European tech investment is holding up

Tech.eu just published stats for European VC investment in Q1. We used to wait months for this kind of data and it’s great that it’s coming through in the first week of the new quarter. Faster data enables better decision making.

EU-and-Israel-Tech-funding-without-Spotify

As you can see, if we ignore the $1bn debt round in Spotify, the value of investments in Q1 was roughly the same as in Q4 at €3.5bn. However, the number of deals continued to rise sharply, and hence, as you might have figured out, the average round size was lower – falling from €5.8m in Q4 to €4.6m in Q1 (ex Spotify).

The increase in deals came, therefore, at lower round sizes:

Distribution-of-funding-deals-EU-and-Israel-1024x452

This data matches with what we’ve seen in our portfolio. Some of our companies have found it takes longer to raise, but they are all still getting their rounds away.

I think the big picture is that whilst it might be decreasing sharply in the US investment by value is holding flat in Europe. That’s what the first chart shows (ex Spotify). There are two related reasons:

  • The 2015 and H1 2016 exuberance in the US only came across the Atlantic to a limited extent
  • The supply and demand of capital vs startup opportunities in Europe here still favours capital

Because of these reasons the European market was less inflated than in the US and any correction effect is being balanced by natural growth in the market.

It’s also interesting to note that over the last three quarters the numbers of €0-1m deals and €1-5m deals has been roughly the same, implying that most companies raising a seed round are successfully raising their next, larger, round. The big drop off, and implied failure point, comes between raising €1-5m and €5-10m.

  • Rmicals

    To be fair the €5-10m range for Q1 16 does show a sharp increase from previous quarters which is great. Europe needs that growth capital.

  • Ascendant

    Nic, whilst I would agree that seed investment is booming, our stats on the UK and Ireland do not quite agree with some of your conclusions. In 2015 there was c.80% growth in deals <£2m and just under 200% growth in deals over £20m. However there was only 3% growth in deals between £2m and £5m. In fact there was less capital invested in this size bracket than in 2014. So my take is that there is a very high rate of failure between "First" Seed and "New" Series A. Privately, most of the incubators reckon 60%-90%. Post seed/Pre Series A the odds improve greatly. Given the rise in early investment, I am concerned that we are going to a significant number of failures in the next 12-18 months…. Stuart

  • Andy Boura

    Drop off in funding equated to failure – may be better equated to earlier smaller exits, or self-funding / sustaining growth in a more risk averse Europe…any evidence which of these it is?