Is European late-stage funding making a comeback?
Over coffee recently, an investor told me they were seeing more attractive growth-stage funding opportunities in Europe so far in 2024 — and that these startups seemed even more appealing than their US peers.
The surprising bit is that, as we’ve documented at length, late-stage funding has taken a big hit over the last year or so. In 2023, the value of late-stage deals in Europe plummeted 50% compared to 2022, according to PitchBook data. While deal count was less impacted, there were fewer late-stage deals last year than the year prior (they recovered a bit in Q3 of 2023), PitchBook senior Europe analyst Navina Rajan points out.
But some investors are seeing more green shoots for the growth stage this year — and are betting on it.
Martin Mignot, a New York-based partner at European and US firm Index Ventures, penned a LinkedIn post earlier this week in which he described a “flurry of activity” right now, adding that “January and February were among the busiest of my 14 years at Index Ventures”. That activity has spanned from seed to — yes — “$100m growth tickets,” he wrote.
Index recently led Amsterdam-based DataSnipper’s $100m Series B round in February. And despite his perch in the US, Mignot said that “geography-wise, Europe and the US were active in equal measure” — part of the firm’s general effort to have a roughly even split considering its dual London and San Francisco headquarters.
Several other big deals have been announced so far this year, including UK neobank Monzo’s massive $430m funding round earlier this month, Amsterdam-based grocery startup Picnic’s €355m haul in January and Barcelona-based TravelPerk’s $104m round the same month.
But it’s got me wondering: what’s behind the apparent growth spurt? And are others noticing it, too?
Josh Bell, general partner at London-based VC Dawn Capital, tells me the “pace of deployment has now picked up again.” He expects many of Dawn’s portfolio companies will raise growth rounds this year and that we’ll see more “competitive returns to the market as 2024 progresses.”
As others have pointed out, tech’s general recovery in the public markets has likely added to the boost. Meanwhile, investors have recently bid up shares in some pre-IPO companies like Klarna in the secondaries market.
“Late stage generally declined more than early stage, so you've got a lower base to recover from — which is maybe why you're sort of hearing those anecdotes of a pickup,” Rajan notes. She’s expecting dealmaking to hold up better this year off the back of last year’s slump.
I do wonder what valuations for these later-stage rounds look like, though. Part of the reason for the big growth slowdown was that many of these large companies had raised cash at such bloated valuations in the heyday of 2021 that many VCs looked for better value and more time until exit at the earlier stages. Some also held off to avoid a brutal reality check of their valuations, although many companies also took down rounds in the last year.
“It feels like valuations are still conservative,” Rajan says. Mignot recognised in his post that “there are pockets of the market with frothy valuations (both AI infrastructure and some applications), but the vast majority of these investments were made at reasonable multiples, in line with historical norms.” He added: “This is also not an environment where everything gets funded at any price in a matter of days, indiscriminately.”
Bell of Dawn Capital expects we’ll see more up rounds, as he believes valuations have “turned a corner”.
The real key here will be what happens with the IPO and M&A markets this year. If we do get a big (successful) Klarna IPO or see more companies getting bought at healthy valuations, the late-stage markets should heat up even more.
I’d love to hear from you, growth investors: are you noticing a pickup in pace so far in 2024? If so, which countries are you spending the most time looking into? What about companies or sectors? Do you think the growth spurt will last? I’m all ears.
— Anne Sraders, senior reporter |
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