The Pitchbook report suggests improved stability in UK markets, while Europe has seen VC-backed company valuations plateau this year.
Venture capital-backed (VC) companies in the UK and Ireland have shown a promising start to the year with a significant growth in valuations, which contrasts with European trends.
That’s according to a report from Pitchbook that examined European VC activity in the first quarter of the year, looking at valuations and deals at different stages of investment.
This European VC Valuations Report claims the average pre-money valuation of late-stage deals was €17.7m in Ireland and the UK. This median figure is nearly 25pc higher than the same period last year.
Angel and seed-stage valuations also saw growth of 9.7pc, though early-stage valuations fell by 9.6pc in the same period.
The report claims that improved economic and political stability in UK markets appears to have boosted the recovery of both valuations and deal sizes. It’s a particular boost to late-stage companies as their value had declined throughout 2022, based on Pitchbook data.
European VC valuations plateau
The results for Ireland and the UK differ to the rest of Europe, as valuations “largely plateaued” in 2023. The report claims that lower growth rates, workforce reductions and tougher funding conditions have surfaced in the past 12 months, contributing to the results.
“With focus shifting towards profitability instead of growth at all costs, further measures to improve capital efficiency could be taken by founding teams,” Pitchbook said in the report. “Therefore, recalibrated valuations could be on the horizon when fundings take place in upcoming quarters.”
The report also claims VC deal activity slowed in the first quarter of the year, with investors being more “selective” when deploying their capital.
Non-traditional investor participation has fallen by more than 65pc year-on-year, marking a “new trough” since its peak at the end of 2021.
The valuation of European unicorns appears to have flattened compared to the growth experienced in previous years, while the deal value and count for unicorns fell significantly this quarter compared to last year.
“We believe that unicorn dealmaking will remain quiet in 2023, with consumer and business spending stalling as inflation persists,” Pitchbook said.
The report warned that valuation stress for companies like Klarna and Revolut could spread “deeper into the VC ecosystem”.
Energy and fintech
In terms of different sectors, the report claims Europe’s energy sector has dropped from the “peak valuations” it experienced last year.
The sudden surge of investment last year was attributed to Russia’s invasion of Ukraine, which caused supply chain issues and the “need to transition into alternative energy more quickly.”
“However, supply chain issues within the sector haven’t fully resolved, nor do we think investment in long-term, cleantech solutions will fall out of favour,” the report said. “We therefore expect deal activity for technologies that need multiyear implementation to stay resilient through the year.”
European fintech saw growth in both valuations and deal sizes, suggesting a certain resilience in the sector. But the Pitchbook report warns that the data may be lagging behind recent market dynamics, as challenges continue to unfold amid rising interest rates”.
“We expect valuations within the sector to continue to come under pressure and have started to see evidence of this,” Pitchbook said.
A previous Pitchbook report claimed the IT sector in Europe took centre stage in VC deals last year, along with a rise in Europe’s energy sector deals.
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