service providers, covering topics including M&A, private equity and high-yield debt.

    Sean holds a BSc in Politics with Economics from the University of Bath, and is a long-suffering Bolton Wanderers supporter.
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