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02.1

Investment by Stage

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Capital invested in Europe will hit at least $35B in 2020 with the potential to exceed $41B when adjusted for reporting lag. The typical delays in capturing data on funding rounds mean that the final sums will only become clear in due course. For reference, last year's report projected that total capital invested in 2019 when adjusted for the reporting lag would hit $36B once all rounds had been counted up; 12 months later that projected total has been exceeded by more than $2B for 2019. The strength of investment since September - an all-time record month for Europe - until publication in early December 2020 even leaves the door open for 2020 to set a new record once again. In the face of a global pandemic and a highly volatile, uncertain macroeconomic climate, the European tech ecosystem has been resilient. A decade-plus unbroken run of consecutive years of year-on-year growth in capital invested in European tech could well continue.

Capital invested ($B) adjusted for reporting lag effect

Legend

  • Actual amount ($B)
  • Adjusted for reporting lag ($B)
Note:
The reporting lag is the difference between the date of a round's disclosure and the reported date of a round's occurrence, resulting in a material % of rounds being added after a long delay. This is estimated at 95% for 2019 and 85% for 2020 annualised.

Capital Invested


$41B
capital invested in Europe in 2020 projected

Source:Dealroom_Colour

If Europe has had a resilient year, the US has witnessed a return to growth and to record levels of investment. Total capital invested in the North America, at $141B in 2020, is approaching nearly 5x the level of investment in Europe. Asia, meanwhile, has seen capital investment drop for the second year in a row. At $74B, Asia is some way behind the $117B invested in 2018, mostly due to a continued decline of investment levels into Chinese private tech companies. Europe is, of course, not the only up-and-coming region in the global tech landscape. Tech is having a remarkable moment all over the world, including in Latin America and Africa, helping to drive record levels of investment in the rest of the world.

Capital invested ($B) in Europe, North America, Asia and Rest of World by year

Legend

  • 2016
  • 2017
  • 2018
  • 2019
  • 2020
Note:
All Dealroom.co data excludes the following: biotech, secondary transactions, debt, lending capital, and grants. Please also note that the data excludes Israel. 2020 data is annualised based on data to September 2020.

European tech has come a long way in the past 10 years but is still underweight when looking at its relative share of global gross domestic product ('GDP'). Although Europe accounts for around one-quarter of global GDP, its share of global tech venture capital investment was still only 13%, despite the growth observed in recent years. More than anything, this illustrates the might of the US in terms of global venture capital investment. US tech still attracts more than half of all venture capital investment globally, despite accounting for 26% of global GDP and being home to just 5% of the world's population.

Capital invested by relative weight of global GDP and population

Legend

  • Global GDP
  • Capital invested (2020)
  • Population
Note:
All Dealroom.co data excludes the following: biotech, secondary transactions, debt, lending capital, and grants. Please also note that the data excludes Israel. 2020 is annualised based on data to September 2020.

It is important to understand, however, that Europe is made up of many different countries that are at different stages of local tech ecosystem development. This is evident when looking at levels of cumulative per capita investment by country across the region. There is huge upside potential if some countries catch up with the per capita investment levels of their peers.

Cumulative capital invested (2016-2020)


$19
per capita in Poland versus $172 on average in Europe

Cumulative capital invested ($) per capita by country, 2016 to 2020

Legend

  • Capital invested ($) per capita
  • European average
Note:
Chart includes only countries with a population greater than one million. Population data is from the World Bank. 2020 is based on data up to September 2020.

It is interesting to look at how invested levels have trended by grouping countries into quartiles based on most recent levels of per capita investment. Most obviously, this lens provides a useful view to see how stark the difference is between Europe's leading (top quartile) countries and those that are lagging (bottom quartile). Put simply, there are many countries where tech investment has not gotten started yet. Importantly, however, the graphs demonstrate how quickly things can change. Investment levels in the third quartile (i.e. from 50% to 75% percentile) have already exceeded the per capita investment levels of the top quartile countries just five years ago. The trajectories across the quartiles, except for the bottom quartile, provide a useful indicator of how the European investment landscape might evolve if - and it's still an if - these countries continue to mature in line with other countries.

Capital invested ($) per capita by quartile, based on rank of countries by per capita capital invested in 2020

Legend

  • Top quartile
  • Third quartile
  • Second quartile
  • Bottom quartile
Note:
All European countries with a population greater than one million were ranked into quartiles based on the level of capital invested per capita in 2020. The average (mean) capital invested per capita has been calculated for each quartile of countries.

