European Venture Capital Deal Value Nears Record Highs, Despite Fewer Deals Overall

European and Israeli VC Ecosystems Show Signs of Maturity in Q3 2017, According to PitchBook's Latest European Venture Report

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Oct 19, 2017, 00:01 ET

SEATTLE, Oct. 19, 2017 /PRNewswire/ -- European venture capital activity continues at its sluggish pace in terms of deal count, while deal value continues to climb towards record highs, according to PitchBook's 3Q 2017 European Venture Report. Through three quarters of 2017, venture capitalists completed 2,317 deals, representing the fifth straight quarterly decline, while the €11.7 billion in aggregate deal value paces for the second-highest yearly total of the decade. Across all stages, median deal sizes increased, with angel & seed deals crossing €800,000 for the first time this decade. Mirroring U.S. venture trends, this growth in round sizes can in part be explained by the fact that companies are entering the VC lifecycle later, opting to bootstrap or develop in incubators before raising their first round. For the first time, the report also spotlights Israel's strong VC industry, where over the past five years considerable growth has been achieved.

"The high levels of fundraising on the continent, as well as the continued support of the ecosystem by foreign investors, has provided plenty of capital for investment," said Kyle Stanford, analyst at PitchBook. "This points to the continued evolution of the VC ecosystems in Europe and Israel."

Fundraising Continues Trend Towards Lower Counts and Larger Deals
The €6.1 billion raised so far suggests another strong year after 2016's record fundraising figures. Though fundraising in 2017 will not likely surpass last year's impressive numbers, aggregate capital raised as of 3Q is already greater than annual totals from 2009 to 2014. Fund count, however, is down from last year, suggesting LPs are committing to fewer, larger vehicles. As of 3Q 2017, only 42 funds have closed compared to 61 funds closed at the same time last year. If this trend persists, 2017 will be the sixth consecutive year where fund count trends downward. Edging away from previously dominant micro-funds, 47.5 percent of funds raised this year are small- (€50M-€100M) or mid- cap (€100M-€250M). Many funds included in the mid-cap range are early stage investors raising vehicles with flexible follow-on allowances.

Deal Flow Lowers and Trends Towards Later-Stage Investments
Currently, 2017 European and Israeli deal flow is pacing to come in lower by roughly 27 percent year-over-year. Like the U.S., a large portion of the decline in deal count can be traced to the angel & seed markets, as early investors stay disciplined and look for more traction before investing. The median age of startups raising a seed round has surpassed two years post-launch, the highest we have seen in the last decade. On a deal value basis, corporate venture capital (CVC) participation through 3Q 2017 is higher than any full-year total prior to 2015. At the current pace, 2017 will set a new decade high of deal value with CVC participation of €5.36 billion across a projected 578 deals.

More than €1 billion has been invested into Israeli-headquartered startups, the third consecutive year to reach that mark, and the year is on pace to reach 200 completed financings for the sixth straight time. The median late-stage deal has reached over €14 million in 2017, a record high, and the median early-stage financing topped €6.7 million, higher than PitchBook tracks in Europe or the U.S., albeit through many fewer deals. In terms of capital invested per capita, Israel has one of the highest, if not the highest, figures worldwide – last year, more than €266 was invested for each person living in the country.

VC-backed Exit Activity Takes Largest Hit
Exits in 3Q 2017 slowed after strong activity through the first half of the year, with VCs recording only €1.2 billion in exit value across 81 transactions. This also extends the decline in exit counts to three straight quarters, with a notable absence of activity at the large end of the spectrum during 3Q. PitchBook recorded only three deals of more than €100 million, compared to 16 exits of that size collectively in the first half of 2017. Acquisitions continued to be the most popular exit ramp for VC-backed companies, accounting for more than 70 percent of completed exits in the first three quarters of 2017. PitchBook recorded only three deals valued hirer than €100 million, compared to 16 exits of that size collectively in the first half of 2017. While this year was predicted as the year many companies delaying IPOs would finally price an offering, IPO volumes have remained sluggish. However, the last few weeks of 3Q and the beginning of 4Q were very active for IPO filings, with companies such as HelloFresh and Bakkavor coming to market, which adds a bit of optimism in the space heading into the final quarter of the year. The largest IPOs of the quarter was Rovio's €424.6 million exit in September.

Additional findings in this report include:

VC deal flow/total capital invested
Median fund sizes and time to close
Median deal sizes by financing stage
Most active industries for investment
VC exit flow
VC fundraising

Download the full report here.

About PitchBook
PitchBook is a financial data and software company that provides transparency into the capital markets to help professionals discover and execute opportunities with confidence and efficiency. PitchBook collects and analyzes detailed data on the entire venture capital, private equity and M&A landscape—including public and private companies, investors, funds, investments, exits and people. The company's data and analysis are available through the PitchBook Platform, industry news and in-depth reports. Founded in 2007, PitchBook has offices in Seattle, New York and London and serves more than 12,000 professionals around the world. In 2016, Morningstar acquired PitchBook, which now operates as an independent subsidiary.

SOURCE PitchBook