Venture Capital Investment in Europe Surged Last Year

A Peak Year for Venture Capital: 2021 in Review

The extended period of startup growth experienced in recent years arguably reached its zenith in 2021, marking a potentially historic year for venture capital investment.

Initial analysis by The Exchange of global venture capital data from 2021 utilized terms like “bonkers” and “record-setting” to describe the activity. However, these descriptions may have underestimated the substantial expansion of the venture asset class from its earlier, more modest scale.

According to data from CB Insights, global venture capital activity increased approximately fourfold between 2016 and 2021. Furthermore, 2021 witnessed more than a doubling of the previous record set in 2020, which totaled just under $300 billion.

The data provider reports that in the last year, over $620 billion was invested across various venture rounds.

European Venture Capital Growth

Considering the significant growth of the European venture capital ecosystem, it’s unsurprising that 2021 proved to be an exceptional year. But the extent of this success warrants closer examination.

Drawing upon data from CB Insights, EY, and PitchBook, we will now delve into a year of remarkable achievements within the European startup landscape, analyzing both regional and country-specific trends.

Our primary focus today is to understand the total amount of funding secured by European startups in 2021 and to assess how these results deviate from historical norms.

Later this week, we will investigate the future outlook for startups in the region. Specifically, we aim to determine how recent market fluctuations might influence VC fundraising and capital allocation in 2022.

Concerns surrounding declining public-market valuations and a narrowing IPO window, fueled by market volatility, are causing companies to reconsider their public debuts.

The question remains: can this period of prosperity continue? Before addressing this, it’s crucial to fully understand the magnitude of the past four quarters for European startups. Let's proceed with that analysis.

European Venture Capital in 2021: A Record-Breaking Year

The year 2021 proved to be exceptionally strong for the European venture capital landscape. Investment capital deployed reached unprecedented levels, as did the number of transactions completed and the value of exits achieved. The market demonstrated robust performance across all key indicators.

According to data compiled by PitchBook, Europe witnessed 10,583 venture deals last year, totaling €102.9 billion in invested capital. Within this total, 2,865 deals represented first-time venture financings, amounting to €9.9 billion. These figures represent a significant increase compared to the €3.6 billion and 2,457 deals recorded in 2020.

While follow-on funding rounds accounted for the majority of capital and deal activity, the volume of first-time financings is particularly noteworthy. This indicates sustained venture investment in the future potential unicorns and initial public offerings emerging from Europe.

CB Insights corroborates these findings, reporting $93.3 billion invested across 7,051 deals in 2021. This represents an all-time high for both deal value and deal volume in Europe. Regardless of the specific methodology used, 2021 clearly marked the most successful year to date for European venture capital fundraising.

Positive news for investors allocating capital to European startups is the substantial return of capital observed. A common observation is that venture investors excel at identifying and nurturing unicorns, but often struggle to secure liquidity events for their investments. However, Europe’s performance in 2021 challenged this notion with impressive exit data.

PitchBook’s data indicates that venture-backed exit activity reached 1,241 deals last year, a substantial increase from the 600-700 deals annually observed between 2014 and 2020. The total value of these exits was €142.5 billion, nearly tripling the previous record of €42.0 billion set in 2018 and significantly exceeding the €23.6 billion recorded in 2020.

CB Insights confirms these trends, reporting 3,701 mergers and acquisitions (M&A) deals in Europe last year (compared to 2,372 in 2020) and 185 initial public offerings (IPOs) (compared to 85 in 2020). The trajectory of European startup exits, and the capital supporting these companies, is demonstrably upward.

Consequently, 2022 began with exceptionally favorable conditions across nearly all measured metrics. These gains are even more pronounced when analyzing data on a per-country basis.

Venture Capital Investment in Europe

Recent reports might suggest France experienced an exceptional year for venture capital. While this is accurate, data indicates that both the U.K. and Germany potentially achieved even stronger outcomes in 2021. This conclusion is drawn from analyzing total capital invested and the rate of year-over-year growth.

Although methodologies vary slightly between data providers when tracking venture capital activity, the overarching trends remain consistent. EY’s findings reveal that U.K. startups secured €15.36 billion in venture capital and €17 billion in growth equity, totaling €32.4 billion. This represents a substantial 155% increase compared to 2020.

CB Insights corroborates this, reporting a $29 billion equity total for the U.K. In both assessments, the U.K. surpassed Germany, which attracted €16.2 billion (EY) – a 209% increase – or $17.5 billion (CB Insights).

France, however, secured €11.6 billion (EY), marking a 115% increase from 2020, or $12.2 billion (CB Insights).

The U.K.’s continued leadership position is noteworthy. Despite the completion of Brexit in January 2020, the anticipated negative consequences on venture capital investment have yet to fully materialize.

PitchBook’s data suggests relative stability in the distribution of VC deal value and deal count across European subregions since 2019. This stability is observed even after the U.K.’s departure from the European Union.

It’s possible that PitchBook’s data groupings – combining the U.K. with Ireland and France with Benelux – influence these results. However, it is believed that the impact of these combinations is limited.

Franck Sebag of EY, in an interview with BFM Business, proposed that a time lag might explain these trends. Funds raised before Brexit are still being allocated, and the full impact of the U.K.’s exit, and its potential to benefit France, may only become apparent in future investment cycles.

Beyond these leading nations, significant investment activity occurred throughout Europe. For example, Northvolt, a Swedish battery manufacturer, secured the largest funding round of the year, raising $2.75 billion, as reported by EY.

However, this mega-deal doesn’t obscure underlying trends. Swedish startups raised a comparable amount of funding from a similar number of deals in 2020, approximately 300.

Key Takeaways

• The U.K. and Germany outperformed France in venture capital investment in 2021.
• Brexit’s impact on VC funding remains unclear, with potential effects delayed.
• Sweden saw a significant funding round with Northvolt’s $2.75 billion raise.

Looking Ahead: Beyond Current Records

Acknowledging impressive figures and historical peaks is valuable, but future projections are of greater importance.

To what extent is apprehension spreading from public markets to private investment? When can a resurgence in initial public offerings be anticipated?

Are venture capital firms reducing their investment activity? Is a pullback currently under consideration by these investors?

Having reached unprecedented levels, the question remains: what direction will be taken next? Further analysis will be provided later this week.

The Shifting Investment Landscape

While celebrating record achievements is understandable, focusing on forthcoming developments is crucial.

The degree to which market anxiety is transitioning from publicly traded assets to privately held companies is a key concern.

A revival of the IPO market is eagerly awaited, but its timing remains uncertain.

Are venture capitalists demonstrating restraint in their investments? Is a strategic retreat being contemplated?

Key Questions for Investors

• How is investor sentiment evolving?
• What is the anticipated timeline for IPO market recovery?
• Are venture firms altering their investment strategies?

Following substantial gains, the focus now shifts to identifying the next phase of growth.

Additional insights and a more comprehensive assessment will be shared later in the week.