VC investment in Europe surged to a new high for the fourth straight quarter in Q2’21, crushing the previous record, driven by large raises by NorthVolt, Celonis, MessengerBird, Trade Republic, Mollie, FlixBus, WeFox and Klarna. Valuations of companies across Europe continued to grow, with higher multiples being used in many cases compared to historical norms. A sense of optimism, combined with a significant amount of cash and investors jumping on the investment train following trends such as e-commerce, B2B, and digital services has helped drive valuations.
Diversity of fintech areas attracting investment
VC investment in fintech remained very strong across Europe, in part due to the growing mix of fintech companies attracting investment, from stock trading platform Trade Republic ($900 million) and digital insurance company WeFox ($650 million) to payments firm Mollie ($805 million), ‘buy now, pay later’ company Klarna ($639 million), and Starling Bank ($443 million). Even straightforward concepts such as BNPL are seeing companies introducing unique value propositions. In Q2’21, UK-based Zilch raised $80 million; Zilch provides BNPL direct to consumers by working with Mastercard, rather than with various e-commerce engines.1
IPO and SPAC interest growing
Despite Deliveroo’s rocky IPO ride, interest in public listings continued to grow in Europe, in terms of both IPOs and SPAC transactions. Q2’21 saw a number of successful IPOs, including Israel-based business productivity company Monday.com and Sweden-based plant-based milk company Oatly on the Nasdaq,2 and UK-based cybersecurity firm Darktrace and fintech PensionBee on the LSE.
Maturing companies in Germany are also increasingly considering IPOs as an exit strategy, and are beginning to look at what they need to do in order to be successful. This is quite different than 12 to 24 months ago, when there was more modest IPO interest. One question raised, however, is whether IPOs will substitute for larger Series D and E rounds, or whether companies will remain private through later rounds before moving to IPO.
Interest in SPAC transactions also increased in Europe. During Q2’21, UK-based Babylon Health agreed to a SPAC merger with Alkuri Global Acquisition Corp,3 while Israel-based Innovid announced plans to merge with ION Acquisition Corp.4
UK continues to see robust VC investment
After a record quarter of investment in Q1’21, VC investment in the UK remained high in Q2’21, driven in part by a strong COVID-19 vaccination program and businesses beginning to feel more certain in the post-Brexit world. Fintech and healthtech attracted the largest deals in Q2’21, including a $500 million raise by B2B payments firm SaltPay, a $444 million raise by AI-powered drug discovery company Exscientia, a $443 million raise by digital bank Starling Bank, and a $130 million raise by digital health company Huma. While later stage deals attracted the majority of investment, interest in earlier stage deals grew somewhat, with more businesses beginning to raise Series A and smaller rounds.
VC market continues to boom in Germany
VC investment in Germany reached a new high in Q2’21, led by the $1 billion raise by business execution management company Celonis. With a valuation over $10 billion, the funding round made Celonis Germany’s first decacorn. Participation in VC deals has expanded in Germany and in other parts of Europe, with more participation by non-traditional investors, such as sovereign wealth funds. From an ecosystem perspective, Munich is quickly joining Berlin as a highly competitive tech hub, while ecosystems are growing in Cologne and Hamburg.
Nordic region very attractive to investors
Investment in the Nordic region was incredibly strong in Q2’21, led by a $2.75 billion investment in battery maker Northvolt AB, a $639 million raise by fintech Klarna, and a $270 million raise by digital health company Kry. With the significant amount of dry powder available, numerous companies across sectors and across the region have been able to attract large funding rounds. While Sweden accounted for the largest deals in Q2’21, the rest of the Nordic countries also attracted impressive deals: Norway-based grocery platform Oda raised $264 million, Finland-based digital health company Oura raised $100 million, and Denmark-based drug discovery company ADCendo raised $60 million.
Trends to watch for in Q2’21
VC investment in Europe is expected to remain robust heading into Q3’21, particularly in areas such as fintech, healthtech, and B2B services, while investment in cybersecurity is expected to grow significantly.
There’s a lot of optimism coming out of the pandemic and, particularly here in the UK where we have an excellent vaccination program, that’s feeding into general sentiment. Also, with Brexit now behind us, I think there’s just a bit more certainty in the market and that’s probably coming through in the strong investment numbers as well.
New quarterly record in Europe — with over $34 billion invested on 1848 deals
Corporate venture capital drive record surge — reaching $16.5 billion invested
Exits remain strong for second consecutive quarter
UK, Germany, France, Nordics and Israel all hit new investment highs
Germany dominates with 4 of the top 10 deals