European VC Deal Count Up Despite Dollar Funding Drop & Brexit Uncertainty

In Q2’16, deal count to startups in Europe crept up 5% from the previous quarter to 385, which meant that Europe surpassed Asia for the first time in five quarters, according to data from the KPMG-CB Insights Pulse of Fintech Report. Despite an increase in the number of deals, European VC investment dipped below $3B in Q2’16, for the first time since Q4’14.

A sharp decline in UK funding was the primary cause of Europe’s slide, as countries like Germany saw an increase in funding quarter-over-quarter.

Europe’s funding total of $2.8B fell by 20% from the $3.5B it attracted Q1’16. This reverses the deal and dollar trends seen in the quarter prior. European deals also rebalanced toward the seed stage, as seed/angel deals jumped to 49% of the total after falling below 40% last quarter.

Globally, VC deal activity dropped 6% to 1,886, while funding to VC-backed companies edged up 3% to $27.4B in Q2’16, lifted by $1B+ rounds to “decacorns” valued at $10B+ such as Uber, Snapchat and Didi Chuxing.

VC-Backed European funding off to a slower start in 2016

VC-backed companies in Europe saw a new peak in funding and deal activity in 2015, with $14B invested across 1,600 deals. 2016 has so far seen $6.3B invested across 750 deals, slotting it between 2014’s and 2015’s levels of activity and investment at the current run-rate.

Quarterly deal count rises in Europe while dollar funding falls below $3B

After 2 quarters of declining deal activity, Q2’16 saw an uptick with 385 deals in the quarter. Funding, however, shrank below $3B for the first time since Q4’14 owing to a dearth of mega-rounds.

Europe’s largest rounds

The 11 largest European rounds of Q2’16 together represented more than $1B in funding

UK VC funding plummets over 40% from Q1’16

Uncertainty around Brexit dominated talk in the UK in the first half of the year, no doubt contributing to the over 40% drop in VC investment in the country over the prior quarter. Many VC investors held back from making investments, taking a “wait and see” approach prior to the vote. (The eventual outcome of the referendum caused brief havoc in the public markets, although we are starting to see some stabilization with the recognition that any separation process will take years to complete.)

A number of late-stage deals occurred in the UK despite the uncertainty, many of which focused on financial services (e.g. Transferwise or LendInvest) and life sciences (e.g. F2G), segments which have been historically strong in the UK. Furthermore, e-commerce unicorn FarFetch raised a noteworthy $110M funding round.

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