European Venture Overflowing with Money?

According to the latest European Venture & Growth Equity Market Bulletin published by Go4Venture, contrary to expectations, the European venture and growth market is holding up and more. The company's May 2016 Headline Transaction Index (HTI), shows that:

• Transaction value is +10% year-to-date (YTD)
• The number of large HTI transactions (≥ $10 million / €7.5million / £5 million) has nearly doubled: 25 in May 2016 compared to 13 in May 2015

The bulletin says this is in line with what is happening in the US. According to CB Insights data, there was a slowdown in Q4’15 (something like -40% in terms of dollar deal value) but Q1’16 is up compared to Q4’15, something typical of Q1/Q4 all these past years. The rebasing of the US market is down to public market investors slowing their investment in so-called unicorns (CB Insights suggests there were 25 new VC-backed unicorns in Q3’15, compared to just 5 new ones in Q1’16).

The same is happening in Europe with less money in European Unicorns (see the report) but more money pouring into ambitious nextgen companies, particularly late-stage companies. "So we see more European companies getting through rounds of EUR 100 million or more – after the readjustment towards the back end of last year." (see chart below):

Go4Venture says that this suggests quite a confusing environment, where:

• A reset seems to have happened in the US in 2015-H2, with the US market firing up again in 2016-H2
• Europe is relatively unscathed, may not get the headwinds from the US after all as described in the chart below:

The mood of the market may be best summarised by post from Adeo Rossi, the founder and CEO of The Funded and The Founder Institute, earlier this year, who predicted that funding levels in 2016 will exceed those of 2015, i.e. the global ecosystem will rebound quickly in 2016, and then resume its long term growth.

Go4Venture says, "This is in line with our current view of the market where cyclical pressure downward appears to be compensated (and more) by the inflow of cheap money and structural changes:

• Money is flowing, looking for yield. For example, see Saudi Arabia’s state fund investment in Uber or activist hedge fund Elliott Management moving into PE
• The venture growth financing market is subject to tectonic changes, including surge in corporates’ involvement and every nation’s (and local authorities’) sweet obsession in nurturing innovation

This money pouring into Europe (and the US) is illustrated this month by further fund announcements, for instance:

• Draper Esprit’s IPO - The VC firm raised £102 million to provide long-term permanent capital following the examples of IP Group, Imperial Innovations or indeed Woodford’s Patient Capital Trust (Woodford Investment Management are themselves an investor in Draper Esprit’s IPO); (see TechCrunch article, ‘Why would a VC firm IPO’)
• Robert Bosch’s third fund: the VC arm of Bosch Group has set up its third fund of €150 million, focusing on disruptive start-ups in automation and electrification, energy efficiency, enabling technologies, and healthcare systems; it is also looking to invest more in agribusiness startups and expand into China. This brings the total funds under management for the group to €420 million (see press release here).
• Ireland’s spin-off fund: University College Dublin (UCD) and Trinity College Dublin have partnered with Atlantic Bridge to launch a €60 million investment vehicle, the University Bridge Fund. Backed by the European Investment Fund (EIF), Enterprise Ireland, and financial services firms AIB and Bank of Ireland, the fund will back spinouts across all universities in the country, looking at software and hardware, engineering, physical sciences, life sciences and agri-food.

In summary, Go4Venture says "The European venture and growth market is showing a healthy progression, even if behind the façade, the travails of the market remain, with more emphasis on ambitious companies, and more rigour applied to earlier-stage companies."

To download the full 34-page Go4Venture European Venture & Growth Equity Market Monthly Bulletin for May 2016, click here. The bulletin provides analysis of Venture Capital (VC) and Private Equity (PE) financings, including growth equity and financing rounds with single secondaries components (recapitalisations), of a value greater than or equal to its Large Transaction threshold (£5mn / €7.5mn / $10mn) - in this bulletin, 23 one-page profiles of companies are included.