As the European venture capital (VC) landscape rebounds from recent economic challenges, Q2 2024 showcased a marked improvement in deal activity, according to the European Venture Report published by PitchBook. Valuations are on the rise, fuelled by decreasing interest rates and a growing appetite for larger transactions. The United Kingdom has been at the forefront, particularly with a significant number of large-scale deals involving artificial intelligence (AI) companies. In the first half of 2024, the AI sector alone attracted €6.3 billion in deal value, outpacing the previous year's performance. This quarter, AI and machine learning (ML) emerged as the second most active vertical, trailing only behind software as a service (SaaS).
Thе report also highlights the significant rise in venture debt within Europe, with 2024 already seeing record-breaking growth. Year-to-date (YTD) venture debt value reached €17.6 billion, surpassing the €12.6 billion recorded in 2023. This surge is indicative of a shift towards higher-value deals, particularly in mature markets, with venture growth accounting for a significant portion of these transactions. This trend underscores the importance of venture debt as a vital component of the European venture capital landscape.
Investment Activity
The recovery in venture capital deal activity continued into Q2 2024, although the overall run rate suggests a slight decline of 6.2% compared to the previous year. Regardless, the quarter witnessed a robust 24.4% increase in deal value quarter-over-quarter (QoQ) and a 9.3% year-over-year (YoY) rise. This uptick is largely attributed to higher valuations and fewer but more substantial deals. Notably, transactions exceeding €25 million have gained prominence, representing a significant share of the total deal count. This shift towards larger deals reflects growing confidence among investors as market conditions improve.
The top 10 deals in Q2 2024 were dominated by AI companies, with significant transactions across various verticals and stages. The United Kingdom led with five major rounds, including €980.3 million for AI startup Wayve and €933.2 million for fintech company Abound. These deals underscore the UK's position as a key player in the European AI landscape. France and Germany also featured prominently, with Mistral AI and Black Semiconductor securing significant investments. These transactions highlight the continued investor interest in AI and fintech sectors, driving innovation and growth in these fields.
AI and ML have firmly established themselves as critical areas of focus within the European venture capital ecosystem. In the first half of 2024, the AI sector attracted €6.3 billion in deal value, doubling its quarterly deal value QoQ to €4.2 billion. This surge has positioned AI and ML as the second-most-active vertical, following SaaS. The robust investment activity in AI highlights the sector's potential to drive significant technological advancements and economic growth across Europe.
Exit Trends
Venture capital exit activity in Europe showed signs of recovery in H1 2024, with headline exit values approaching 2023 levels at €15.4 billion. However, the underlying market dynamics reveal a more nuanced picture. Excluding the substantial €11.3 billion IPO of Spanish luxury company Puig, the H1 exit value stands at €4.1 billion, marking a 39.3% decline from the previous year. The number of exits also decreased by 6.0% YoY. Despite these declines, acquisitions remain the dominant exit route, accounting for 85.6% of VC-backed exit value in 2024, up from 80.3% in 2023.
The distressed nature of several exits this year has led to a high rate of undisclosed exit values, reaching a decade peak of 89.5% in 2024. Among the disclosed exits, smaller transactions under €25 million continue to dominate. The largest exit in Q2, excluding Puig, was the €500 million acquisition of social media platform BeReal by Voodoo. Other notable exits included BELKIN Vision and AI startup Deci, both acquired for substantial amounts. These exits underscore the challenges and opportunities within the current exit environment.
The IPO market in Europe, while showing some green shoots, remains volatile. The ECB's recent rate cuts have created a more favourable macroeconomic backdrop for stock markets, but valuation metrics and market volatility continue to influence listing decisions. For instance, companies like Golden Goose and Tendam have delayed their IPOs due to increased market volatility. Nonetheless, the few IPOs that did occur in Q2, including those of cleantech firm RanMarine Technology and fintech company GreenMerc, suggest a cautious optimism for a potential IPO window in the near future.
Fundraising Insights
Venture capital fundraising activity in Europe has been robust in H1 2024, with €9.4 billion raised, leaving a €12.3 billion gap to meet last year's total of €21.7 billion. Despite this gap, the current pipeline of top 20 open VC funds, amounting to €15.6 billion, indicates that 2024 could match or even exceed the previous year's fundraising totals. A notable trend in 2024 is the increasing share of smaller funds, particularly those under €250 million, which now represent 55.8% of capital raised, up from 42.3% at the end of 2023.
According to the PitchBook report, the largest fundraising rounds in H1 2024 spanned various regions and strategies, with notable closes from Accel London (€606.7 million), Creandum VII in Stockholm (€500 million), and Innovation Industries Fund III in the Netherlands (€500 million). These successes highlight the continued ability of larger firms to secure substantial capital even in a challenging fundraising environment. Emerging managers have also gained a significant share of fundraising volume and value, accounting for 70.6% of closes and over half of the capital raised in 2024.
Geographically, the fundraising landscape has seen significant shifts, with France and Benelux surpassing the UK and Ireland for the first time since 2018 in terms of capital raised. The UK and Ireland's share dropped from 38.7% in 2023 to 23.2% in H1 2024, while the Nordics doubled their share to 12.4%. These regional dynamics reflect broader trends in the European venture capital ecosystem, where emerging markets and sectors are gaining prominence amid shifting investor preferences.
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