As the number of venture capital investments plummet, strong valuations have helped the total amount investments made by the third quarter of 2015 soar to €9.5bn.
According to the Pitchbook European PE Breakdown for the fourth quarter, quarterly deal count has fallen 36pc from its 2014 peak when there was a swell of activity that hit 1,534 deals.
Between the UK and Ireland the number of deals fell to 377 in the third quarter of 2015 from 551 this time last year.
Gargantuan investments disguise flagging activity
However, heightened valuations in 2015 have taken their toll on deal count activity.
Europe’s start-up ecosystem is still largely a network of active hubs such as Stockholm, London and Berlin.
Activity in 2015 has been propped up by investments in distressed mid-market companies ripe for operational enhancement as well as programmes like the European Investment Fund.
From the first quarter of 2014 to the third quarter the count of venture capital financings has dropped by 50pc.
However, even as activity has plunged, the amount of venture capital invested for the year hit €9.5bn, described by Pitchbook as “gargantuan.”
This sum has been skewed heavily by Spotify’s massive US$526m funding as well as continuous late-stage investment in Delivery Hero.
“It stands to reason that if there is an imbalance of late stage investment flooding a select group of hyped startups in the US, Europe would see a similar overweighting,” Pitchbook said.
“The issue with the spread of VC funding is that many fear there is a lack of necessary capital infusions at earlier stages. That may not necessarily be the case, as breaking down venture activity by stage reveals there is still plenty of money flowing at the early stage, and a reasonable chunk of euros devoted to angel/seed activity.
“But the decline in round counts across the board suggests spread issues on a smaller scale at even the early stage, with cautious investors plying only the best-prepared start-ups with wads of cash in order to keep up with current round and valuation inflation, to the detriment of smaller companies that warrant investment but miss out by a small margin of risk.
“An increase in caution isn’t necessarily a bad thing, but it’s worth stressing that a pullback in general funding could potentially diminish the pipeline of fledgling companies that will be the Delivery Heros or Spotifys of the next decade.”
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