Silicon Valley Bank (SVB) have released a report looking at the health of the EMEA markets following a slowdown during the pandemic.
The findings of this report are promising, with H1 of 2021 already matching the investment levels of 2020, and being projected to double the investments of 2020 as a whole. The report also takes a closer look some country specific investment insights, including the UK where investment levels have already eclipsed those of H1 2020. Markedly, fintech accounts for almost half of the capital invested in the UK at 44%.
Finextra discussed these findings with SVB’s Alex McCracken, managing director of SVB, who states that, “the key findings were astonishing.”
One of the key findings of the report is the large increase in the amount of capital. SVB found that 2021 is in line to surpass the numbers of 2020, with the $51 billion invested in Europe and Israel already equalling the full year of 2020.
Round sizes are also seeing an increase, with the report finding more deals greater than $50m, particularly in Europe where there was a total of 136 rounds of this size. Furthermore, some rounds exceeded this; 12 European rounds in H1 2021 attracting more than $500 million. Most notably, Northvolt have received the largest ever VC round at $2.75 ($6 billion in total funding).
The report stresses the amount of ‘dry powder’ (marketable securities which are highly liquid or even cash reserves) which they are seeing in larger amounts. On the sheer amount of dry powder in Europe, McCracken comments: “the $39 billion of dry powder that European Venture Capital funds have available to invest is a record amount, and this bodes well as investment in European tech will keep increasing because these funds have to be invested into companies over the next few years.” However, the amount the US has massively overshadows this, with $192 billion.
Another key finding of the report is that valuations of companies are going up, with more 160 tech companies with a valuation over $1 billion. McCracken comments on this trend that, “it used to be rare to hear of a new unicorn tech company with £1billion+ valuation being minted, but now it's a weekly occurrence.” However, the report found that while there is a larger amount of capital in H1 2021, there has been a similar number of deals to the same period in 2020.
“M&As slowed down in Q2 and Q3 last year, but has now come roaring back with more tech exits in H1’21 than all of 2020,” McCracken observes, with the report projecting the total number of M&As in 2021 to exceed 2020 by 20%.
A crucial finding for M&As was a change in demographics of acquirers, with start-ups buying other VC-backed companies now outpacing Private Equity firms and corporations. McCracken offers some insight into what is happening here: “Tech and FinTech companies who've raised hundreds of millions of funding, in order to scale faster many now acquire smaller companies with similar products or based overseas. We are now seeing in Venture the typical ‘buy and build’ approach typically adopted by Private Equity.”
SVB are keen to note the increases in diversity. Their report shows an increase of capital investment in female co-founded companies, with the investment in these companies across 2021 projected to be double that of 2020. However, the number of solo female company investees is overall disappointing, remaining stagnant at 3.8%.
“I've been in venture since 1999, and it's never been this good. Record amounts invested into tech, the quality of companies is high, the number of venture funds is high, the amount funds have to invest is huge, the exits are big and many in number. The key difference from the dotcom boom era is now the best tech companies have hundreds of millions, if not billions, of revenue and solve key needs.”