Last year’s tough dealmaking environment has bled into 2023 with startups struggling to raise capital in Q1.
Figures are down across the board for deals, as well as exits and fundraising. Our Q1 2023 European Venture Report brings five trends to light for a look at the continent’s more challenging VC market.
European venture deal value fell 32.1% quarter-over-quarter, while the number of deals dropped 19.2% in Q1 2023. With high inflation persisting and monetary policy tightening, investors have been deploying less capital and focusing more on capital efficiency.
Going forward, Europe is likely to see more rounds with debt in addition to equity as investors seek to decrease their risk. More layoffs and other cost-cutting measures are likely as well.
Similar to previous quarters, late-stage deals still accounted for the largest share of VC deal value due to the higher levels of capital required by mature companies. In Q1, late-stage represented 45.8% of overall deal value, up from 42.5% in Q4 2022.
While the percentage of total deal value going to early-stage deals decreased slightly in Q1—28%, down from 28.7%—the largest single deal of the quarter was early-stage. Lending platform Abound raised £500 million (about $621.6 million) in March from investors including K3 Ventures and GSR Ventures.
So far, nontraditional investors—corporate VCs, PE firms and sovereign wealth funds—have participated in 756 deals worth €8 million (about $8.8 million), putting Europe on track for its lowest total deal value since 2018.
Late-stage deals are expected to see less involvement from nontraditional investors as they, too, become more cautious with their capital.
M&A was the preferred exit route for startups. There were 142 deals of this type—56.3% of all European VC-backed exits. Four out of five of the largest exits were M&A, including CNH Industrial’s acquisition of agtech company Augmenta for $110 million.
The number of public listings stayed low in Q1, and a rebound is not anticipated in 2023 due to a lack of investor demand and continued uncertainty in the public markets.
Only €3.4 billion was raised by European VC funds in Q1, putting 2023 on track for its lowest annual figure since 2015. The number of new vehicles has also fallen, despite several years of stability.
The largest fund to close in Q1 was HighTech Gründerfonds’ nearly €500 million Fund IV, which will target seed-stage investments. Another notable close is McWin Capital Partners’ €300 million Food Ecosystem Fund.
Read more: Q1 2023 European Venture Report
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