INSIGHTS

NEWS AND INSIGHTS FROM IGNIVA

March 01, 2017

European Tech VC Funding Competing with US: But at What Cost?

BY AURELIA BONITO

For many years, it has been argued that European tech start-ups do not have access to the same levels of late stage VC funding as their American counterparts. That might finally be changing, with VC fundraising in Europe last year recorded at €8.8bn - a ten-year high. This overall figure was underlined by the huge fund recently raised by Skype co-founder, Niklas Zennström, and his London-based firm, Atomico. Their new fund, valued at £613 million, means they now have a total of £1.2 billion to back companies across Europe.

This is therefore good news for those start-ups with proof of concept, viable revenue streams and profit within their own national, or even continental market, who are looking to expand abroad or achieve even greater market share in other ways. But what about those start-ups at the other end of the spectrum? These companies need early stage, even pre-seed funding, to enable them to grow and one day take advantage of these huge investment sums. Well, for them, unfortunately, the picture isn’t quite so rosy. In fact, it’s decidedly bleak.

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Last year saw a decline in the number of investment deals closed overall, and the decline was at the expense of early, small investments - with angel and seed investments collapsing from 2,096 in 2015 to 1,356 last year. This risks Europe’s start-up economy stagnating and becoming a castle built on sand. Without new businesses entering the market, innovation will suffer and European start-ups will become fundamentally uncompetitive with their global counterparts – eventually leading to their collapse.

This calls attention to the vital importance of pre-seed investors, as the fundamental first step that allows companies to gain a foothold in the market and justify huge investment from VC firms later on. Without this early investment, these late-stage VC funds currently receiving so much praise and attention will soon cease to exist as there will be no viable companies to invest in.