In the third quarter of 2018, investment into European venture capital-backed companies reached €4.5 billion, pushing 2018’s total venture capital (VC) deal value to €14.8 billion. At this pace, 2018 could hold the mark for most venture capital invested in Europe in a single year, according to PitchBook’s 3Q 2018 European Venture Report. Fierce competition among investors and larger fund sizes have put upward pressure on deal sizes and valuations in 2018. Particularly, capital invested into the early stage companies in 3Q was the highest of any stage (€2.3 billion across 295 deals) as companies found more support from investors at that stage of the lifecycle. Landmark early stage deals include, About You (€256 million), Dfinity (€102 million) and SEBA Crypto (€103.3 million). Additionally, VC exit activity has remained a bright spot in 2018 as exits over €100 million account for a larger proportion of exit value. Favorable market conditions also drove several billion-euro businesses to list on the public markets – IPOs have made up 66% of exit value so far in 2018. Venture fundraising also remained strong in the third quarter, amid sliding fund counts. European fund managers continued to raise fewer, larger funds as evidenced by a 50% rise in median fund size from 2017.
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“While European VC deal activity was slightly tempered in 3Q, the impressive ascent in capital invested in the first part of the year has set up 2018 to be a landmark year for the European venture capital industry,” said Cameron Stanfill, analyst at PitchBook. “Investors are increasingly raising larger funds, making it more efficient to allocate larger amounts of capital to more mature companies in the early and late stages. However, a shortage of late stage investment targets led to a subdued third quarter, in stark contrast to the US VC ecosystem where outsized deals in the late stage are commonplace. From our perspective, the major difference is a current lack of widespread VC support or ability to execute €100+ million deals. As Europe’s venture ecosystem continues to mature, so will its ability to complete deals in the late stage and further drive up capital invested.”
Investment Activity
In the third quarter, venture investors deployed €4.5 billion across 584 deals. Despite a slightly slower pace of investment compared to 2Q 2018, investment activity is on pace to exceed €19 billion, a new record for total capital deployed in Europe.
The growing prevalence of larger fund sizes coupled with increased competition have caused deal sizes to balloon across all stages, with notable jumps over 2017’s value at the early (85.4%) and late (64.2%) stages.
Companies based in the UK and Ireland continued to attract the most venture investment, making up 39% of total European VC deal count and representing the fourth straight year capital invested in the region exceeds €5 billion.
Exits
The third quarter saw €7.2 billion exited across 67 deals, pushing year-to-date exit value to €20 billion, already the highest total since 2014. If this pace holds, 2018 could see the highest exit value achieved in a single year.
Rising valuations have allowed exits of more than €100 million to account for anywhere between 75% and 92% of total exit value over the last six years, with 2018 representing the most extreme data point of 92%.
VC-backed IPOs accounted for more than two-thirds of exit value in 2018, an increase of €5.2 billion over the annual 2017 figure. The two largest exits of 3Q 2018 were both IPOs of London-based companies valued at more than €1 billion, including Farfetch and Funding Circle.
Fundraising
Down slightly from 2Q 2018, VC investors secured €2 billion in capital commitments across 13 vehicles, bringing 2018’s fundraising total to €6.5 billion raised across 49 vehicles. At this pace, 2018 fundraising activity is expected to surpass 2017 figures (€8.2 billion raised across 76 funds).
Similar to trends observed in the US, European fund managers increasingly raised fewer, larger funds to keep pace with ever-growing deal sizes. Median fund size rose from €79.7 million in 2017 to €123.2 million in 2018. Funds closed in the €100 million to €500 million range now make up 58.1% of funds closed by count, up from 13.2% just six years ago.
2018 fundraising has been concentrated among UK and Ireland VCs with €2.4 billion raised across 16 funds, the most commitments to date. However, German VC investors secured the largest amount of capital in 3Q 2018 (€700 million), driven in large part by Munich-based Digital+ Partners debut VC fund (€350 million).
Additional coverage in this report includes:
Overview
Corporate VC
Regional spotlight: UK and Ireland
Exits
Fundraising
Download the full report here.
About PitchBook
PitchBook is a financial data and software company that provides transparency into the capital markets to help professionals discover and execute opportunities with confidence and efficiency. PitchBook collects and analyzes detailed data on the entire venture capital, private equity and M&A landscape—including public and private companies, investors, funds, investments, exits and people. The company’s data and analysis are available through the PitchBook Platform, industry news and in-depth reports. Founded in 2007, PitchBook has offices in Seattle, San Francisco, New York and London and serves more than 18,500 professionals around the world. In 2016, Morningstar acquired PitchBook, which now operates as an independent subsidiary.
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