Venture capital to play major role in European private equity

Go big or go home, there is no time to be risk-averse as venture capital investments are set to play a major role in European deal values throughout 2023. 

The venture capital (VC) game was primarily played in the US however, since 2013 the European asset class has grown from €60bn (£52.6bn) assets under management to over €300bn (£262.6bn) in 2022, a report from data firm Pitchbook suggests. 

A key ingredient to the rise in European VC investment has been the build-up of dry powder, stockpiled cash or low-risk and liquid securities, that has fuelled the venture capital ecosystem and is estimated to rise to  €60 (£52.6bn) in the new year. 

Another important element is the growth of non-traditional investors with a greater appetite for risk, as they move away from the traditional 60/40 portfolio split in stocks and bonds. 

Coupled together, the mix has already led to a strong year of fundraising, with 25 per cent of all deal value in Europe potentially stemming from venture capital investments come 2023.

(Source: Pitchbook)

London in particular has been a winner in the European VC rush.

The country’s capital has risen up the ranking list for deal value per year, starting out with €3.2bn (£2.81bn) in 2012 and amassing a deal-value-high of €45.9 (£40.3) in 2021. 

A major source of London’s venture capital boom has been the investment deals into firms spun off from UK universities. 

Spin-offs accounted for £2.5bn in equity investment, equivalent to almost 10 per cent of total investment into UK private companies in 2021, according to research from data platform Beauhurst. 

Established firms such as Sage, Kainos and recently publicly listen DNA sequencing firm, Oxford Nanopore, have all started out as research projects at Universities. 

(Source: Pitchbook)

However, the report has also highlighted concerns for the European VC scene. A wave of political disruption and uncertainty could dampen venture capital expenditure.

From three Prime Ministers in rapid succession, London’s future as Europe’s financial hub “may be in jeopardy” in the aftermath of Brexit the report warns.

Other causes for concern include the War in Ukraine, with most European countries expected to fall into recession, not at least partially traceable to the supply chain shortages fueled by the war.