13 September 2019

The brave new world of venture capital in Europe

James Shaw
Partner | UK

It’s a new era in the global industry of Venture Capital in Europe.

According to a 2019 Deloitte State of the Deal – M&A Trends 2019, we are seeing unprecedented changes in industries around the world. In the next two years, the M&A Trends survey predicts that we will see major industries, such and Banking & Securities merge with the Energy & Resources sector. Other trends were the prediction that Asset Management and Technology will converge. The common denominator is convergence.

And looking at the numbers*, European funding for startups experienced a ten year high — and increased in 2018 to $20.5bn of total deals across 3,384 deals. Europe also saw €47.5bn of total exit value across 373 exits and €8.4bn of total capital raised across 62 funds.

In the UK alone, total venture capital investment in UK tech topped £6bn, more than any other European country in 2018. Although seed-stage deals in Europe were flat during 2018, the median expansion-stage deal size was up to $14M from $12M in 2017.

In the UK, the proof is in the numbers*

According to Tech Nation’s Report 2019, 35% of Europe and Israel’s 169 unicorn tech companies were created in the UK. And, scaleup tech investment was 2.5x higher than expected based on the relative size of the UK economy.

This means scaleups are driving UK global tech advantage and deals in these companies make up 80% of all tech investment in the country.

Looking at one of the hottest tech sectors, artificial intelligence (AI) in 2018, AI startups from the UK raised almost double that of France and Germany combined. French AI companies raised $400m, while Germany’s raised $300m. Israel was second place behind the UK when it came to raising venture capital funds for AI coming in at $800m.

In our experience, those companies with a clear sector focus and that employ AI in a targeted and disruptive manner within that sector appear to be the most successful at raising funds. Investors are savvy and so the key is to focus on the sector, not simply rely on the AI.

A look at DACH, exits, France & Benelux*

Looking at Israel and the DACH region, both increased their proportions of the total of more than 2% in 2018. On top of that milestone, corporate VC participation coming in at a record high of €8.8B.
More than one-fifth of European deals included a corporate investor in 2018 and there is likely room for growth here. [Note: By comparison, in Japan, we estimate roughly four in five VC deals may involve corporates in some way and so were anticipating an increase in corporate venture activity in Europe.]

In Germany, startups saw a sizable elevation in investment value, with the €3.4B raised by German startups which were a 16.8% increase year over year, despite a 15.6% decline in deal count.

With a combined €30.3B of exit value from the public listings of Spotify and Adyen, in 2018 exit values in 2018 soared to €47.4 billion in Germany. And in France and Benelux, a greater proportion of venture funds closed in 2018 than the rest of Europe.

While public markets have not been that attractive of late, many late stage tech companies are choosing to remain private. And with the influx of corporate, family office and crossover capital, there’s no wonder some larger European tech companies are remaining private.

This is the European Fintech era

According to Tech Nation, UK Fintech is a world leader and the numbers prove this out. UK high-growth Fintech firms topped the charts, at £4.5bn from 2015-2018*. Monster deals broke ground globally in the UK including Skrill, an online payments company based in London acquired by Paysafe Group for £785M in 2015. And, Farfetch, a Tech Nation Future Fifty alumni company and developer of a global e-commerce platform second-highest deal for the UK at £678M for its IPO on the New York Stock Exchange in September 2018.

Fintech, AI and unicorns

The UK has five AI unicorns amongst the total number of private tech companies with a valuation of ; $1B including: Future Fifty company Darktrace ($1.7B valuation); Benevolent AI ($2.1B); Upscale alumni; Improbable ($2B); Graphcore ($1.7B); and, Blue Prism ($1.3B).

In May 2019, client Transferwise had a secondary share sale* of $292 M and now has a $3.5B valuation which makes them Europe’s most valuable Fintech Startup (and unicorn).

Meanwhile, in Germany, Raisin raised $114M in a Series D* in February 2019. The company has $11B in deposits and in Q2, 2019, the company acquired legacy bank MHB.

This is a revolutionary time for the financial sector – change is moving at pace with highly disruptive finetchs with global brands, presence and customer-base taking on traditional banking brands. We have never really been here before. And the tide has truly changed – late-stage fintechs are no longer the prey, they are the hunters and are changing the landscape of the financial sector on a global scale.

A closer look at Italy*

Italy is more than food, fashion and design, it has quietly become a hotbed for technology innovation. It is a unique startup ecosystem. In 2018, volume and aggregate value of buyouts in Italy rose to an all-time high, contributing to the overall European growth. Southern Europe saw 258 deals for an aggregate value of €34.9B and 140 buyouts worth €27.4B up from 131 were buyouts worth an aggregate €20.6B in 2017.

Italy overall saw 89 buyouts worth a total of €16.3B, which is more than double the €6.8B invested in 72 buyouts in 2017. The largest buyout recorded in southern Europe was the acquisition of Recordati by CVC Capital Partners. There were 111 exits for a total value of €18.8B with the most common exit being for private equity funds last year was a trade sale accounting for 52 deals.

The Italian Startup Act and Visa scheme opened the doors for startups and investors in 2014 and since that time, startups tripled their sales volume by the end of 2016, while those which registered in 2015 doubled their revenue in one year alone. The number of innovative startups increased from 7,866 in 2017 to 9,647 in 2018.* Apple, IBM, and Cisco have begun opening up new tech hubs in Italy.

Talent Garden, a coworking network based in Milan, recently raised €12 million in funding, and now has 17 locations across Europe. A great example of the digital transformation is in Milan with their innovation hub for Fashiontech, Startupbookcamp’s Fashion Tech Milano. The new accelerator aims to transform Milan into an international innovation hub for Fashiontech and offer a three-year program with 30 startups from around the world to help them create sustainable global businesses. Startupbootcamp is a global network of 20+ industry-focused programmes.

The Italian legislator has introduced certain benefits for subjects investing in innovative start-ups including direct and indirect (through ad hoc structures, such as UCITS) investments in start-ups and investment in the form of cash contribution to the start-up’s equity or their special reserve.

As we’ve seen in the UK, incentivising the flow of private capital from individuals into the tech ecosystem — via the UK’s Enterprise Investment Scheme, for example — has accelerated the creation of many new companies which in turn kickstarted the new economy.

Where do we go from here?

With all of this growth, what does this brave new market mean for startups and investors in the UK and Europe?

1. For late-stage investors and/or crossover funds, now is a great time to look carefully at European Fintech.
2. For early stage foreign investors looking to invest in emerging tech and AI, build strong relationships with local VCs in the UK who have their finger on the pulse and who can be a local lead.
3. Foreign investors are driving much of the increase in later stage investment in the UK. If you’re looking to raise money at Series A and beyond, consider these points:

  • Structure your company so that it’s attractive as possible to foreign investors. For example, use market-standard documentation and ensure the cap table is as clean as possible. Noteworthy: UK and US VC deal terms are becoming more closely aligned making it easier for US capital to flow into the UK.
  • Work your existing investors for international connections.
  • Engage in dialogue with overseas investors relevant to your market.


proof is in the numbers – Tech Nation Report, 2019

2015-2018 – Tech Nation, UK Tech on the Global Stage, May 2019

secondary share sale – Techcrunch, May 2019

Series D – Techcrunch, March 2019

James Shaw Partner | London, Cambridge

Category: Article