European VC shakes off COVID-19 with strong start-up support

  • VC investment volumes in 3.5 months after outbreak remained in line with prior years
  • Investment into healthcare start-ups increased by 77% during COVID disruption

Invest Europe, in partnership with the European Investment Fund (EIF), today published The VC Factor – Pandemic Edition, a new report illustrating European venture capital’s continued strong support for innovative and fast-growing start-ups in the immediate aftermath of the COVID-19 pandemic in 2020.

The study is the second edition of the ground-breaking collaboration between Invest Europe, the association representing Europe’s private equity, venture capital and infrastructure sectors, as well as their investors, and the EIF – Europe’s largest investor in venture capital funds. It draws on data from 2,611 firms investing into VC and 32,114 start-ups between 2007 and 2020. The findings show that the volume of VC investment during the three and a half months following the onset of the pandemic in March 2020 was in line with the two prior years, despite lockdowns and travel restrictions that meant fewer investments and reduced deal flow for VCs.

The report shows that the number of investments by VCs reduced by 13.6% between March 11, 2020 – the date on which the World Health Organization declared the COVID-19 outbreak a pandemic – and the end of the second quarter. The decline was offset by a 19.3% increase in the average amounts invested into companies, as VC firms continued to back the start-ups driving European innovation and laying the foundation for a better tomorrow.

The European healthcare sector stood out during the period with a 77% increase in investment volumes, reflecting VCs enhanced focus on biotech companies developing potential vaccines and treatments for COVID-19, as well as start-ups committed to improving healthcare for European citizens more widely.

The findings of the VC Factor echo Invest Europe’s flagship report ‘Investing in Europe: Private Equity activity 2020’, which showed that venture capital investment in Europe grew for the eighth consecutive year to €12 billion in 2020, underlining the industry’s resilience despite physical restrictions on people and businesses, as well as intense economic turbulence.

Alain Godard, chief executive of the EIF, said: “Total VC investment volumes did not decrease immediately after the outbreak of the pandemic, despite reduced deal activity exacerbated by lockdowns. Indeed, healthcare investment saw a 77% increase as VCs targeted companies making a difference in this critical sector. The research shows that European VCs were able to adapt quickly to the situation and finish the year strongly, channeling investment into start-ups working at the cutting edge of health and technology.”

Eric de Montgolfier, CEO of Invest Europe, commented: “European venture capital did not escape the effects of COVID-19 but responded with characteristic strength. Across the continent, VCs continued to invest in disruptive technologies as well as life-changing biotech and healthcare innovations. Europe is packed with entrepreneurial talent and venture capital is crucial to a strong recovery from the effects of COVID-19, as well as essential to a brighter long-term future for all Europe’s citizens.”

The latest VC Factor report also shines a new light on where Europe’s venture capital managers are based and where they invest, illustrating that VC firms tend to cluster together much more than their investee companies. The top 12 hubs in Europe represent 61% of the investment capital deployed but only 40% of investment received.

London, Europe’s largest venture hub, accounts for 23% of money invested and 12% of capital received. It is followed by Paris, which is the source of 15% of capital invested while receiving 7% of venture capital deployed. As a proportion of GDP, however, Berlin is the largest VC hub in Europe, followed by East Anglia in the UK where investment is focused on innovation emerging from leading university Cambridge.

To read the VC Factor in full, please click here.

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