Europe’s VC investment reaches record high in Q3: All you need to know

PitchBook, the venture capital, private equity, and M&A database, recently released its Q3 2021 European Venture report where it summarised transactions in the European VC market.

According to the report, VC investment in Europe reached record highs in the third quarter of 2021 with deal value reaching €24B, the second-highest quarterly figure on record.

Here’re the key takeaways from the report:

VC investment

According to the report, the quantity of closed venture deals through Q3 2021 is on pace with recent years and should surpass 8,000 by year’s end.

Late-stage capital has continued to dominate dealmaking in Europe — accounting for €54.3B or a staggering 73.6 per cent of overall venture capital deal value of €73.7B.

One of the largest rounds in Q3 2021 involved London-based financial services provider Revolut, which completed a €672.9M financing at a monumental €27.8B post-money valuations.

Nalin Patel, the Senior Analyst, EMEA Private Capital, says, “Late-stage capital has continued to dominate dealmaking in Europe. Outsized deals are becoming increasingly common as venture-backed companies seek capital to meet ambitious growth targets via hiring sprees and heavy investment into technical infrastructure. Global venture capital investment flows have remained healthy during COVID-19 as stakeholders have gone virtual or met remotely.”

Unicorns

Since 2018, cumulative unicorn numbers in Europe have roughly tripled, and the aggregate value has increased sixfold, claims the report. In H1 2021, the aggregate value of unicorns swelled to €253.3B, as €17.9B
in deal value was notched across a record 61 deals.

The UK, France, and Germany have been Europe’s main unicorn-producing nations. However, unicorns are also appearing in emerging ecosystems, says the report.

Nontraditional investors

Nontraditional investors, including financial institutions such as investment banks, private equity firms, hedge funds, pension funds, and others, have increased capital spending in European venture capital during the past decade.

As per the report, the year’s venture capital deal value with nontraditional investor participation finished Q3 at €57.3B. In August, London-based virtual event platform Hopin completed a €380.5M round at a €6.6B post-money valuation, which was among the largest European deals of Q3.

Patel says, “With a new annual record already set, the year’s venture capital deal value with nontraditional investor participation charged on in Q3. Nontraditional sources have supplied plentiful capital to help new players disrupt existing industries with innovative technological developments. As governments look to rebuild economies post-COVID-19, we believe greater opportunities for nontraditional investors to enter the venture space will emerge.”

Exits

According to Pitchbook, around €115.6B in exit value was generated during the first three quarters of 2021. 

The previous annual best was surpassed in Q2. Q3’s largest exit was sports data and digital content provider Sportradar’s IPO at a €25B pre-money valuation.

Through Q3, a record 135 public listings have produced a staggering €99.5B, over 3x larger than the next largest public listing exit value figure from 2018.

Patel, says, “Venture capital exit activity has been relentless in 2021, as highly valued venture-backed companies have fast-tracked exits to generate maximum value and outlier returns to investors amid surging valuations.”

He adds, “Large liquidity events for Europe’s most valuable assets have characterised the continent’s exit market in 2021. We expect exits to remain strong in Q4 2021 as stakeholders take advantage of conducive market conditions.”

Fundraising

European venture capital funds raised €15.3B through Q3. Fundraising is slightly below record pace but still on a path to reach €20B in aggregate by year’s end, claims the report. So far, 128 venture funds have closed in 2021. In its analysis of the data, Pitchbook suggests that if the current pace continues, Europe could see the lowest annual fund count since 2013. 

In Q3 2021, Index Ventures closed a €1.7B ($2B) growth-stage fund, making it one of Europe’s largest venture funds ever.

Through Q3, venture capital funds based in the UK & Ireland raised €5.9B, which is 38.4 per cent of the total across Europe. 

Despite Brexit, the UK & Ireland have remained Europe’s core venture ecosystem, claims the report. One noteworthy fundraise in Q3 was London-based venture-backed fintech company Rapyd’s launch of its venture capital arm, Rapyd Ventures.

Patel says, “Venture fundraising in Europe is on pace to land alongside the figures of the past two years. Quality investment opportunities and strong return profiles for venture capital funds have enticed capital, as LPs and GPs have combined to increase capital flowing within the European venture ecosystem.”

“Despite the COVID-19 pandemic dampening global macroeconomic outlooks and giving rise to stagflation in certain regions, dovish monetary policy and pandemic-driven growth for certain sectors linked to venture capital have boosted fundraising efforts,” he added.