- Europe’s venture capital industry pulled in about $9 billion in the first half of the year, setting a pace to reach a record annual fundraising total in spite of travel restrictions and lockdowns across Europe.
- PitchBook analyst Nalin Patel said there are three main reasons for the industry’s resilience: the rise of specialist funds, serial tech entrepreneurs as investors, and increased appetite for European outposts from US VCs.
- The new funds showcase the health of Europe’s venture capital ecosystem, despite being much smaller than the US industry.
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European tech investors have dry powder to deploy.
The coronavirus pandemic does not appear to have siphoned funds away from Europe’s venture capital industry, which raised €7.6 billion, or about $9 billion, in the first half of the year, according to data from PitchBook.
The year could register a record annual total in European venture capital fundraising if the trend continues, despite the majority of countries being placed on lockdown for most of the second quarter.
The cash influx means that tech startup founders looking to raise new capital should be scrambling to pitch European investors.
In 2019, the industry pulled in €11.2 billion, or around $13 billion, across 104 closed funds, according to PitchBook. It was the fourth consecutive year that venture capital fundraising in Europe topped the €10 billion benchmark.
Where is the money coming from?
There are three main reasons for venture’s resilience there, said Nalin Patel, a PitchBook private capital analyst, on Tuesday’s episode of the “In Visible Capital” podcast presented by PitchBook.
The rise of specialist funds focused on specific sectors, such as healthcare and biotech, has attracted large commitments from a diverse set of investors, Patel said on the podcast. Those backers trust the fund managers to scout the best companies in their domain.
For instance, a Netherlands-based firm called BioGeneration Ventures raised a fourth fund totaling €105 million, or about $124 million, in the second quarter of this year, with help from a commitment from US-based pharma giant Bristol Myers Squibb. That investment gives the Bristol Myers Squibb a look around corners at new research and technologies that could yield a competitive advantage.
Another reason for the fundraising success is the increased interest in Europe from US venture investors. Silicon Valley’s Runa Capital closed an oversubscribed fund in May that will chase machine learning and quantum computing investments throughout Europe and the US. This year it opened an office in Berlin, in addition to outposts in London, Paris, and Moscow. Sequoia Capital also hired away an Accel partner to set up an office in London, according to The Telegraph.
Patel also noted the effects of serial tech entrepreneurs becoming investors — plugging their personal fortunes into the venture capital ecosystem.
“The cash flow is now being returned back into innovation,” Patel said on the podcast, “and that’s definitely been a driving force behind fundraising values, not just in Europe, but globally, as well.”
‘An innovative way to raise capital in the current climate’
Tech startup founders might find less competition for venture dollars in Europe, but there is certainly more money sloshing around the US, too. The venture capital industry closed $42.7 billion across 148 US funds halfway through 2020, according to PitchBook.
In the US, 24 funds of more than $500 million closed as of June 30, compared to Europe’s single, so-called megafund.
Still, Patel said tech startup founders in the US should consider pitching investors across the pond.
“Transatlantic capital flows have been increasing in recent years,” Patel told Business Insider in an email. “While this is predominantly US VC investors investing in European startups, this could be an innovative way to raise capital in the current climate.”