Building blocks now in place for Europe to be more like Silicon Valley

The start of 2017 confirms how buoyant the European market is. It is up by 20% by volume in January 2017 year-on-year, and close to 40% higher by value, according to the latest headline transaction index (HTI) bulletin from Go4Venture.

What is remarkable this time is that innovation financing in Europe is spreading:

• Sector-wise: software is leading by money deployed (c. 23%).
• By geography: UK is still number one, but with only 26% of the amount raised in January (vs 34% for the whole of last year as documented in Go4Venture’s 2016 year end review).
• Per stage: larger investments (>€10m) being made at all stages, including Series A and Series B which represent nearly half of the capital raised for larger financing rounds.

In many ways, Europe is learning to be more like Silicon Valley with its tight ecosystem of serial entrepreneurs, entrepreneurs turned business angels, self-confident VCs, and an army of solid service providers, be they bankers, lawyers, executive search firms, PR companies etc. Of course there is still a way to go, with companies still being sold too quickly, large European corporates unsure about buying startups for 100s of millions, and no European stock market having gained critical mass in technology. But the building bricks are now in place.

The tempo is clearly influenced by the US market exuberance, dictated mostly by factors exogenous to the VC world. Consider this:

• SNAP’s IPO jumping 44% on the first day of trading – fed by deep IPO starvation as documented by FT’s Lex column which pointed out there were only 20 IPOs of tech companies in 2016 – compared to 371 in 1999.
• Uber setting the trend in the land of believers – even though it can be described (as CB Insights put it) as a ‘ponzi scheme of ambition’, from taxi to last mile logistics, vehicle ownership, autonomous driving, trucking (with Otto acquisition), drones and now flying vehicles.
• Public equity markets at an all-time high - despite raging fire in the political kitchen (fanned by geopolitical rivals).

No wonder the mood is in fact quite schizophrenic: we see both a more cautious VC mindset AND a gushing river of money from corporates and generalist financial investors. The phenomenon has been best analysed by Mark Suster of Upfront Ventures in his post: “Why was winter in venture capital funding so short?”. Although VCs did cut investment, did take a more cautious approach to the burn rate of their portfolio companies, and did see a decline in valuations, overall the innovation financing market has been lifted by money from outside the classic VC realm.

As we mentioned in our August 2016 Bulletin, “Today everybody is a tech investor”. The stats are accumulating:

1. Corporates are stepping up their investment - and Europe is the geographic area which progresses the most (from CB Insight’s The 2016 Global CVC Report).

2. Foreign money (and Chinese money in particular) is pouring in.

3. Private equity is getting into the growth game.

4. Generally speaking LPs (investors in funds) have replenished their coffers and are now re-investing in venture, hence the success of Atomico raising a whopping $765m for their 4th fund, or Rocket Internet succeeding with their $1 billion Rocket Internet Capital Partners vehicle.

Read the full January 2017 bulletin with charts and analysis at Go4Venture – click here.