VC funding into Europe (including the U.K.) was up in the first quarter of 2022, CB Insights and Crunchbase data show. In other words, the region escaped the global quarter-on-quarter slowdown in startup investment.
But Europe isn’t the only place where VC funding didn’t decline. As we noted earlier this week, this was also the case in Africa – unlike the U.S., Asia, and Latin America. But Europe’s situation is perhaps more curious; after all, it is the closest to Russia and its war on Ukraine.
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It is also worth noting that Europe accounts for a much larger portion of global funding than Africa. As we reported, African startups only accounted for a 2% deal share last quarter, while their European counterparts typically account for one-fifth of global activity, both in terms of funding and deal volume. Q1 2022 was no different in that regard.
Do the quarterly numbers perhaps simply reflect activity that peaked in January, or even at the very tail end of 2021, when announcements were delayed by the holiday break? It is certainly a possibility. For instance, several “French Tech” mega-rounds were announced in the first days of the year.
However, there are also more recent signs of optimism that contrast with the general climate in the U.S. and Latin American startup scenes. Just yesterday, we heard rumors that Spotify competitor Deezer could go public via a SPAC. Ill-advised in the current IPO freeze and unicorn stampede? Maybe not.
According to Billboard, “there may be no better time for the streamer’s investors to cash out.” And while this also refers to the company’s specific circumstances, it shows that exit worries are still somewhat back of mind – thanks in part to Q1’s unexpected resilience.
Data overview
European startups attracted $26.8 billion in funding during the first quarter of 2022, according to CB Insights’ State of Venture report. That’s a 20% quarter-on-quarter increase, and 33% more than the same quarter of 2021.
Per the same dataset, here’s how deal and dollar volume evolved in some key countries between Q4 2021 and Q1 2022:
- U.K.: $9.2 billion across 538 deals, up 33% and 9% from Q4 2021, respectively
- France: $4.8 billion across 264 deals, up 85% and 6%
- Germany: $2.9 billion across 216 deals, down 52% and 1%
- Netherlands: $891 million across 85 deals up 6% and down 11%
- Sweden: $775 million across 94 deals, up 5% and down 19%
Crunchbase reports a slightly different regional tally than CB Insights – $29.8 billion. However, the trend is the same: Based on its data, media arm Crunchbase News reported that “first-quarter venture funding to Europe last quarter was up 21 percent year over year, and up 4 percent quarter over quarter.”
Both sources also agreed that funding peaked in the second quarter of 2021. This was correlated with a rise in late-stage venture funding, Crunchbase News said. These mega-rounds are still a reality in 2022: There were 67 rounds of more than $100 million, outdoing Q2 2021’s previous record of 59 and accounting for a total of $13.7 billion raised, CB Insights said.
Though $100 million rounds are far from the top end: In the first three months of the year, 10 European unicorns raised between $1 billion (Checkout.com) and $289 million (PayFit). Twenty unicorns were minted in Europe over that period, more than in any quarter of 2021.
Several of the companies that raised mega-rounds last quarter belong to the fintech realm. According to Dealroom data, European fintechs collectively attracted $6.7 billion in VC funding in the first three months of 2022 – or $7.9 billion, per CB Insights’ count. But for Europe-focused media outlet Sifted, “the headline figure was buoyed” by these giant deals and the overall picture for fintech might be less rosy — the number of such deals actually dropped quarter on quarter (from 271 to 220).
Overall deal activity in Europe, however, was stable. There were 1,863 deals in Q1 2022, roughly level with the Q4 figure of 1,874. Projected to an entire year, it would amount to 7,452 deals – more than 2021’s tally of 7,130 deals.
Growth reservoirs?
Early-stage activity accounted for the largest deal share – 67%, according to CB Insights. Crunchbase’s breakdown is more granular, differentiating seed and angel deals from early-stage ones. “Early-stage funding in Q1 2022 was $9.4 billion, up 50 percent year over year from the first quarter of 2021,” Crunchbase News wrote. Meanwhile, “seed-stage startups across Europe raised $2.1 billion in the first quarter across more than 1,000 companies.”
That early-stage funding is up year-on-year and stable or only slightly down quarter-on-quarter is good news for Europe’s growth reservoirs.
Yet, it is late-stage activity that explains why the region is bucking the global slowdown, according to Crunchbase News: “Europe is a growing venture market with a historically less developed late-stage funding market. Europe is also a market—outside of the more established U.S. market—where global growth investors are looking for new opportunities to invest.”
Looking for the exit
Despite what we said about Deezer’s prospects, Europe’s exit climate isn’t exactly favorable – at least when it comes to public listings.
But M&As are holding up. There were 1,049 of these in Q1, which would equate to 4,196 for a full year, above 2021’s record tally of 3,736 M&As.
IPOs, though, have been scarce this year: There were only 20 in the first quarter, which means things would need to ramp up a lot for 2022’s tally to reach 2021’s 186. It is only on the SPAC front that things seem level, with three deals in Q1, on pace with 2021’s total of 12.
Europe isn’t the only place where IPOs are down: It is a global trend that we have already covered. But it is still worth noting, especially as Asia recorded 91 IPOs over that same period, more than any other region. Stay tuned as we’ll dive deeper into this next week!