Broadening investment activity in the European venture market

The continuing increased investment in European venture and growth funding shows no signs of abating. The Headline Transaction Index of Go4Venture confirms the progress, with value of transactions up nearly 10% compared to the year before, and a doubling on a year-to-date basis (even if nearly half of that increase is due to the Delivery Hero deal in February).

Interestingly, March confirms:

• The activity is now evenly split among A / B / C and late-stage series. The authors of the bulletin interpret this as a broadening of the activity, as investors get scared by valuations in hot spots (which may be good news for areas ignored by investors so far). One may also read it as the toppish activity spreading to all stages.
• The UK is going gangbusters – representing half of the Large HTI fund-raising deals (> £5mn / €7.5mn / $10mn).

It is indeed an inescapable fact that clues of overheating continue to accumulate. This is in the context of the wall of cash provided by quantitative easing (QE) and the fact that, in a world which is essentially ex-growth (as the IMF recently pointed out), technology is the place to be. “This is of course a breeding ground for the next investment bubble”, the report concludes.

In terms of growing signs of overheating, the report lists a few examples from the last month:

Rising valuations: An analysis published by CB Insights shows that half of unicorns (private companies with valuations of $1 billion or more) have a Price/Revenue (P/R) multiple of 10x or more, which is beyond the top end of what the authors of the bulletin would consider a normal range for high-growth companies. And that’s without data points from other unicorns, which presumably are not publishing their numbers because they don’t have as strong metrics to report.

Inextinguishable money supply: We now have the first example of retail investors getting embroiled in the tech craze. High-profile UK investor Neil Woodford (ex-Invesco) has raised a new publicly quoted fund, the Patient Capital Trust, mostly from retail investors.

High profile failures: Fab.com is the first unicorn failing in this cycle, having raised $336 million. Not far off the posterchild failure of the 2000 bubble explosion, Webvan, which closed down in July 2001 having been through $400 million from luminaries such as Goldman Sachs, Sequoia Capital and Softbank.

The complete monthly bulleting can be downloaded from the website of Go4Venture Advisers.