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European VC shakes off effects of Covid-19

Invest Europe, in partnership with the European Investment Fund (EIF), has published ‘The VC Factor – Pandemic Edition’, a new report illustrating European venture capital’s continued strong support for innovative and fast-growing start-ups in the immediate aftermath of the Covid-19 pandemic in 2020.

The study is the second edition of the ground-breaking collaboration between Invest Europe, the association representing Europe’s private equity, venture capital and infrastructure sectors, as well as their investors, and the EIF – Europe’s largest investor in venture capital funds. It draws on data from 2,611 firms investing into VC and 32,114 start-ups between 2007 and 2020. 

The findings show that the volume of VC investment during the three and a half months following the onset of the pandemic in March 2020 was in line with the two prior years, despite lockdowns and travel restrictions that meant fewer investments and reduced deal flow for VCs.

The report shows that the number of investments by VCs reduced by 13.6 between March 11, 2020 – the date on which the World Health Organisation declared the Covid-19 outbreak a pandemic – and the end of the second quarter. The decline was offset by a 19.3 per cent increase in the average amounts invested into companies, as VC firms continued to back the start-ups driving European innovation and laying the foundation for a better tomorrow.

The European healthcare sector stood out during the period with a 77 per cent increase in investment volumes, reflecting VCs enhanced focus on biotech companies developing potential vaccines and treatments for Covid-19, as well as start-ups committed to improving healthcare for European citizens more widely.

The findings of the VC Factor echo Invest Europe’s flagship report ‘Investing in Europe: Private Equity activity 2020’, which showed that venture capital investment in Europe grew for the eighth consecutive year to EUR12 billion in 2020, underlining the industry’s resilience despite physical restrictions on people and businesses, as well as intense economic turbulence.

Alain Godard, Chief Executive of the EIF, says: “The resilience of the European Venture Capital industry in the wake of Covid-19 has been remarkable. For decades, the EIF has been striving to contribute to the development of a sustainable VC ecosystem and the emergence of new European VC hubs. The results of this research are therefore rewarding: they show that European VCs were able to adapt quickly to the situation and record a strong year of activity despite the pandemic, whilst sustaining investments into start-ups delivering cutting edge solutions, including in health and technology.”

Eric de Montgolfier, CEO of Invest Europe, says: “European venture capital did not escape the effects of Covid-19 but responded with characteristic strength. Across the continent, VCs continued to invest in disruptive technologies as well as life-changing biotech and healthcare innovations. Europe is packed with entrepreneurial talent and venture capital is crucial to a strong recovery from the effects of Covid-19, as well as essential to a brighter long-term future for all Europe’s citizens.”

The latest VC Factor report also shines a new light on where Europe’s venture capital managers are based and where they invest, illustrating that VC firms tend to cluster together much more than their investee companies. The top 12 hubs in Europe represent 61 per cent of the investment capital deployed but only 40 per cent of investment received.

London, Europe’s largest venture hub, accounts for 23 per cent of money invested and 12 per cent of capital received. It is followed by Paris, which is the source of 15 per cent of capital invested while receiving 7 per cent of venture capital deployed. As a proportion of GDP, however, Berlin is the largest VC hub in Europe, followed by East Anglia in the UK where investment is focused on innovation emerging from leading university Cambridge.

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