SEATTLE and NEW YORK and SAN FRANCISCO and LONDON, April 26, 2018 /PRNewswire/ -- PitchBook, the premier data provider for the private and public equity markets, today released its 1Q 2018 European Venture Report, which uncovered a steadily maturing European venture ecosystem on pace to nearly match capital deployed in 2017. While deal count declined nearly 50% from 1Q 2017, European investors deployed €4.4 billion across 571 deals in the first quarter. German financings accounted for one quarter of all venture capital raised in Europe & Israel, driven in part by larger rounds secured by late stage unicorns, including Auto1 Group's €460 million financing from SoftBank and N26's $160 million Series C (€129.5 million). As median deal sizes trended larger, so too did fund sizes. While fundraising levels fell short of 2017 fundraising metrics, median fund size reached a decade-high at €86 million. The proliferation of available capital for late stage companies has consequently slowed exit activity.
"Deals sizes continue to grow as the European VC ecosystem matures and larger vehicles are raised," said Joelle Sostheim, analyst at PitchBook. "While larger funds will be important to the growing population of mature startups, the decline in smaller vehicles raised in recent quarters could have an adverse effect on the next-generation of startups seeking smaller rounds. Deals smaller than €1 million dwindled in the first quarter."
In the first quarter of 2018, European investors deployed €4.4 billion across 571 deals, which is on pace to match last year's decade-high in capital invested (€18.3 billion).
Despite the sustained level of capital invested, deal count slid for the fifth consecutive quarter – down 49% from 1Q 2017. The stark decline in deal count was most evident in the angel/seed stage due to intensifying competition and higher investor expectations.
The shift toward fewer, more mature companies securing larger investments early on has increased check sizes in subsequent financing stages. In the angel & seed stage, median deal sizes more than doubled from 2014 (2.9x increase), reaching €981,000 in 1Q 2018. Meanwhile, median deal size for late stage financings increased to €8.1 million, a 62% increase.
Europe's VC exit market continued to be sluggish in 1Q 2018, with €1.5 billion in disclosed exit value across 64 reported deals.
Larger deal sizes in late-stage VC have enabled companies to extend cash runways and reduce the sense of urgency to exit.
Two deals in the software and pharmaceutical sector made up 73% of total capital exited underscoring the sustained strength of the exit ecosystem for the sectors. The deals included the €905 million acquisition a of Preston Therapeutics and IPO of Integrated Financial Arrangements, which raised €201 million in their public debut at a €735 million post-valuation.
European venture investors closed 18 vehicles totaling €2.1B in commitments in the first quarter of 2018 – on pace to just fall short of 2017 fundraising levels. Median fund size reached a decade-high (€86 million) as VCs adapt to writing larger check sizes.
2018 is already pacing to eclipse 2017 in the number of funds raised between €250 million - €500 million. Three funds have closed in 1Q 2018 within this echelon, including Eight Road Ventures Europe's €303 million vehicle.
The uptick in larger vehicles came at the expense of micro-funds (vehicles smaller than €50 million). At the peak in 1Q 2015, VCs raised 19 micro-funds, yet only four micro-funds closed so far in 2018. The shortage of capital available for smaller investments may create an industry imbalance.
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