Venture investors In Europe focussing on disruptive start-ups

The Go4Venture Advisers’ Monthly Bulletin provides a summary of corporate finance activity among emerging European TMT companies. The recent issue reports about March and in addition about Q1. As of end of Q1, the European growth equity and venture market is ahead by 20% compared to the same period last year, with more, larger transactions.

This reflects the changing mood of the European market which, over time, is slowly adopting the Silicon Valley model, i.e. going for investment plays with global footprint and the capacity to disrupt. It is not just question of a changing risk appetite; it is more simply a case of if you are going to take risks, at least do so on such a scale that you get a chance of having a big winner.

All this month’s “Large HTI investments” (>£5mn / €7.5mn / $10mn) have the potential to be global plays, and so illustrate this changing of scale of the European venture market (the one exception being Mono Consultants, which is more a UK investment in a services company). Interestingly, most of these larger transactions are led by US investors with just a couple of exceptions (from France and the UK).

In fact, if one looks at the very large transactions, one finds unusual investors in the form of Victory Park Capital (credit investment), Fidelity International (large institutional investor), GIC Private Limited (sovereign fund), Vulcan Capital and MSD Capital (both family offices of high-profile tech entrepreneurs). In a way, the European venture ecosystem is becoming more diverse – there are more options, but they are more difficult to navigate.

This increasing diversity is also observed in the range of venture funds being raised in Europe:

• Tier 1 Funds – Balderton Capital raised $305mn to bring its total Assets Under Management (AUM) to $2.2bn, which they say make them the largest VC fund solely focused on European technology companies.
• Challenger Funds – DN Capital closed its third fund at €80mn, bringing its AUM to €170mn. DN punches well above its weight with offices in London, Berlin and Silicon Valley. The latest fund is closed with a €3mn commitment from Finnish Industry Investment for the very purpose of attracting international investors to Finland.
• Early-Stage Funds – Grenoble (South-East France)-based Emertec raised a fifth fund, with €50mn from French state-backed fund Bpifrance and the European Investment Fund.
• Sector Funds – Paris-based Robolution Capital, a fund dedicated to the service robotics market, had a first close at €80mn.
• Growth Equity – Paris-based Cathay Capital raised its €500mn fund to invest in mid-cap companies in France and China. London-based Primary Europe had a first closing for Primary IV with £150mn (target: £225mn).
• Secondary – Azini Capital, which made its hallmark by acquiring most of the remnants of Apax’s VC portfolio, re-upped with sole LP Lexington for a new third fund of $100mn. As well as portfolio secondaries, Azini is also very active in direct secondaries (acquiring the stake of investor(s) in a particular company).

Recent developments show how much the European market is maturing. Of course still not as fluid as the Silicon Valley community, but increasingly high-energy, cross-border, international and focused on noticeable outcomes rather than risk mitigation per se. Hopefully, the sort of discipline to which we aim to contribute when getting involved with a company and its investors.