Record Year For European VC Investment, But Gap With U.S. Widens

European VCs continued to pour money into tech start-ups, hitting another record, according to figures published by Dow Jones VentureSource on Monday.

In Europe more than $6 billion was invested by VCs, almost $1 billion more than in 2013, which itself was a record-setting year. Encouragingly at the same time the number of deals actually fell by about 5% meaning more money going to fewer start-ups.

However the gap with the U.S. remains substantial and is getting wider after U.S. tech companies had a huge year.

Worryingly for European entrepreneurs, while they enjoyed a bumper year, their U.S. counter-parts had an even better one. Since the depths of the finical crisis of 2009 European tech funding has slightly more than doubled. over the same period U.S funding has nearly tripled.

As a result, in those vital early rounds (seed and first) U.S. start-ups were able to raise nearly 40% more than their European counterparts. Even in later stage rounds, American tech companies outstripped Europe by 25% in terms of funding.

Looking in detail at Europe there was a marked shift away from riskier early stage deals, to safer later stage deals. In 2013 later stage deals accounted for a little bit more than a third of all capital invested (39%). In 2014 nearly one out of every two dollars invested in European tech (48%) went to later stage deals. The only previous time later stage deals accounted for so much of the dealflow was in 2005.

This shift came almost entirely at the expense of second round deals, down from one in three dollars (34.4%) to one in four (25.3%).

However accusations that European VCs are risk averse compared to their U.S. counterparts do not appear to be backed up by the evidence from Dow Jones. Despite a shift away from such deals, riskier earlier and seed rounds still account for almost two out of every three deals in Europe (64.6%), and 27% of the VC pie; the comparable figure in the U.S. was under half (46%) and just 14% of funds.

Dow Jones VentureSource does not directly measure tech start-ups. For this analysis three sectors were included: Business and Finance, Consumer Services and Information technology. The analysis used Dow Jones VentureSource’s reporting by deal stage. European data does not include Israel.




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