Did no one tell European venture capitalists and startup founders that we’re supposed to be on the cusp of a global recession?
With startups and VCs all heralding the doom of investment activity across the world, you’d think a market as large as Europe would be affected quite a bit. But European venture capital activity fell only slightly in the second quarter from the preceding three months. What’s more, venture totals on the continent remained robust, leaving it with a stronger-than-expected startup fundraising result for the first half of the year.
From a macroeconomic perspective, we have no shortage of reasons to worry about Europe today. The Russian invasion of Ukraine, slowing world GDP growth, inflation concerns and tightening central banking policies are cause for concern, to pick a few issues. So why were European venture results so strong?
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To avoid coming off as too pessimistic this morning, we should note that it isn’t just us who think Europe has big problems.
French investment bank Natixis recently released research arguing that soft economic landings from periods of high inflation do not work. Instead, it appears that any work done to contain inflation — hiking interest rates — leads to recessions. Given that historical precedent, we can expect economic conditions in Europe, and elsewhere, to continue to be rough in 2022.
And yet. Data from PitchBook, CB Insights and EY paints a picture of a Europe busy not only executing venture deals, but large, late-stage deals as well. And, it appears venture investors in Europe are not doing poorly when it comes to their own fundraising efforts — LPs are still committing capital despite a backdrop of economic malaise.
Let’s talk Europe this morning, its robust H1 2022 venture totals and then narrow our focus to France, a key startup market in the region.
A strong Q2
Parsing both PitchBook and CB Insights data, we can quickly see that their interpretations of Europe’s Q2 performance are similar. Per PitchBook, European venture activity in Q2 came to €25.7 billion, or 10.6% lower than Q1, and CB Insights recorded $22.7 billion worth of activity, off 13% or so from Q1.
These two datasets agree that venture activity in Europe trended downward from the first quarter to the second, just not very much. PitchBook recorded €54.4 billion of venture deals in Europe through the second quarter. That puts the value of venture deal-making in Europe on track to surpass 2021 levels if the pace stays this high for the rest of the year.
Now, we care about more than just how much the venture market is worth. How was Q2 2022 in terms of deal volume? Median deal value across Europe did rise to $3 million so far this year, per CB Insights, indicating more larger deals happened in the region, but did the number of deals decline?
Nope. The second quarter saw an estimated 6,033 deals, per PitchBook, again on pace to beat 2021’s results. CB Insights data is once again slightly more modest than PitchBook’s, but they’re directionally similar, and deal volume in Q2 appears to be holding pace with last year.
The final, broad vector that we track is venture fundraising, or the amount of money that venture capitalists secure for their own work. PitchBook counts €12.3 billion raised across 98 new funds in the first half of 2022. That’s again loosely on pace with last year’s tally, which came to €24.8 billion.
Before we delve deeper, especially into what happened in France, it’s worth noting a few trends regarding early-, mid- and late-stage startups’ luck with fundraising.
First, venture capital activity is increasingly leaning toward the later stages of startups’ lifespans in Europe. In Q2, the region saw the greatest concentration of late-stage deal-making since at least 2012, a trend that has continued for seven years, per PitchBook.
That said, earlier-stage deal-making did claw back some deal value in 2022 compared to 2021, according to PitchBook, which we can read as an indicator of late-stage deals shrinking in Europe this year.
Euros for La French Tech
Within Europe, France seems to be holding up particularly well.
According to EY, whose report also records private equity activity, French startups collectively attracted €8.4 billion during the first half of 2022. Since we’re now nearing euro-dollar parity, that’s around the same in dollars, but the exchange rate wasn’t the same a few months ago.
To avoid comparing pears and apples, let’s look at this €8.4 billion figure against France’s numbers in H2 2021 (€6.43 billion) and H1 2021(€5.14 billion). With that context, H1 2022 represents a 31% semester-on-semester and a 63% year-on-year increase in the country.
According to EY’s Franck Sebag, this surprising rise in funding is mostly due to an increase in growth equity deals. The first half of 2022 saw 20 deals cross the €100 million mark, which is more than twice the number from last year, both in terms of value and the number of deals.
Overall deal volume, though, declined: There were 362 fundraising rounds in H1 2022, compared to 416 in H1 2021. However, the decline was not as steep from H2 2021, which saw 368 deals.
France also looks to be faring better than Germany. Partly due to geopolitics, the first half of 2022 marked a decline in venture capital and private equity investment in Germany, with the fundraising total of €6.26 billion, including €2.89 billion in venture capital, coming in 20% lower than in the first half of 2021, despite a larger number of deals.
Both Germany and France, though, still lag far behind the region’s longtime leader, the United Kingdom. The country’s €18.4 billion tally was also higher than H1 2021’s €16.44 billion, according to EY, which could indicate that Brexit had a smaller effect than anticipated.
It might be a coincidence, but the region of France that is closest to the U.K. is also rising in importance. Hauts-de-France, in the northernmost part of the country, came second in the regional rankings, EY noted. Accounting for just 5% of France’s funding total, this region is still way behind the Paris area, Île-de-France, but it is worth noting, especially because it’s home to companies like industrial robotics unicorn, Exotec. Does Hauts-de-France have more of these in the pipeline? We’ll make sure to keep an eye out.