European Venture and Growth: Finally Crossing the Chasm

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05.11.2014

Every month the Go4Venture Monthly European Venture & Growth Equity Market Bulletin analyses the European Venture market. In the recent edition covering the month of September the authors see on the one hand the market becoming more and more mature. On the other hand there are clear signs of overheating.

The authors of the bulletin see September in many ways as a watershed month. In short, an incredible level of activity both in terms of investment AND exits – both M&As and IPOs (a first in Europe). There is no question that European venture has grown up and is finally acquiring legitimacy with a more evolved ecosystem now able to produce meaningful companies with greater regularity.

Paradoxically, all these positive indicators come at a time when we have probably reached the upper part of the investment cycle. The noise level is just too loud to be sustainable (everybody is on a BUY rating), particularly in the context of a worsening macro environment and public markets starting to show signs of fatigue.

Go4Ventures’s headline Transactions Index (HTI) is showing a near 40% increase in value compared to 2013 year-to-date. At the same time, the number of transactions recorded is sharply down – rounds are becoming bigger across all stages, demonstrating price inflation. Positive news and staggering stats are abound: Mobile Internet investment hits record $19.2bn — up 232% in last 12 months, London tech firms break record for attracting venture capital funding with $1bn raised in the first three quarters of 2014, more than ten times the amount raised in full-year 2010, etc.

Another mark of European venture surging ahead is the continued positive newsflow on new funds being raised. This of course follows a great year, where we saw several European industry leaders re-up, including Index Ventures ($550mn), Accel ($475mn) and Balderton ($305mn). There were also newcomers such as Google Ventures ($100mn).

All this is fuelled by an incredible sense of optimism, which is completely at odds with the macro trends (poor economic and geopolitical news), and is no longer necessarily shared by insiders. Whereas, in January 2014, Marc Andreessen was on record saying “Bubble Believers ‘Don’t Know What They’re Talking About’”, he is now cheering on experienced operator Bill Gurley (Benchmark Capital) who said in September that the “current environment reminds him of the tech bubble that formed in the late 1990s”.

The complete bulletin can be downloaded on the website of Go4Venture Advisers.

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