Last week I was asked to look at our data and provide some colour on the growth of ‘early stage funds’ in Europe. As ‘early’ is in the eye of the beholder, I counted the number of different funds that participated in rounds of $1,000,000 USD or less in a European startup in a given year. This number, which includes traditional Venture Capital funds, but also accelerators, incubators and government funds (though not investments by individuals) nearly quadrupled between 2009 and 2013.
Plotted over the last 5 years this count makes a pleasant hockey stick shape — the kind that makes politicians smile. What’s more, a count of the number of distinct countries that investment were made into also reveals a happy upward trend, going from 12 to 29 in five years. In 2009 this included mostly Western European countries but by 2013 included countries perhaps less known for their startup ecosystems: Lithuania, Bulgaria, Romania, Iceland, Belarus, Latvia and Macedonia. Vive l’Europe, non?
Maybe. The same data for funds that invested at a later stage, (specifically between funds who participated in rounds between $3,000,000 USD and $5,000,000 USD) tells a less optimistic story. The trend is flat and investment was made exclusively in the dozen or so ‘established’ European countries.
The plot thickens by splitting the number of ‘early stage’ funds above into ‘early stage only’ and ‘multi stage’. We defined ‘early stage only’ as funds that made investments in rounds of $1,000,000 USD or less exclusively, while by ‘multi stage’ we mean funds that have participated in both rounds above and below $1,000,000 USD in a given year.
Curiously while both types of funds have grown, the number of ‘early stage only’ funds making investments has quintupled! What happens when these investments need follow-on capital? Will later-stage funds catch-up? What does this mean for founders and investors and other ecosystem stakeholders?
We would love to hear your thoughts.