In 2015, European start-up funding has hit a new record with 12.9 Billion Euro but the number of rounds closed went down by about 30%. A sign that VC investors are up for saver bets?
In term of the value invested, European venture capital has peaked in 2015 just like VC activity did in the United States. In total, 12.9 Billion Euro have been invested into European ventures. A sharp increase from 9.3 Billion Euro invested in 2014. Still, the number of investment rounds closed decreased by nearly 30 percent from 3,431 in 2014 to 2,418 rounds closed last year.
According to a PitchBook article on valuewalk, “the lag is illustrative of a typical venture investment cycle, wherein investor exuberance crests in terms of overall activity, before shifting somewhat to a focus on what is considered more of a sure thing.” For venture capital investors, those sure things are more mature companies that already gained momentum.
PitchBook claims in the same article that both, activity and sums will decline afterwards as investors are becoming more cautious. However, this decline is not due for Europe in the short term as there was no period of exuberant funding, claims PitchBook. Rather, the decline in rounds is due uncertainty in the overall market place.
Looking at quarterly numbers, venture capital went down as the year went on. With the largest sum of about 3.6 Billion Euro being invested in the second quarter of 2015, sums invested decreased continually until the end of 2015 with about 2.7 Billion Euro in the fourth quarter. Regarding founding rounds, they decreased continually from more than 800 rounds in Q1 to about half of them in Q4 of 2015.
This boom in value combined with this decline in transactions made round sizes go up sharply. While the median round size for angel and seed investors is quite stable at 0.6 Million Euro, the median round size for early VC investments increased from about 1.3 Million to 2.3 Million. But the largest increase could be seen for late VC founding rounds. From a size of 3 Million Euro in 2014, their median size increased to 6.3 Million Euro in 2015.
Overall, the VC investment cycle is not coming to an end. While sums invested are booming, investors are just becoming more cautious and invest their money into companies with some kind of track record. A tactic to counter the uncertainty on financial markets.