European Venture Capital Surges in Q1 - Latest Trends

European Startup Funding Surges in Q1 2021

The first quarter of 2021 witnessed a remarkable increase in venture capital funding, extending beyond the United States to include Europe. European startups experienced a particularly strong beginning to the year.

Data compiled by Dealroom, Crunchbase News, and an analyst from PitchBook reveals a substantial fundraising performance by European startups. This initial surge in venture capital activity effectively launched the continent’s 2021 investment period, positioning it for a record-breaking year.

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Key Data Points and Sector Performance

A detailed analysis of the data reveals several noteworthy trends. These include the specific sectors within the European startup ecosystem that attracted the most capital, the growth in both seed and late-stage funding rounds, and the overall dollar volume invested.

Furthermore, it’s important to examine exit strategies, such as the Deliveroo IPO and its associated challenges, alongside other significant transactions from the quarter.

Data Considerations and Accuracy

As with previous analyses of AI startup fundraising and the strong start observed in the United States, this assessment draws upon multiple data sources to provide a comprehensive perspective. It’s crucial to acknowledge that venture capital data inherently experiences a time lag.

Many deals are not publicly disclosed or identified until well after their completion. This delay makes the observed figures even more impressive.

Let's delve into the specifics of the data.

Further Insights

• European startups demonstrated significant fundraising success in Q1 2021.
• Seed and late-stage deals experienced notable growth.
• The Deliveroo IPO, despite its difficulties, was a key exit event.

The initial momentum suggests a potentially record-setting year for European venture capital investment.

Significant Investment Figures

Dealroom initially announced that European startups experienced a record-breaking first quarter in 2021, as April began. Their initial findings for Q1 indicated a total of €16.6 billion raised, equivalent to $19.9 billion based on current exchange rates.

This figure represented not only a new high but also a doubling of the results achieved in Q1 2020, as described by Dealroom. Considering the venture capital market’s accelerated growth and abundant capital in recent months, it’s important to remember that a year prior, few predicted such substantial numbers amidst the ongoing public health challenges and disruptions caused by COVID-19.

However, the Dealroom data wasn't solely defined by records. The number of funding rounds, according to their estimates, decreased compared to the previous year, though it showed a slight improvement over the preceding quarters.

The trend towards later-stage and larger-round venture capital investments remains strong within Europe.

Crunchbase News subsequently released its data, reporting a comparable $21.4 billion in funding for European startups during the first quarter. The publication highlighted that this dollar amount was “more than double the funding from the previous year and nearly double that of the final quarter of 2020.”

The first three months saw exceptionally strong late-stage funding, leading to a record number of unicorn companies being created in Europe: 16, exceeding the 15 established throughout all of 2020, according to Crunchbase’s calculations. This is a truly remarkable achievement.

The Crunchbase report also revealed that European seed funding increased year-over-year to surpass $1 billion, a commendable outcome. Early-stage funding reached an all-time high of $5.8 billion during this period, while late-stage funding also established a new record at $14.3 billion.

These substantial records, particularly with the expectation of further increases over time, are genuinely impressive.

Furthermore, according to Sifted’s analysis of additional Dealroom data, European fintech startups secured a record €7.2 billion, or $8.63 billion, in the first quarter. This amount was described as “almost four times greater than the previous quarter” by the group.

The U.K. significantly led the fintech sector during this period, which is noteworthy, especially in the context of the post-Brexit landscape.

In conclusion, the European venture capital landscape enjoyed a highly successful Q1 2021. With records established across various stages, it was a favorable time for emerging companies on the continent. Let's now delve deeper into data specifically related to two crucial stages within the venture lifecycle.

Seed Funding Levels Approach New Highs

Although a definitive record for seed funding hasn't been officially established, current data from Crunchbase indicates a notable rise in both the number of deals and the total funding volume.

The total deal value has reached at least $1.3 billion, representing a 10% increase when contrasted with the fourth quarter of 2020. This figure also demonstrates a 26% increase on a year-over-year basis. As Gené Teare of Crunchbase highlighted, this represents “the largest amount ever documented for a single quarter for European startups at the seed stage,” a milestone never previously achieved before 2017.

Expert Insight on Funding Growth

Vitaly Laptenok, a general partner at Genesis Investments – a venture capital fund focused on early-stage companies in Ukraine, Belarus, and the Baltic states – attributes this “significant expansion in seed funding” to an influx of capital into the startup investment landscape. He also notes a growing trend of conventional investors transitioning into the role of venture capitalists.

Laptenok explained that venture capital firms are responding to this heightened competitive environment in two primary ways. Firstly, “investors are increasingly providing specialized knowledge and what is known as ‘smart money.’” Secondly, they are demonstrating “greater agility and adaptability in deal negotiations, often resulting in increased company valuations.”

