VC investment in Europe got off to an excellent start in 2020 even with the exit of the UK from the European Union and the sudden uncertainty created by the rapid spread of COVID-19 in February and March. The expanding startup ecosystem across Europe, low interest rates, and a strong base of maturing startups helped drive the continued VC investment.
During Q1’20, fintech continued to be a hot area of investment across Europe. During the quarter, Revolut raised $500 million, Klarna raised $150 million, and Starling Bank raised $70 million.
Despite its official exit from the EU on January 31, 2020, the UK continued to see strong VC investment in Q1’20, including the raising of $100 million+ funding rounds by Revolut, LumiraDx, GraphCore, and Starling Bank. The UK did start to see some collateral damage from Brexit, however, with Germany’s N26 deciding to pull out of the UK rather than go through the process of obtaining a UK banking license. Revolut also announced plans in Q1’20 to expand its operations in Ireland in order to better serve its European customers.
COVID-19 is expected to have a substantial impact on both VC and corporate VC investment in Europe. The impact on existing startups will be mixed, with funded developmental stage companies potentially faring better as they are not yet reliant on revenue. Growth stage companies and those that rely on recurring revenues, such as B2B services providers, could feel the impact more strongly.
Europe’s VC market will likely face a tough Q2’20 due to COVID-19, although digital services, health and biotech companies, and certain B2B companies could remain attractive even during the crisis given their applicability and long-term relevance. While the short-term economic outlook is highly uncertain, the pandemic could lead to an increasing acceptance for digital solutions. This could bode well for VC investment in Europe over the longer term as both traditional companies and consumers will have required and become accustomed to their use – a process that might have been more difficult to achieve under normal circumstances.