Investment in European startups held up last year despite fears of a slowdown, with some $12 billion invested during the year, according to anannual report compiled by French investment advisorsClipperton, working with Digiminds WhoGotFunded database.
The report notes the year as effectivelyon a par with 2015s record level of European* startup investment.
However the looming prospect of Brexit is casting a shadow over the regionsfuture,giventhe UKs key role in driving European startup investment with the report noting 24 per cent growth for UK transactions in the first half of the year.
Brexit aka the vote by the British public to leave the European Union occurred in the middle of last year, andthe report notes that the second half of the year was a bit lower for UK startup investment.
But its clearly too soon to know what Brexits impact will be, given the UK has yet to start the formal two-year process of leaving the EU (due to be triggered by the government by the end of March). It was only thisweek that the UK Prime Minister publicly confirmed the country would be leaving the EUs Single Market as a resultof the Brexit vote, for example.
The dynamics will have to be monitored closely as the real impact of the Brexit is still ahead of us, the report authors note.
Notable trends also flagged inthe report include
- an increasing volume of smaller deals (of sub-$30M), helping to offset a decline in larger rounds across the region so,it looks like investors in Europe are spreading their bets further. The number of transactions is clearly on the rise (+40% yoy in 2016) suggesting fewer large deals but a handful of start-ups which will seek acceleration rounds in the next 12 to 18 months
- growing appetite for tech investment among private equity funds, with the report noting KKR made landmark minority investments in OVH (hosting) and Darktrace (cyber); and also thatseveral big players launchedsignificant new funds dedicated to technology and growth equity. They also note direct investment by corporates is on the rise
There were 943 deals between $1m and $10m announced in 2016, according to the analysis, an increase of morethan 50 per cent vs 2015.
The report also notes the amount invested in the $1M to $10M segment was $3.6BN the same amount for deals between $10m and $30m (aka acceleration rounds).
These acceleration rounds werealso on a positive trend in the second half of the year, up19 per cent in value vs 2015. So it was only the larger round size declining in Europe last year, which the authors suggest could be good news for a sustainable investment ecosystem in the region.
While the UK continues to dominatethe European startup investment ecosystem, with $4.1BN invested into its startupslast year, the report flags strong momentum in France which sawa 22 per cent increase in investment value vs 2015, according to their data.
The report also notes thatthree deals in the top five for the European region wentinto French startups (web hosting company OVH; IoT connectivity platformSigfox; and audio kit maker Devialet), with the other two going to UK startups (on-demand food delivery platform Deliveroo; and DNA sequencing firm Oxford Nanopore). Some $2.7BN went into French startups in 2016.
France also looks likelyto beone of the European countries that will gainfrom Brexit in the coming years at the UKs expense, via an influx of jobs created by banks headquartered in Londonmoving roles to Parisas they seek to retain access to the EUs financial services passporting mechanism.
Elsewhere in Europe the Nordics saw a decline in the value of investment vs 2015, with a 24 per cent drop and just $1.1BN invested into startups there.
While investment in startups in Germany, Austria and Switzerland is described as solid, with deals for the year there valued at $2.6BN.
The report also goes on to highlight positive growth signs forthe southern European countries of Spain and Portugal too, suggesting the former is showing signs of real uptake with the volume of startup investment transactions up 150 per cent in H2 2016 vs H2 2015. Although challenges remain, with the report noting Spain still lacks a favorable regulatory framework for startups.
*NB: The reportincludes Russian startups but excludesinvestments in Israel