Value of VC-backed companies in Europe soared in the first quarter

2 Jun 2021

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Research from Pitchbook found that later-stage deals in European companies have driven up valuations across the board.

Despite continued economic uncertainty stemming from the pandemic, valuations of VC-backed companies in Europe increased in the first three months of 2021.

That’s according to a report from Pitchbook that examined venture capital activity in the first quarter of the year. The report analysed valuations of companies at different stages of investment.

While varying lockdown measures, unemployment rates and vaccine roll-outs continue to cast a pall over Europe’s economic recovery, money continues to flow to both new companies and established players.

In the first quarter of 2021, there were 23 deals involving so-called ‘unicorns’ – companies valued at $1bn or more – compared with a total of 38 in all of 2020.

Later-stage deal-making is responsible for much of the increase in valuations seen this year so far, with bumper rounds like Klarna’s $1bn commanding the most headlines while Glovo, Wolt and Hopin all raised rounds above $400m.

“Late-stage valuation growth has been driven by companies maximising their investment runways in the ecosystem by closing record rounds,” the report said. “Consequently, these rounds, which contain a rich diversity of investors, have led valuations to rise further at the late stage.”

But investors have continued to put money into seed and early-stage companies as well, driving up valuations.

Pitchbook attributes this to a desire among investors to back early winners in the post-Covid paradigm, where models like remote working and consumer trends in e-commerce and delivery may remain in place.

The Pitchbook research noted that early-stage capital has quickly shifted to new sectors where there has been a rapid increase in demand. On-demand grocery delivery is one such area, with Pitchbook pointing to Berlin’s Gorillas, which recently raised $292m at a $1bn valuation less than a year after it was founded.

The Irish Venture Capital Association also reported an uptick in early-stage deals in Ireland in the first quarter of 2021 after a year of declines.

Pitchbook found that increasing activity of international and non-traditional investors in Europe has played a role in rising valuations. Increasingly, private equity firms, hedge funds, pension funds, sovereign wealth funds and investment banks are getting into the game.

“VC deals with non-traditional participation reached €14.7bn in Q1 2021, on course to easily surpass the record €33.6bn in 2020,” the report said.

Jonathan Keane is a freelance business and technology journalist based in Dublin