European venture and growth: the sun is shining

For the first time ever, Europe is more optimistic than the US

What a year 2016 was – from sombre beginnings, we ended the year on a high note as illustrated in the chart below. What most analysts have missed is that the downturn of the first part of the year has been followed by a catch up from September onwards. In short, Europe is on a roll:

This is all the more surprising when compared to the US where the mood is still very subdued:

In fact, against all expectations and industry comments, Europe is surprisingly continuing to grow by value for funding transactions in the bracket which matters, the €7.5-100 million range:

How can we explain this remarkable feat? In all logic, we should be towards the end of the cycle, when assets become too expensive, the market is getting ahead of itself and freezes. Not this time, positive contrarian forces are at work, as we have explained in previous Go4Venture bulletins:

Company supply:

• Better clued up first-time entrepreneurs; many serial entrepreneurs
• More confident + networked seed/Series A investors, putting more money to work to get to relevant milestones
• Transformed European entrepreneurship culture, with a now widespread understanding of the VC game: we are here for a meaningful result (or let’s pack up and move on)

Money supply:

• Glut of supply at seed/Series A stage, with lots of tax incentives and many new early-stage investors prepared to roll-up their sleeves and travel
• Feeding frenzy at the growth equity stage, with many US funds setting up in Europe (most recently Battery Ventures) or private equity funds setting up dedicated vehicles for growth stage investment (think of CVC Growth, EQT Ventures, KKR Growth, TPG Growth etc.)

In the last month, we have seen more of the same, even on a larger scale:

• Rocket Internet (Berlin, Germany) successfully launched the $1 billion Rocket Internet Capital Partners (RICP) fund. The fund is remarkable by its size (the largest European fund – even if turned towards emerging markets). It is also a remarkable feat from a team who have successfully lost a couple of € billions and more since their IPO (€6.2 billion market cap at IPO in Oct 2014 turned into a €3.5 billion market cap as of Jan 31, 2017). Interestingly no LPs names were mentioned – clearly greed is at work, but no one wants to boast.
• Alven Capital (Paris, France) has raised Alven V which is a €250 million fund dedicated to early-stage. This marks the success of a team which has been operating since 2000 and has earned its stripes in the company building game.
• The same goes for Serena Capital (Paris, France) which announced in the last month a €80 million fund dedicated to European big data.

In many ways, Europe is starting to feel more like Silicon Valley. In reality this means that (a small minority of) players are more confident and big enough to play the big Series A game, often starting with big-time (and independently wealthy) past entrepreneurs turned business angels seeding companies, hard-working early-stage funds taking them forward and serial entrepreneurs team credible enough to get the attention of larger investors, including US growth equity funds operating in Europe.

The difference is noticeable, when looking at the growing proportion of Series A rounds among the larger >$10 million rounds:

Of course, Europe will never be as intimately networked as Silicon Valley. That’s why the Go4Venture platform exists as a way to re-create a way to connect a disperse community of investors (both geographically and culturally) by allowing them to meet based on reading profiles of highly curated venture-stage companies. And from time to time push co-investment opportunities to generalist investors who can then invest in the confidence that specialist tech investors of good repute will manage these investments going forward.

[This article is based on commentary from the latest monthly bulletin published by Go4Venture. To read the full bulletin, click here.]