European Venture Market has morphed since 2009

Every month the Go4Venture Bulletin reports about large transactions in Europa. In addition every bulletin has an introduction addressing important trends in the market. In the recent bulletin the authors come to the conclusion that the higher investment level since the 2009 low is hiding a venture market profoundly morphed.

First, as much as half of venture has now become growth equity. And it is the growth equity part which is sustaining the market rather than the venture end.

• VC Funds Have Moved Into Expansion Capital – By turning to investments in companies with substantial revenues (EUR 5mn and more) and close to profitability or profitable, VCs have annexed growth equity as part of venture.
• Early Stage Shows Smaller Euro Amounts – This is as a result of technology becoming cheaper, and early-stage investment becoming more difficult to track, as business angels of all kinds are displacing VCs. VCs are now trying to hit back with all sorts of seed initiatives, for instance Index Seed in the UK, I-Source’s Angel Source in France or Seqoia Capital’s Scout Seed programme, which has already backed more than 100 companies (with a Series A forthcoming only in a minority of cases according to PE Hub).

 
Second, the scope of technology investment has become substantially broader, driven by two key factors:

• Technology Is Everywhere – Technology has become commoditised because it is getting cheaper all the time, and because increasing use of technology by developers hides the complexity of underlying technologies, making it accessible to all. So a lot of the investment activity is technology-enabled services (e.g. internet-related investments). In turn this is broadening the supply of money because this category of investment is understandable by most investors. Of course this is just a continuation of a trend started in the late 1990s when VCs extended their territory to all internet investments - even if today much of the technology behind ecommerce is fairly mundane.
• New Frontiers Are Being Opened – As evidence of a bubble forming (driven by momentum investing in the internet sector and all investors flocking to the growth equity space), a small but growing number of investors are returning to their roots of IP-driven investments in breakthrough areas such as new materials, semiconductors, energy and water efficiency technologies, industrial biotechnologies etc.

 
The authors comment on this last trend: “We are actually long on these sorts of areas which offer much higher barriers to entry than “out-investing” competition. We believe it also plays better to Europe’s strong engineering and technology base, coming from its long-standing university heritage.”

The bulletin can be downloaded for free from the Go4venture website.