UK Leads Europe in Venture Backed Funding And Exits

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London’s place as the tech finance capital of Europe appears unassailable with evidence that not only do UK-based venture-backed tech start-ups raise more money than those in either France or Germany, but over the past five years there were more exits by UK companies and the average deal size was greater.

Using information drawn from the last five years to the end of 2013, from Dow Jones VentureSource on fundraising, and data assembled from Go4Venture Advisers and Ernst & Young on M&A deals and IPOs respectively, a picture emerges of a vibrant ecosystem in the UK.

 

According to Hussein Kanji of VC Hoxton Ventures, none of this should be a surprise. “Of all the markets in Europe, London is the most advanced,” he says.

“There is density in London. Most of the people who know how to build Internet companies are living and working in London or just outside of it. A lot of the interesting companies that have come out of Europe may not have originated in London, but very quickly opened up a significant presence in London. Look at Just Eat, for example. This becomes virtuous very quickly.”

At the same time, points out Kanji, Silicon Valley companies are expanding their presence in London. “If you look, Facebook has an engineering team in London, Google is opening up in Kings Cross. The cluster is starting to build momentum. This also becomes a virtuous cycle.”

What’s more, Kanji says some recent M&A deals show that investors are starting to pay Silicon Valley prices for European companies.

Looking in detail at the figures, while UK companies did more deals and raised more money than either France or Germany,German deal sizes of the last five years have been consistently larger, roughly speaking some seven percent larger. French deals, by contrast are on average some seven percent smaller than UK deals.

All three countries pale in comparison with the U.S. On average over the last five years, when looking at all deal stages for venture-backed tech start-ups, a typical U.S. start-up will raise 41% more capital than a UK one.

Flipping to the exit side, Germany’s lead in fund raising does not translate to a lead in exits. According to data from Go4Ventures, over the last five years, German tech companies completed 188 tech M&A deals, compared with 304 in the UK, raising $13 billion compared with almost double that in the UK ($24 billion). That gives an average M&A deal size of $80 million in the UK, compared with $71 million in Germany.

France Stood Out In IPOs

Of course, when talking about Germany it is impossible not to mention Rocket Internet and the prolific Samwer brothers. According to a report in The Wall Street Journal last July, Rocket has raised $1 billion for its numerous companies, including some $500 million from its partners, since May 2012. Since Dow Jones VentureSource data relates to country of origin of the company, Rocket companies not registered in Germany — such as Lazada, “the Amazon of South East Asia,” and Zalora, a fashion e-commerce site in South East Asia — will not appear in these figures.

Once again France lags as a poor third. Although completing more deals than Germany, it raised considerably less capital ($13.2 billion to $7.9 billion), meaning average exits were half the size of deals in Germany.

The only area where France stood out was in IPOs, completing three in the five year period (Criteo in 2013, Inside Secure in 2012 and Sequans Communications in 2011), compared with just one in Germany (Voxeljet). There were no IPOs of UK-registered venture-backed tech companies in that period according to data provided by Ernst & Young. But of course both Just Eat and King IPO’d (London and New York) just outside our cut-off date, and together they raised more than VC-backed tech IPOs had raised in France and Germany combined for the last five years.

But Kanji was cautious about getting over-confident. “If you had asked me two months ago have London’s public markets re-opened I would have said yes. But we have seen some substantial corrections recently. We will have to see.”

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