The gap between Europe's leading and lagging countries presents a huge opportunity for the region. Though it is really just a thought exercise, it is interesting to model the levels that total capital investment could reach if per capita investment levels at a European-level were to align to levels currently seen in some of the continent's leading countries. It is a simple projection that has its limitations but it is useful as a way to try to look at where Europe might be heading as the ecosystem continues to mature. Hitting $100B in investment may seem a long way from today's reality, but the path there certainly exists. The next step, however, is to get to $50B.

Projected potential capital invested ($B) in Europe per year at various Europe-wide per capita investment levels

Note:
All Dealroom.co data excludes the following: biotech, secondary transactions, debt, lending capital, and grants. Please also note that the data excludes Israel.

Another reason to feel confident in the upside potential of the European ecosystem is to understand how the growth profile of companies is evolving in terms of how quickly they raise capital and at what scale. It is also important to understand that though companies are scaling faster and more aggressively, it still takes time for newer cohorts of companies to make a meaningful dent on the trend in terms of total capital raised. Although Europe's tech ecosystem has developed an incredible amount in the past five years, companies founded during that period contribute just over a third of total capital raised (37%) in Europe this year. This is due to the fact that older cohorts of companies are still raising large sums of capital. For example, companies founded 8 years ago or more still contributed a third of total capital raised in 2020.

Share of capital invested per year (%) by founding year cohort of companies raising capital in year

Legend

  • 2000 & earlier
  • 2001-2003
  • 2004-2006
  • 2007-2009
  • 2010-2012
  • 2013-2015
  • 2016-2018
  • 2019+
Note:
All Dealroom.co data excludes the following: biotech, secondary transactions, debt, lending capital, and grants. Please also note that the data excludes Israel.

Capital raised in 2020


37%
of total capital raised by companies founded in the past 5 years

Source:Dealroom_Colour

The more that European tech is driven by its newer generation of companies, the bigger the impact on the overall level of investment in the ecosystem given the increased speed and scale in capital raising and value accretion. Today, a third of funded European tech startups belong to this newer cohort and their effect on European tech is really only just beginning to be felt.

Share of total funded European tech companies by founding year

Note:
All Dealroom.co data excludes the following: biotech, secondary transactions, debt, lending capital, and grants. Please also note that the data excludes Israel.

The maturing of the ecosystem is reflected in the increased scale in terms of capital raised by more recent cohorts of European tech companies, as well as the accelerated pace that this capital accumulates. European tech companies founded in 2010 had raised a total of $2.8B by the end of their fourth year. By comparison, companies founded in 2015 had raised $14.4B by the end of their fourth full year. Companies founded even more recently are showing signs that they will scale faster and more aggressively. Hopin is a great example of the speed and scale of capital raises now witnessed in Europe having reached a $2.1 billion valuation and raised more than $170 million in just 17 months from founding in the summer of 2019.

Cumulative capital raised ($M) by companies per year post-launch by founding year cohort

Legend

  • Y0
  • Y1
  • Y2
  • Y3
  • Y4
Note:
All Dealroom.co data excludes the following: biotech, secondary transactions, debt, lending capital, and grants. Please also note that the data excludes Israel.

The level of investment activity at the earliest stages is an important leading indicator of the direction of travel of an ecosystem. The companies raising a few million dollars of funding today are the companies raising hundreds of millions of dollars in a few years' time. By extension, the largest rounds tend to be more of a lagging indicator of an ecosystem's stage of development due to the typical extended timeline between founding and raising those rounds. There are, of course, exceptional companies that raise large $100M rounds very early in their lifecycle. Hopin is one recent example; it has raised a huge $125M Series B within just months of launch. What is notable in this chart is that Europe's market share decreases gradually across every round size bracket. A simple way to interpret this is to state that larger brackets are an indicator of Europe's relative position on the global stage a few years ago, while smaller round size brackets point to where Europe is heading. Europe is succeeding in building a very healthy early-stage ecosystem in tech and, remarkably, Europe accounts for 40% of all capital invested globally in rounds of less than $5M.

Share of capital (%) invested by round size by region, 2020

Legend

  • Europe
  • North America
  • Asia
  • Rest of World
Note:
All Dealroom.co data excludes the following: biotech, secondary transactions, debt, lending capital, and grants. Please also note that the data excludes Israel.

Rounds < $5M


40%
of all capital invested globally in rounds of less than $5M is taking place in Europe

Source:Dealroom_Colour

This implied improvement in Europe's market share in more recent startup "cohorts" is perhaps one reason why there is a widely shared sentiment within the European tech community that Europe can make up ground with the US and China over the next decade. This positive outlook is strongest at the top of the investment stack with 70% of LPs investing in venture capital agreeing that Europe will gain ground. This is also shared by VCs (65%) and founders (48%), though the latter group are more split in their opinion.

