European Venture Market on Fire

The Go4Venture Advisers’ European Venture & Growth Equity Market Monthly Bulletin provides a summary of the most prominent private investment transactions among emerging European TMT companies. The recent issue covers investments in February. Whichever way one looks at it, the metrics are like nothing seen before:

• February 2015 is the highest ever on record (in terms of both volume and value of Large HTI deals). Where we usually see a lull (after the January rush to close deals which didn’t quite complete by year-end), this year we see a redoubling of activity.
• No fewer than three transactions fit in a new category of deals – which we have termed “Mega Deals” – of more than €100mn, compared to three in the whole of last year. Notably, the first Mega Deal appeared in Europe in 2010.

Granted, two of the largest February transactions (Delivery Hero and HelloFresh) are the work of Rocket Internet thanks to the €1.6bn proceeds of its October 2014 IPO. In many ways, Rocket Internet is redefining European venture and is arguably at the vanguard of taking venture global:

• Through its execution power, Rocket is bringing a level of aggression akin to Silicon Valley investing that is quite foreign to European venture’s traditional ways.
• Many of its ventures are orientated towards emerging markets, which have historically been largely ignored by venture providers. Rocket is one of few venture players exploring this opportunity, together with the likes of Amadeus Capital, Atomico and Kinnevik – if we exclude the handful of US firms that set up dedicated funds for India and China in the mid-2000s.

What is also fascinating in the February numbers is the demonstration that enthusiasm is spreading within the market (as one would expect at this point in the cycle):

• Remarkably, February fundings are virtually equally split between Series A, Series B and Late Stage, whereas the market has hitherto been skewed towards the two extremes. In short, the market is now funding high-velocity companies at the Series B stage – but for those seeking a Series B with modest traction, life is very difficult.
• The UK is roaring ahead and maintains its solid (and growing) position as the #1 investment destination in Europe, followed by Germany. France is also up there but now alongside the likes of Switzerland, the Netherlands or Sweden (as far as Large HTI Transactions are concerned – which we keep as ≥ £5mn / €7.5mn / $10mn despite fluctuations of the Euro compared to the £ or $).
• Internet services of all kinds (fewer e-commerce; more marketplaces and consumer fintech) continue to lead. Software is the second target sector for investment, but within this we see a greater diversification of themes beyond the simple SaaS trend. Cleantech, hardware, medtech and telecom services also appear on the list – but most of these investments follow the IoT theme of application-driven devices connected to the network in the most cost-efficient (and often, therefore, environmentally friendly) way.

As in past issues, the authors are re-examining the question of where we are in the cycle, and of course whether we are in for a market correction any time soon. In terms of timing, it is becoming more difficult to predict and the Go4Venture team is now less confident of their prediction of a market correction after Summer 2015:

• On one hand, signs of market exuberance are accumulating: valuation inflation (Series A priced like Series B, etc.); the first spectacular failures of famed ‘unicorns’ ($1bn-valued companies) like Fab (sold to PCH International for a rumoured $15mn, according to TechCrunch); a month-old startup (Meerkat) raising $12mn at a $40mn valuation.
• On the other hand, the European Central Bank has now started its $1 trillion quantitative easing (QE) programme. Together with the collapse in oil prices (essentially the world’s largest ever global tax cut), we now have one of the most potent growth boosts ever devised, which will continue feeding the growing atmosphere of economic optimism.