European Venture Capital Market Firming Up

In the latest edition of the Go4Venture Monthly European Bulleting, the authors focus on two trends. The first: the European venture capital market is firming up. May 2012 is slightly ahead compared to last year, making year-to-date numbers broadly equivalent to the year before. This is confirmed by early June data which looks extremely positive. This seems to be a case of cash-rich investors and corporates with too few opportunities to use their cash productively, except by investing in the future. Such forced money supply is feeding both the venture financing and M&A markets. This also marks the expansion of venture financing well beyond the traditional world of the VC industry as we know it, as well as changing the pecking order among VCs, with the strong getting stronger and of course the weaker players disappearing, opening up the road for new managers entering the market.

The second trend is a fundamental restructuring of the venture market in terms of sector, stage, geography and investors. For May 2012, for instance:

• Sector - Internet Services represent two thirds of Large transactions.
• Stage – Heavy focus on Series C and later stage transactions (half of the deals).
• Geography - Much of the action is centered on the UK (half of the transactions), which is fast becoming a key hub straddling the US and continental Europe, allowing UK/US companies to launch across Europe and European teams to better access the US. In the internet sector, world domination is becoming the new standard target – because the business models are often reasonably capital light and investors welcome deploying more money on established models with credible multi-billion valuation potential.
• Investors - US investors are involved in two thirds of the larger European transactions featured in the Go4Venture Bulletin, including native funds (e.g. Jafco Ventures supporting Huddle in its US expansion), funds which have European offices (and often separate funds, e.g. Accel, Fidelity Growth Partners Europe) or offshoots from US funds (Balderton). Increasingly top European funds are seeking syndicate partners in the US rather than relying on smaller European peers who may not have the same level of ambition (partly due to smaller pockets or uncertain fund-raising prospects). For the rest new venture market entrants such as corporates (Illumina) or public bodies (ADEME, Fouriertransform) are helping compensate for the shrinking VC money supply and VCs obsession for the internet.