Venture capital (VC) investment in Europe was incredibly strong throughout 2021, propelled by record-levels of investment in many individual jurisdictions, including the UK, Germany, Israel, Ireland, France, Spain, and the Nordic region. A robust funding environment, increasing valuations, and a growing number of unicorns highlighted a perfect storm of opportunities for VC investors in Europe.

Fintech generates heat as digital banks raise large Q4’21 VC rounds

Q4’21 saw several digital banks in Europe raise large VC rounds, with a $900 million raise by Germany-based N26, and $600 million and $300 million raises by UK-based Monzo and Zopa among the largest deals of the quarter. A number of fintechs more broadly also attracted sizeable rounds, highlighting the ever-expanding breadth of the sector. B2B was particularly notable, with Germany-based B2B payments company Billie raising $298 million.

Hrtech gaining traction Europe — poised for rapid growth

With COVID-19 changing the model of work at a fundamental level in Europe over the past 2 years, there has been an increasing emphasis on solutions aimed at helping organizations recruit and manage their people more effectively. VC investor interest in Hrtech has skyrocketed, with investors pouring money into Hrtech companies across the region. During Q4’21, Germany based SME-focused HR platform Personio raised $270 million in Europe’s largest Hrtech funding round of the quarter. Given the serious war for talent both in Europe and globally, VC investment in Hrtech will likely explode heading into 2022.

COP26 drives ESG interest higher

Over the course of 2021, VC investment in ESG-related solutions climbed in Europe as VC investors and corporates recognized the demand for net zero and ESG-compliant solutions and operations. The COP26 conference, which occurred in Europe during Q4’21, helped drive additional attention to the space. With ESG increasingly embedded in mainstream thinking, it is likely that VC investments in a broad range of solutions — including operations management, emissions tracking, net zero infrastructure, and mobility will likely continue to grow heading into 2022.

Annual VC investment in the UK almost double previous high

The VC market in the UK was incredibly robust in 2021, with record high deal volume and a level of investment over double the previous record high. IPO activity was also up considerably during the year. In addition to fintech, healthtech was a particularly strong sector of VC investment in the UK, with healthtech players in the country growing faster than in many other jurisdictions. Heading into 2022, the BNPL space will be an area to watch as the FCA looks to introduce regulations for BNPL companies; this could drive some consolidation in the space.

Germany sees dramatic surge in VC funding

VC investment in Germany surged in 2021, with increasingly high valuations, larger deals sizes, and a growing stable of unicorn companies reflecting a broad mix of sectors. The IPO market in Germany also gained steam, with more companies considering IPOs as a potential exit strategy than have historically — although the need to improve IPO readiness led some to extend their IPO timelines. AI was a big ticket for investment in Germany during Q4’21 given it’s widespread applicability. At a sector level, fintech and delivery were both very hot areas of investment — as evidenced by N26’s $900 million raise and Gorilla’s near $1 billion raise in Q4’21. Agtech and ESG were also high on the radar of VC investors in Germany.

VC investment in Israel soars to record quarterly high

The VC market in Israel ended 2021 with a record quarter of investment, led by a $300 million raise by gaming company Moon Active. With considerable capital available in the market, the major challenge promising startups are facing in Israel is a talent shortage and the need to attract and retain critical talent in order to grow and scale. Israel is also beginning to see consolidation in areas like cybersecurity as companies look to gain scale in order to attract interest from larger VC firms.

Nordics region gaining attention from international investors

The VC market in the Nordics region evolved considerably over the last year, with a growing number of companies raising larger rounds. Despite a drop in total VC investment in Q4’21, VC investment for the year was well above the previous record high. The region continued to grow on the radar of international investors and was boosted in Q4’21 by Helsinki hosting Slush — a successful conference focused on connecting companies with VC and other investors.

Micro-mobility hot in Ireland as government moves to regulate scooters

Micro-mobility gained a lot of attention in Ireland in Q4’21 as the government passed legislation allowing e-bikes and e-scooters on roads. The recognition for growing personal transport options has been seen as a positive move, with a number of e-mobility companies looking at regulation as a means to enhance both acceptance for e-mobility options and safety for users. The government’s focus on enhancing road safety for all users has generated interest among e-mobility companies across Europe and could lead to additional investments in the space in 2022 and beyond. During Q4’21, Ireland’s government also announced a €90 million Innovation Fund focused on early stage companies, which will launch in 20221

Trends to watch for in 2022

Both VC and CVC investment in Europe are expected to remain strong in Q1’22. Fintech, delivery, and healthtech will continue to be hot sectors, while investment in insurtech and ESG will continue to gain momentum. Agtech is also expected to gain significant attention in 2022 as early stage agtechs across the region grow and begin to attract larger funding rounds.

Venturing financing in Europe chart

We have definitely noticed a rise in investments into ESG-focused businesses in the UK. While we haven’t necessarily seen many massive deals yet, there’s certainly a lot of interest in the space, in part driven by the recent COP26 conference in Glasgow. We’re also seeing more government grants and programs being introduced that are specifically aimed at helping to drive investment in areas such as Net Zero.

Warren Middleton
Lead Partner for Emerging Giants CoE in the UK
KPMG in the UK

  • Investment remains strong in Europe — with over $28 billion invested on 2041 deals

  • Corporate VC participation remains healthy

  • First-time venture financing rises from $4.2 billion to $11 billion YoY

  • London sees record-breaking VC investment in Q4

  • Top 10 deals spread among 6 countries

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