European Venture Market: 2014 has all the makings of a record year

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08.08.2014

The Go4Venture Team sees a clear trend to larger investments in Europe. Investors are hunting for game changers. And when they have found one they scale the company aggressively.

Every month the Go4Venture Monthly European Venture & Growth Equity Bulletin reports about Venture Capital (VC) and Private Equity (PE) financings, including growth equity, and M&A Transactions. The edition covering June is the largest Bulletin issue ever, with a record number of large financings (21) and a record number of exits (7). At its mid-point, 2014 has all the makings of a record year.

As of the end of June, the trend is pretty clear: the number of financings which make it to the Headline Transactions Index (HTI) of Go4Venture – i.e. which are picked up by the press – may be down by 20% in volume, but are up more than 40% in value, reflecting an average investment value which has jumped from €7 million last year to €12 million today. In short, the market is definitely turning its sights towards larger opportunities:

  • All investors – including venture and growth equity investors – are on the hunt for “game changers”, i.e. good teams with disruptive innovations going after large, global markets.
  • When they feel they have winners, investors scale companies aggressively.
  • The July issue of the bulletin will report on the Series C financing of BlaBlaCar (led by Index Ventures) for $100 million, i.e. 10x as much as the company raised in its B round of 2.5 years ago.
  • There is probably more experimentation (at seed level) but also more selectivity at earlystage (in part because there are fewer VCs).
  • Companies are kept in the portfolio longer, until they can go through a substantial exit.

Of course, this wave of optimism is easing the way to existing funds replenishing their coffers and new funds being set up. This is a nice change from only three years ago, when venture was a dirty word and European venture apparently a dead end. We have seen great examples of new funds’ fund-raising in the last month, covering virtually all segments of European venture and growth investing:

  • Early-stage: Imperial Innovations raising another £150 million from the public market to support its portfolio companies for the next 12 months. Much of the money is subscribed by Imperial’s existing reference shareholders, including Invesco Asset Management, Lansdowne Capital and Woodford Investment Management.
  • Major fund: Index Ventures raising its 7th fund for early-stage tech startup investment on both sides of the Atlantic, on the back of an impressive 7 exits of more than $1 billion in the past year alone, including four from Europe: 3 IPOs (Criteo, Just Eat, King Digital) and 1 M&A (Supercell sold to Softbank).
  • US funds in Europe: Google Ventures announcing the opening of its European office with a dedicated $100 million fund, and Palladin Capital (a security-focused fund) opening a European office.
  • Country funds: Nauta Capital (out of Spain, but actively looking for opportunities in Europe and the East Coast of the US, thanks to offices in London and Boston) launching its $150 million fourth fund, and 3TS Capital (a Central and Eastern Europe fund) eyeing a second closing at €140 million for its latest fund.
  • Theme-based funds: Ambienta having another close on its €250 million second fund, Chrysalix SET expecting to have a first close on its second cleantech fund, and C5 Capital in security (a first fund of $125 million).

On the other hand the authors of the bulletin think that this feverish activity inevitably leads to a bubble: “How long it will take is anybody’s guess. We are on record as having mentioned the end of 2015 – on the basis that, during the last two cycles, the upper part lasted 6 years (1994-2000 and 2002-2008). What is more interesting is how bad the explosion will be: there is a strong argument that it may be not as bad, simply because the companies may be mispriced but have (this time) real value.”

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