Europe's startups blossom as VC investment hits 10-year high

With Europe's economies now heading out of recession, venture capitalists are getting their wallets out once again.
Written by Jo Best, Contributor
Investor confidence in Europe's startup scene is returning. Image: Shutterstock

It looks like investor confidence in Europe's startup scene is returning, with cash flowing into the continent's young companies at its highest rate for more than ten years.

According to research from Dow Jones VentureSource, VC investment in European companies reached €2.1bn in the second quarter of this year, the largest amount since the third quarter of 2001. The figure is up over 40 percent on the previous quarter and 17 percent year on year.

The average investment size was also its highest in recent years, reaching €2.7m, Dow Jones VentureSource found.

The IT sector raised 12 percent of all VC funding in Europe over the quarter, though many of the largest deals in other sectors featured companies chiefly based online, such as Russia's Amazon equivalent Ozon Group, which pulled in $150m, and French shoe retailer Sarenza, which took in €74m.

While seed, restart, and second-round funding figures have remained flat in recent quarters, first round funding has inched up — reaching €550m in Q2 2014, compared to €421m a year ago. The highest growth can be seen in later-stage funding, which has spiked from €423m in Q2 2011 to €973m in the most recent quarter.

The UK remained the top destination for investments, taking in 28 percent of all VC funding, followed by France at 19 percent.

The quarter brought not just good news for startups, but for their backers as well. IPOs during the quarter were at their highest level since the end of 2006. Between them, the IPOs raised €407m, down slightly since the prior quarter's €449m. The largest single IPO came from the UK-based online food ordering company Just Eat, which floated in April.

Mergers and acquisitions also dropped somewhat, with 38 VC-backed companies getting bought during the second quarter of this year, down 19 percent year on year. The biggest buyouts for Europe included the acquisition of French e-learning firm Crossknowledge for $175m, and Spanish Openstack integrator eNovance, which joined Red Hat for €70m.

Over the second quarter of this year, 20 VC funds raised just over €1bn, up around 60 percent on the same quarter a year ago.

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