European tech is likely to gain ground relative to the United States and China in the next decade

Source:

Legend

  • Agree
  • Neither
  • Disagree
Note:
Numbers may not add up to 100 due to rounding.

To understand 2020 from the perspective of investment into European tech, it is helpful to look at the year on a month-by-month basis and to then compare to prior years. 2020 started out of the gates incredibly fast. Capital invested in January represented the highest ever "January" on record, contributing to a pretty robust first quarter. The pandemic really took effect in March as Europe went into lockdown and, while a causal link is uncertain, it's clear that investment levels started to slow from late-March and persisted at reduced levels versus prior years through the second quarter. By the end of the summer, however, monthly investment levels started to pick up again. July 2020 was an all-time high "July", while September recorded the highest ever month of investment into European tech with more than $5B invested. October was also a strong month and, as of publication, November is also tracking towards all-time high monthly investment levels.

Cumulative month-by-month capital invested ($M), 2019 versus 2020

Legend

  • 2019
  • 2020
Note:
All Dealroom.co data excludes the following: biotech, secondary transactions, debt, lending capital, and grants. Please also note that the data excludes Israel.

September 2020


$5B
capital invested in September 2020 was the highest ever month on record

Source:Dealroom_Colour

We see a clear flight to quality; a concentration of capital matched with the dearth of growth more broadly. There is significant liquid capital in private markets and essentially zero growth outside of technology. This capital is seeking signal out of noise. Start-ups across health, education, remote work, online events, ecommerce are seeing staggering growth and are this signal. Capital is competing at a fierce level to latch onto their coattails.

Reshma Sohoni

Seedcamp

Co-Founder and Managing Partner

Looking at capital invested per quarter over an extended time horizon provides a longer-term view into the pattern of investment in Europe. The second quarter of 2020 was the softest quarter since Q3 2018 at $6.5B. The bounce back after the summer months is evident here too. Capital invested in the third quarter of 2020 equates to a record "Q3" for Europe, the second largest quarter of all time, and only the second quarter ever to get into double-digit billions. European tech companies are now raising in one quarter what used to be raised in 12 months just a few years ago.

Capital invested ($B) per quarter

Note:
All Dealroom.co data excludes the following: biotech, secondary transactions, debt, lending capital, and grants. Please also note that the data excludes Israel.

It is also helpful to smooth out the volatility between quarters by looking at how the trailing 12-month run rate of investment develops from quarter to quarter. European tech enjoyed a steady upward trajectory through 2019 and into early 2020 when the pandemic interrupted that growth curve. The slowdown has been shortlived and Europe is now back on a growth path.

Trailing 12-month capital invested ($B) per quarter

Note:
All Dealroom.co data excludes the following: biotech, secondary transactions, debt, lending capital, and grants. Please also note that the data excludes Israel.

In the context of the current scale of capital invested into Europe, a small number of very large rounds can still make a material dent on the overall level of investment. The top 10 largest rounds alone raised $4.1B, equivalent to 16% of capital invested in Europe in the first nine months of 2020. The top three rounds raised $1.8B, or 7% of capital invested over this period. While all of the top 10 rounds of 2020 to date exceeded $250M per round, none of this year's top three largest rounds would have made the top three from 2019.

Total capital invested ($B) per year, divided by top 3, 10, and all other deals

Legend

  • All other deals
  • Top 10 deals
  • Top 3 deals
Note:
All Dealroom.co data excludes the following: biotech, secondary transactions, debt, lending capital, grants. Please also note the data excludes Israel. 2020 based on data up to September 2020. Top 10 deals show the incremental value of the top 4-10 deals.

It is also helpful to see what happened at different stages by looking through the lens of investment by round size. The greatest overall impact is evident in the smallest rounds of between $0-2M, though it is very important to note that these rounds experience the greatest adjustment due to reporting lag. The total number of rounds will be adjusted materially higher in the following months once all the data is collated. To put this in context, more than 2,000 additional rounds have been captured for 2019 since we published last year's report. Seed investment, as represented by rounds of between $2-5M, has been remarkably strong and, once all is finalised, could well exceed 2019 levels. An important slowdown is evident in rounds of $20-50M. At this stage, companies typically need to show growth and, with the pandemic distorting typical user and buyer behaviours, that likely created more challenging conditions to raise in this bracket. If the growth is not obvious, many investors will show caution. 2020 has also seen fewer $250M+ rounds versus 2019, though that has been offset by a record number of $100-250M rounds that have raised records amount of capital.

