VC investment in Europe rose to a record $49 billion in 2020, soaring past 2019’s previous high of $42 billion despite a significant drop in deal volume. Q4’20 was also very robust in Europe, driven in part by a strong rebound in UK investment; the UK accounted for six of the region’s top deals during the quarter, including LumiraDx ($389 million), Molo ($343 million), Cazoo ($310 million, One Trust ($300 million), Graphcore ($222 million), and Trinny London ($192 million).
Others in Europe also attracted $100 million+ rounds, including France (Ynsect - $372 million), Germany (TIER Mobility - $248 million), the Netherlands (MessageBird: $200 million), Ireland (Amarenco - $190 million), and Israel (Cato Networks: $130 million). While the number of VC deals in Europe dropped for the third straight quarter, the average size of deals continued to increase.
The surge to a record level of VC investment in Europe during 2020 was driven by record-breaking levels of annual VC investment in numerous jurisdictions, including the UK ($15.3 billion), Germany ($7.1 billion), France ($6.3 billion), the Nordic region ($5.7 billion), and Israel ($5 billion).
While mature innovation centers like the UK, Germany, and Israel attracted many of the largest deals in Q4’20, the growing size of VC deals in locations like France are a testament to the rapid growth of other innovation ecosystems. France saw particular success in the agriculture and foodtech space during Q4’20, with Ynsect raising $372 million and aquaculture company InnovaFeed raising $165 million.
In 2020, the amount of funding dedicated to first-time financings in Europe was weak as investors focused on their existing portfolio companies and proven bets. VC investors were likely also hesitant about making completely new investments without the opportunity to meet founders face to face. While there continued to be fierce competition for the best deals, it was very difficult for most companies looking to raise Seed and Series A funding rounds to attract investments without making major compromises. In recent months, a number of startups pulled back on funding rounds given concerns over valuations and access to potential funds – instead looking to shorter-term interim funding to keep them afloat and push their need for larger raises down the road.
VC investment in Germany remained very strong in Q4’20, with health and biotech generating an increasing amount of interest given BioNTech’s involvement with one of the first approved COVID-19 vaccines. Interest in the space has expanded quite significantly, extending into areas like physician communications, telemedicine, and edtech for physicians. During Q4’20, ATAI Life Sciences raised $125 million for its work on innovative mental health treatments. Fintech also continued to gain steam as consumers increasingly embraced online offerings due to pandemic lockdowns.
Q4’20 saw a significant level of VC investment in the Nordic region, including the $160 million raise by Voi, a $115 million round by digital lender Lendify, and a $103 million round by open banking platform Tink16. Corporate investment was also high, particularly in the fintech space. Many of the region’s biggest banks have been actively investing in open banking applications – applications they are now beginning to bring to market. Gaming, edtech, and healthtech also continued to attract interest from VC investors in the region.
VC investment in Europe is expected to remain strong heading into Q1’21, particularly in areas like fintech, healthech, edtech, and SaaS solutions. Cybersecurity is also expected to be a hot area of investment given the rapid acceleration of digital strategies and changing consumer behaviors. One area expected to grow on the radar of VC investors is foodtech given the increasing emphasis being put on the sustainability of the food supply and food sources across the region.