VC investment in Europe remained quite robust compared to historical trends in Q2’0, driven in part by the momentum the region experienced prior to the pandemic — including a strong pipeline of in-progress VC deals. While Europe showed resilience this quarter, there is growing concern that the VC market in Europe could see large impacts in Q3’20 given the widespread impact of COVID-19 on the economy, ongoing issues related to Brexit, and the challenges associated with international deal-making in the current business environment.
VC investment in the UK remained strong in Q2’20, in part due to the strength of its VC ecosystem leading into 2020. Companies that raised solid funding rounds in recent quarters, combined with well-capitalized VC funds able to support their portfolio companies, has given much of the UK innovation ecosystem more runway to address the challenges associated with COVID-19.
Investors doubled down on companies expected to do very well in the short-term due to the impact of the pandemic, including those focused on e-commerce, healthtech, and remote education.
VC investment in the UK remained strong in Q2’20, in part due to the strength of its VC ecosystem leading into 2020. Companies that raised solid funding rounds in recent quarters, combined with well-capitalized VC funds able to support their portfolio companies, has given much of the UK innovation ecosystem more runway to address the challenges associated with COVID-19. Investors doubled down on companies expected to do very well in the short-term due to the impact of the pandemic, including those focused on e-commerce, healthtech, and remote education.
Trends to watch for in Europe
There is a significant amount of caution for the European VC market heading into Q3’20. Investors have slowed the pace of deal-making considerably, taking more time to conduct due diligence and commit funds — which will likely have an impact on both the number of VC deals and the level of investment in the region. Given current challenges, there is expected to be continued downward pressure on valuations — which could prompt some opportunistic investors to look for good deals.
Over the next quarter, VC investors in Europe will continue to assess how consumer behaviours are changing and how these changes will affect the viability of different products, services, and business models in the future. Some sectors could see a fall in investment or significant consolidation as a result.
Looking ahead, big bets in Europe will continue to revolve around healthtech, biotech, fintech, and B2B solutions. Cybersecurity and data analytics are also expected to see additional VC investment, in part due to the rapid increase in remote work. Corporate investment will be an area to watch as European companies that have not emphasised innovation in the past move to accelerate their digital capabilities.