Capital invested ($B) and number of deals by round size and by year

Legend

  • $0M-$2M
  • $2M-$5M
  • $5M-$10M
  • $10M-$20M
  • $20M-$50M
  • $50M-$100M
  • $100M-$250M
  • $250M+
Note:
All Dealroom.co data excludes the following: biotech, secondary transactions, debt, lending capital, and grants. Please also note that the data excludes Israel. 2020 is annualised based on data to September 2020.

A small number of very large rounds have an outsized impact on overall investment levels in Europe and have the potential to significantly move the needle on total investment. The number of rounds that are greater than $100M in size account for less than 1% of total deals, but represent more than 30% of total capital invested in the region. The largest rounds ($20M+) only represent 8% but account for close to 70% of all capital invested in the region.

Share of capital invested


70%
of all capital invested accounted by $20M+ rounds

Share of capital invested and number of deals by round size and by year

Legend

  • $0M-$2M
  • $2M-$5M
  • $5M-$10M
  • $10M-$20M
  • $20M-$50M
  • $50M-$100M
  • $100M+
Note:
All Dealroom.co data excludes the following: biotech, secondary transactions, debt, lending capital, and grants. Please also note that the data excludes Israel.

This chart serves to underline this outsized impact that a small number of rounds have in driving the overall investment trend. The top 10% of rounds by size account for greater than 75% of all capital invested in the region.

Share of deals and share of capital invested, 2016-2020

Legend

  • % of deals
  • % of capital invested
Note:
All Dealroom.co data excludes the following: biotech, secondary transactions, debt, lending capital, and grants. Please also note that the data excludes Israel. 2020 is based on data up to 30 September 2020.

It's the most exciting time yet for European companies at the growth stage.

It's the most exciting time yet for European companies at the growth stage. There's more talent and capital in the ecosystem than ever before, with more companies across Europe reaching growth stage and then achieving increasingly large market caps. A good recent example is Poland's Allegro. Europe really is now and the fact Europe is no longer a “secret” is a great positive for entrepreneurs. Investors will be spending more time investing in their own capabilities to add value beyond capital.

Carolina Brochado

EQT

Partner

The survey has consistently asked founders to share their perspective on the fundraising climate in Europe. This year marks the first year that more founders stated that it was harder to raise venture capital funding. In the 2019 survey, just 26% of founders felt the landscape had become more challenging. This year, that number has jumped to 55% of founders.

Is it easier or harder to raise venture capital in Europe than it was 12 months ago?

Source:

Legend

  • Harder
  • Unchanged
  • Easier
Note:
Founders respondents only. Numbers may not add up to 100 due to rounding.

Harder to raise venture capital


55%
of founders stated it was harder to raise venture capital funding in 2020

Source:

As a consequence, it is not surprising that founders, when asked, indicated that the most important support their existing investors can provide is with follow-on fundraising, as well as with progressing the commercial development of their companies.

In which areas do you think support from investors is most important?

Source:
Note:
Founders respondents only. Numbers do not add to 100 as respondents could select up to three options.

An important driver of increased investment into Europe is not just an overall growth in the number of rounds over time, but also material increases in the sizes of rounds at different stages. Seed rounds, for example, have increased from a median of $0.7M in 2016 to $1.2M in 2020. This is worthy of an analysis in its own right to unpack what is happening but reflects, amongst other things, the fact that leading Seed funds have raised larger and larger amounts, Series A funds are moving down the stack, as well as the arrival of leading US VCs that are building a foothold in Europe by participating at Seed. More than anything, however, it is also a reflection of founders building the firepower to compete on the global stage.

Median Seed round size ($M) by year

Note:
All Dealroom.co data excludes the following: biotech, secondary transactions, debt, lending capital, and grants. Please also note that the data excludes Israel. 2020 is based on data up to September 2020.

Series A rounds are also increasingly getting bigger. The median Series A in 2020 was $6.6M, up from just $3.9M in 2016. Again, this reflects the globally competitive quality of European Series A stage companies and the closing gap in terms of how much companies are raising relative to peers in the US.

Median Series A round size ($M) by year

Note:
All Dealroom.co data excludes the following: biotech, secondary transactions, debt, lending capital, and grants. Please also note that the data excludes Israel. 2020 is based on data up to September 2020.

The later stages (Series B+) also saw increased median round sizes in 2020 versus 2019, with a 30% uplift for median Series B and Series C rounds and almost double for Series D.

Median round size ($M) by round stage and by year

Note:
All Dealroom.co data excludes the following: biotech, secondary transactions, debt, lending capital, and grants. Please also note that the data excludes Israel. 2020 is based on data up to September 2020.