Deal counts are down but deal sizes are way up, and the UK and Ireland region is now known as the VC backbone of Europe.
European venture capitalists (VCs) invested €16.9bn across 3,306 deals in 2017, the highest amount of capital deployed on record.
According to PitchBook’s 2017 European Venture report, deal counts trended downwards for the third year running.
‘In 2018, we expect European VCs will be closely watching the outcome of Spotify’s unconventional public debut, as well as the possibility of a disruptive year for European IPOs’
– CAMERON STANFILL
However, deal sizes actually reached a decade high across all stages as investors targeted more developed companies with larger deals.
Examples include Improbable’s €458m Series B and Deliveroo’s €417m Series F.
Deep tech drives funding momentum in Europe
“The European VC ecosystem remains strong on all accounts as investors adapt to the rising valuations and changing market dynamics,” said Cameron Stanfill, PitchBook analyst.
“Deal sizes continued to trend upward, driven in part by a maturing VC ecosystem and support from government initiatives.
“The ripple effects of this can be seen in the tepid exit market and fewer, larger fund vehicles. In 2018, we expect European VCs will be closely watching the outcome of Spotify’s unconventional public debut, as well as the possibility of a disruptive year for European IPOs.”
Fast-growth sectors such as fintech, AI and machine learning also notably drove deal value, especially in the UK and Ireland region, known as the VC backbone of Europe.
Despite sliding exit counts, 2017 exit value held steady, bolstered by VC-backed IPOs, which had the strongest showing since 2014.
To keep pace with ever-growing deal sizes, European VC investors have sought larger funds, as evidenced by the decade-low in fund counts (54) while capital raised eclipsed €7bn for the third consecutive year.
VC trends: AI soars while angels fly lower on slightly singed wings
The number of angel and seed rounds completed in Europe declined by 39pc from 2016.
Meanwhile, more than half the capital invested in 2017 was in deals larger than €25m, a segment which saw a 35pc year-on-year deal count increase in 2017.
Europe’s VC stronghold of the UK and Ireland also played a key role in boosting deal sizes, aided by government initiatives and the maturing VC ecosystem. The region saw a record volume and count of large deals – more than €4bn invested in 53 rounds greater than €25m.
An increasingly popular sector for European VC in 2017 was artificial intelligence and machine learning as technologists continued to surface new applications for everyday life, paving the way for further advancement of the field.
Annual VC investment in AI and machine learning topped €1bn for the first time and deal count saw 30-times growth over the past decade.
Overall, exit activity declined in 2017 but remained healthy on a historical basis, despite the absence of mega-deals. Last year, €11.6bn in capital was exited across 426 deals, down from €12.6bn exited across 471 deals in 2016.
While fundraising remains strong, the number of vehicles declined 25pc year-on-year and, for the sixth consecutive year, fund counts trended downward.
PitchBook surmised that the slower pace of fundraising reflects the new venture market dynamics, whereby investors raise fewer, larger funds to keep pace with demand for larger deal sizes and follow-on financing.