Market Trends of Europe Venture Capital Industry
This section covers the major market trends shaping the Europe Venture Capital Market according to our research experts:
United States' role in VC rounds in Europe
American interest in European companies isn't new. The pandemic doesn't seem to have had an impact on US investors' interest in VC deals in Europe. Deals involving US investors reached a value of Euro 16.1 billion through Q3, putting 2021 on track to surpass the record Euro 19.1 billion set in 2020. American investment in European VC rounds has increased significantly over the last decade. Company valuations tend to be lower in Europe compared to the US and American VCs are likely also attracted by the potential for European companies to then enter and scale in the lucrative US market.
Capital is flooding into the ecosystem from more and more sources, including from non-traditional investors via sovereign wealth funds, pension funds, as well as high-net worth individuals. Data suggests the overall percentage of deals with U.S. participation in Europe is rapidly increasing and reached record levels in 2021. At the same time, the percentage of deals with investors from Asia is on the rise too, despite more stringent regulatory barriers.
More money is flowing into European tech than ever, and it's increasingly coming from venture capital's elite U.S firms. European startups are likely to receive a record USD 34.3 billion in investments in 2021. The trend shows that American investors will account for nearly a third, of the total amount invested in European VC. For the U.S. investors, there's a clear financial incentive to 'swoop in'. On average over the past year, one dollar's worth of equity in a European startup in a Series A funding round would have cost USD 1.60 in the U.S. for a comparable share.
Fintech Dominance in VC rounds in Europe
Europe's fintech startups have continued raising vast amounts of capital over the lockdown period, attracting around Euro 2.86 billion in investment between March and mid-August. Consumer fintechs are carrying the sector in terms of funds raised. This segment actually had a record quarter in Q2 thanks to a number of mega-rounds. Analysts are particularly bullish on this sub-sector, expecting the market to grow incrementally thanks to increased digital adoption. UK FinTech startups attracted more capital and completed more deals than the rest of the top 10 European countries combined.
Europe's high pre-existing level of financial development can partly account for the relatively smaller reach of fintech payment and lending activities compared to some other regions. But fintech activity is growing rapidly. Digital payment schemes are expanding within countries. Automated lending models are developing but remain limited mainly to unsecured consumer lending. While start-ups are pursuing platform-based approaches under minimal regulation, there is a clear trend for fintech companies to acquire balance sheets and, relatedly, banking licenses as they expand.
Wealthtech saw a record year for global investment in 2020. the start of 2021 saw a 45% funding drop in Europe. Despite users flocking to trading apps. The payments sector is on track to exceed last year's record investment. It's also worth noting that this area is proving particularly popular with incumbents and their venture arms. One sub-sector worth keeping an eye on is insurtech. Despite not receiving much attention, insurtechs made up nearly 20% of all fintech rounds in Europe in Q1 2021.