Increased Deal Flow and Quality

Fortunately for investors, the competition isn't solely driven by more capital pursuing a limited number of startups. Laptenok confirms that the volume of potential deals has also risen, and importantly, the quality of these opportunities has improved. “The pool of promising startups has expanded as the pandemic expedited the digital transformation of numerous traditionally offline industries across Europe,” including areas like telemedicine, fitness and wellness, education, retail, and the events industry.

Laptenok further identified three additional sectors experiencing growth within Genesis’ investment pipeline: food tech, gaming, and martech. The latter is particularly relevant given the impending privacy modifications being considered by both Apple and Google.

Significant Late-Stage Investment Surge

According to initial data from Dealroom, European investment rounds exceeding €250 million, equivalent to roughly $300 million USD, experienced their most successful quarter to date. These substantial deals played a key role in Europe achieving record-breaking investment figures in the first quarter of 2021.

Further analysis of Crunchbase News data reveals that these large funding rounds contributed to a total of $14.3 billion in late-stage funding across Europe during the three-month period. Out of the 145 deals identified as late-stage by the publication, 54 were valued at $100 million or higher.

Comparison to the United States

While this figure is lower than the 167 mega-rounds secured in the United States during the same timeframe, it still averages to just over four per week. This represents a robust rate of investment, even considering the heightened activity in the U.S. private capital market.

The largest investment rounds within the region were particularly noteworthy. Klarna secured $1 billion in funding, as did Cazoo. Wolt completed a $530 million round, and both Glovo and Checkout.com raised $450 million each.

Global Trend

The observed increase in mega-rounds, which has become increasingly common in the U.S., is now demonstrably impacting the European investment landscape. This acceleration in late-stage funding is a worldwide phenomenon.

It appears the trend of large funding rounds is no longer isolated to the United States, but is gaining significant momentum throughout Europe. This indicates a global appetite for substantial investments in late-stage companies.

A Surge in European Exits

Recent data from Crunchbase News indicates a significant increase in European startup exits. During the first quarter of 2021, a total of 147 exits were recorded, representing a combined value of $9.7 billion. This contrasts sharply with the 115 deals valued at $4.3 billion observed in the fourth quarter of 2020.

The growth is even more pronounced when compared to the first quarter of 2020. Notably, at least three European startups achieved exits through transactions excluding initial public offerings (IPOs), exceeding $1 billion in value. This number doubles to six when considering exits valued at $500 million or more.

However, it was the IPO market that garnered the most attention. Several noteworthy European IPOs occurred during this period, including the debuts of Huuuge, Deliveroo, and Arrival.

Huuuge, a developer of mobile casino games, successfully raised $445 million through its IPO on the Warsaw Stock Exchange. Deliveroo, a prominent U.K.-based on-demand delivery service, listed in London, securing $2.1 billion in funding. Arrival, focused on the production of electric vehicles, was designated by Yahoo Finance as the “U.K.’s biggest tech IPO” after a valuation of $13 billion following its debut via a Special Purpose Acquisition Company (SPAC).

Deliveroo’s initial performance on the London Stock Exchange (LSE) was underwhelming, leading to the unflattering moniker “Floperoo.” Unfortunately, the situation hasn’t substantially improved since its March 31st listing. Shares continue to trade below the IPO price, nearing their lowest point to date.

Despite a reduced IPO target range, the delivery company has struggled to regain investor confidence. While long-term recovery is possible, mirroring the trajectories of companies like Facebook and Ocado, Deliveroo’s dual-class share structure and concerns regarding worker classification appear to have deterred many investors.

What implications does this have for the future of the London Stock Exchange as a preferred venue for IPOs? Insights were sought from Nalin Patel, a private capital analyst at PitchBook EMEA. Patel suggests that the reception of Deliveroo stock isn’t necessarily indicative of the LSE’s competitiveness against U.S. exchanges.

He highlights upcoming rule changes as a potentially more significant factor influencing the LSE’s ability to attract tech listings. These changes aim to enhance London’s competitiveness against U.S. stock exchanges and counter the growing influence of Euronext Amsterdam, particularly in attracting SPACs.

Currently, SPAC activity remains largely concentrated in the U.S., even for European companies. Therefore, it remains uncertain whether European exchanges will soon see SPACs featuring European unicorns. Nevertheless, cybersecurity firm Darktrace has announced its intention to list on the LSE, signaling continued interest in the London market.

As previously noted regarding U.S. data, it is premature to definitively predict record-breaking venture capital activity globally or within specific regions. However, the trends observed thus far in 2021 suggest a strong possibility of such an outcome.

The continuation of the favorable conditions driving the current venture capital boom remains to be seen.