PitchBook – European Venture Report, 3Q 2023

According to PitchBook's European Venture Report for the third quarter of 2023, the deal value within the European venture capital (VC) markets is expected to be lower than in 2022, but there are signs of potential recovery. In the first nine months of 2023, venture capital deal value in Europe reached €43.6 billion, a 49.1% drop compared to the same period in the previous year. However, the level of activity this year is still similar to previous years, excluding the extraordinary levels seen in 2021 and 2022. This suggests that venture activity has been growing structurally over a longer time horizon. In the short term, there has been an increase in deal value since the first quarter of 2023, with the third quarter seeing a 5.9% increase compared to the second quarter. These indicators could indicate that activity may have surpassed the lowest point. However, the uncertain macroeconomic outlook in Europe requires further observation to determine if the market activity recovery is sustainable. Commercial services have shown the most resilience among sectors, with the smallest decrease in deal value compared to the first three quarters of 2022. Among regions, France & Benelux have shown the most resilience in activity throughout the third quarter of 2023, although the UK & Ireland still leads with 33.2% of the deal value in Europe for the first nine months of the year. The report also highlights cleantech investment and exit activity for the quarter. Exit activity remains the weakest area within the VC ecosystem, with limited recovery in 2023. There hasn't been a noticeable quarter-on-quarter recovery, making 2023 poised to be the year with the lowest exit value since 2013. Revival in exit activity is expected to rely on a recovery in broader valuations and public listings specifically. Public listing value has been the most affected this year, while buyouts have shown more resilience. Most exit value and count are still driven by acquisitions. IT hardware has shown the most resilience among sectors, while energy has experienced significant declines in the first nine months of the year. When it comes to VC fundraising, it is at half the level of 2022. The capital raised in the first nine months of 2023 amounted to €13.9 billion across 91 vehicles, compared to €27.6 billion for the entire year of 2022. Although weaker year-on-year, there has been an uptick in fundraising since the first half of 2023. However, fundraising is not expected to exceed 2022 levels and differs from the trend seen in private equity (PE), where fund sizes are much larger. France & Benelux and DACH regions have gained the most share of capital raised compared to 2022. Both regions now account for 27.8% and 24.3% respectively. The fundraising environment remains challenging, with median fund closing times increasing to 15.1 months in 2023, compared to 9.0 months in 2022. Capital allocation is shifting toward more experienced managers, as capital raised by first-time VC funds is trending below the overall decline in fundraising in the VC industry.