Innovation to keep drawing venture capital interest
LONDON: Innovative European businesses will once again amass large amounts of venture capital once the short-term investment hiatus caused by the coronavirus pandemic passes, according to market sources.
Over the past five years, Europe has become a thriving innovation hub with tech and healthcare startups attracting increasing interest from venture capital investors. European startups racked up roughly $122 billion of venture capital over the period, with investment hitting a record $36.05 billion in 2019, more than double the $17.68 billion raised in 2015, data from investment intelligence platform Crunchbase shows.
International investors have also poured into the sector. U.S. and Asian funds accounted for 21% of all startup funding rounds in the region in 2019, double the proportion seen in 2015, according to a tech sector report by U.K.-based venture capital firm Atomico. Most venture capital invested in 2019 went to financial technology, enterprise software and healthcare companies, sectors in which investors projected continued growth over the coming five years, the report found.
Eyeing expansion
Alongside companies and investors, other market players have taken an interest in the region’s offering. Among them is Silicon Valley Bank, part of California-based holding SVB Financial Group, which provides financing to tech, life science and healthcare companies and their investors across U.K., Ireland, Germany and Denmark.
Speaking to S&P Global Market Intelligence in February, SVB’s Europe, Middle East and Africa CFO Gavin Hewitt said the bank planned to “double down” on growth in Europe and boost market share in all of its key European markets.
SVB wants to make a mark in innovation-driven sectors such as fintech, enterprise software, e-commerce and life sciences, Hewitt said. Financial technology is the core growth area for the bank’s EMEA business, which also includes a representative office in Israel. “We are always interested in being close to the sector and partnering with different firms to accelerate our strategy,” he said.
Brief pause
The rapid spread of the coronavirus pandemic since February has affected investor sentiment and planning. Despite the ample amount of capital already raised, investors are more cautious and “currently lack the will to spend” this dry powder, according to a recent survey by U.K.-based trade organization Innovate Finance.
Global venture capital deal-making stumbled in the first quarter. The number of completed deals dropped by 23% and deal value fell by 12% from a year ago, alternative assets data provider Preqin said April 8.
But the capital is there and innovation will not stop because of the virus, so the outlook remains positive, according to Adrian Rainey, a London-based partner at global law firm Goodwin. “The great thing is that venture capital investors are in general not that focused on revenue but rather on capital and value creation over the medium to long term,” he said in an interview.
Innovate Finance, which supports U.K. fintech, also said “the longer term looks promising” as venture capital investors have not lost their appetite but would rather “wait for more certain conditions and confidence to return.”
Preqin CEO Mark O’Hare shared this sentiment. Despite the deep short-term impact of the pandemic, investors “are bullish about their medium- and long-term plans” and there are more attractive investments to be made, he said in an April 17 blog post, citing the firm’s recent survey on the outlook for investments in alternative assets.
The outlook for venture capital investment in life sciences is particularly positive, according to innovation and finance business consultancy Ayming UK. Despite some immediate challenges to the rate of development and research due to self-isolation, the life sciences are considered one of the more stable sectors and venture capitalists should seek more investments in the area, Naomi Ikeda, a manager in Ayming’s R&D tax incentives team, said in a written comment.
She said: “We need everything from workable treatments for symptoms, to better testing capabilities and medical technology for tracking outbreaks, all of which provide opportunities for VC firms.
“More broadly, the nature of current circumstances will make life sciences a more attractive area to invest in as a precautionary measure against future events that could have similar effects in society.”
