VC funding drops for European technology start-ups - Financial Times

Traffic passes around London's Old Street roundabout, also referred to as Silicon Roundabout, in the area known as Tech City © Bloomberg

Venture capital investment in European companies fell sharply in the third quarter, which will fuel concerns that uncertainty surrounding Britain’s exit from the EU is damping investor enthusiasm for start-ups across the region.

European start-ups already attract much lower sums than similar companies based in the US, which means that the slowdown in new funding in the past few months will cause added concern about competitiveness of the regional technology sector.

European companies raised €2.1bn from venture capital funds with 464 deals in the third quarter, a 32 per cent fall in the amount raised from the previous quarter, according to data compiled by Dow Jones VentureSource, and 39 per cent lower compared with the same period last year.

Venture capital firms headquartered in the UK invested just $58.2m in European companies in the third quarter, according to Dow Jones, a sharp decline from the $281.5m invested in the second quarter and an even steeper drop compared to the $656.1m in the third quarter of last year.

Technology executives in London have already raised concerns that Brexit will jeopardise the UK capital’s future as a start-up hub for the continent, and the latest figures from Dow Jones follow similar reports from the investment database Pitchbook after the UK vote to leave the EU in June.

Preliminary data from Pitchbook in July showed that venture capital investment in European start-ups fell by more than a third in the second quarter, compared to the same period in 2015.

Hussein Kanji, a partner at Hoxton Ventures, a venture capital firm, blamed the decline in fundraising in recent months on a correction in the perceived valuation of companies, rather than referendum-related uncertainty.

“A lot of people have woken up to the fact that these unicorn valuations got a little bit ahead of themselves.”

“There were a lot of unsustainable things that were happening in the industry,” he added. “The market got a little bit more rational over the last quarter.”

Other London-based investors said that the data may just show a short-term blip, rather than permanent shifts in investing practices.

Harry Briggs, an investor at BGF Ventures, said that while there were “some doubts” among investors about the UK leaving the EU, he “would be surprised if this marked a long-term trend”.

“I think it is more likely to be the timing of one or two huge deals skewing the market or announcements being delayed,” he said.

Among the largest deals agreed in the past quarter, Deliveroo, the London-based food delivery group, raised more money from venture capital than any European start-up, picking up $275m in an August funding round.

Private equity group Bridgepoint led the round, which included existing investors DST Global and Greenoaks Capital, as well as US firm General Catalyst Partners.

GoEuro, a German journey-planning app, raised the second-largest sum in Europe in the quarter, bringing in €62.7m in a funding round led by Silicon Valley-based technology investors Silver Lake Kraftwerk last month.

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