VC investment in Europe Defying Expectations

While the investment climate has not been particularly rosy during our ‘year of the pandemic’, the venture capital (VC) world has been remarkably resilient. The evidence was in the third-quarter VC investment results where venture-backed companies globally defied expectations, raising US$73.2 billion across 4,861 deals.

VC investment in Europe was one of the major highlights of the quarter. The total number of deals trended lower due to the postponement of many investment decisions in the midst of the global crisis. However, despite this hesitation, there was an increase in the value of the completed deals in Europe, and the total amount raised in the quarter reached a record high of US$12.1 billion across 1,024 deals.

When taking a closer look at the companies that are being funded, it’s impossible to ignore the impact of the global pandemic. It has been less than a year, and it has already transformed how we live and work.

Not surprisingly, e-commerce, food delivery, tele-health, cyber-security, edtech, fintech and other digital solutions were high on the list for potential funding. Interest in gaming has also increased and will likely to continue as people spend more time at home.

Similarly, fintech and digital solutions that are needed to support an expanding remote workforce, including new cloud-based services, have become essential, as well as edtech platforms and support services that suddenly became critically important when classrooms began to move from schools to homes.

Health and biotechnology companies were of notable interest, such as CureVac, a clinical-stage biopharmaceutical company that is developing a new class of transformative medicines, including a potential COVID-19 vaccine, and was successful in raising US$632 million.

Fintech funding rose in the ranks. The UK digital bank Revolut attracted US$580 million with the cloud-based banking platform, Thought Machine, raising US$125 million, and Swedish digital bank Klarna raising a massive US$650 million.

In looking ahead, I believe that VC investment in Europe will continue to adjust to the impact of COVID-19 and how well the world copes with a second wave. Regardless, I expect there will be increasing interest in social media platforms to further facilitate collaboration requirements and in robotics where human interaction may no longer be viable.

• Edtech is on the rise, however, Europe is somewhat behind the curve in terms of those developments. I expect to see many new developments in this area over the next two years.
• Many startups received funding in early-stage rounds. However, VCs are being more selective to protect their existing portfolios in the current environment. I believe that startup funding will only be available for those great teams of early-stage companies who can show that they are capable of conquering huge new markets.
• Interest in fintech will likely continue to be a focus, especially in Germany where it is now possible to combine banking, insurance, and asset management apps on one platform with a single sign-in for customers. As fintechs continue to grow, the time for consolidation may not be far off.
• There is already a lot of interest in tele-health and opportunities for doctors to collaborate more efficiently. Germany has passed new regulations that require all doctors to implement their own strong, digitized platform and patients have the potential to gain access to some of the best medical advice in the entire world via digital collaboration.

The third quarter VC results are a clear indicator that the best funding opportunities are available for resilient companies with practical solutions that are aligned with the challenges facing people and companies as a direct result of COVID-19.

The hyper acceleration of digitization is potentially a game-changer. It is driving everything from consumer behavior to the requisite digital strategies of companies who can’t afford to be left behind, and the overhaul of the world’s financial, health and education institutions.

Governments continue to provide funding to support recovery initiatives, such as the £2 billion Kickstart Scheme¹ announced by the UK government. It provides young people with job placements for six months, potentially helping startups to find and retain talented young people.

I believe we can say goodbye to what we used to call the ‘new normal’. This is what ‘normal’ looks like – now and for the foreseeable future.

^{1. UK Government, www.gov.uk/government/collections/kickstart-scheme}