European VC Funds Fall to Lowest Quarter in Four Years, Despite Uptick for German Startups

Venture capital in Europe reached $10 billion in Q3 2024 – the lowest percentage since the third quarter of 2020, Crunchbase data shows.

Startup revenue on the continent fell sharply: 36% quarter on quarter and 39% year on year. And of the three largest start-up countries in Europe, Germany was the only one to show a quarter-over-quarter and year-over-year increase.

While the decline in Q3 European funding is significant, it’s important to note that investments since the start of the VC downturn have fluctuated – between $12 billion at the low point earlier this quarter, and closer to $12 billion at the high point. Income may increase again in the fourth quarter.

In Q3, late-stage revenue fell sharply – by more than 50% year over year. There was also a drag on the seed, by 18% year-on-year. First-stage investment in Europe fell 12% year-on-year.

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Leading countries

Startup capital in the UK, Europe’s leading investment capital, fell 43% year-on-year to $3.2 billion, Crunchbase data shows.

Funding for Germany-based startups grew by more than a third to $2.4 billion last quarter, making the country the second largest source of funding in Europe in Q3.

France, which is usually the second largest start-up market in Europe, decreased to 1.4 billion dollars invested last time.

“Europe is a group of many small markets,” Teddie Wardi, managing director of Insight Partners in New York, formerly of European funds Atomico and Dawn Capital, said in an interview. Outside the continent, companies tend to think of Europe as one big region, but in fact investors want to reach the European market by market, he said.

Europe’s delay is slow

Late-stage startups in Europe in the third quarter reached $4.2 billion across more than 70 countries, Crunchbase data shows. This means that last time the money was down 57% year on year.

Funds recognized for the last period went to:

Early-stage funding

Early-stage funding in Europe last quarter reached $4.5 billion across more than 290 funding rounds. These include:

• Paris-based atomic energy company Newcleo raised $151 million Series A;
• ESG compliance service company Osapiens, based in Mannheim, Germany, raised $120 million Series B funding led by Goldman Sachs Alternatives; and
• Munich-based Marvel Fusion, a laser fusion power company, has raised a $70 million Series B led by HV Capital.

Three health tech companies also raised large early-stage rounds:

Seed pullback?

European seed-stage funding reached $1.5 billion in 800 rounds last quarter. That’s down from $1.8 billion in Q3 2023.

However, it’s still too early to say for sure if there is a drop in revenue at this point, as seed rounds continue to be added to the Crunchbase dataset after the quarter closes.

A competitive market is growing

Ahead of 2020, the European quarterly revenue peaked at $11 billion. While the cost is the lowest we’ve seen in four years, the start-up costs in Europe in 2024 are still above pre-pandemic levels.

Although the environment is slow to get money, “the market is more competitive than ever,” said Wardi, noting that he has seen European startups grow rapidly into other European countries as well as the US.

Initiatives must move quickly, otherwise someone can take advantage of that opportunity, he said.

In software, European startups compete on a global level. “In most software sectors, it’s harder and harder to build local winners as it’s a global market,” Wardi said. “Customers have the same needs anywhere in the world, and they don’t care where the software they buy comes from, as long as it’s best in class.”

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Methodology

The data in this report comes directly from Crunchbase, and is based on reported data. Data quoted is as of October 2, 2024.

Note that data lags are more pronounced in the early stages of the project, with seed costs increasing significantly after the end of the quarter/year.

Please note that all currency values ​​are given in US dollars unless otherwise noted. Crunchbase converts foreign currencies to US dollars at the current rate as of the date of financial transactions, acquisitions, IPOs and other reported financial events. Even if these events are added to Crunchbase long after the announcement of the event, the foreign exchange transaction is converted to the historical price of the place.

Glossary of financial terms

We have made changes to the way we include corporate funding in reporting from January 2023. Corporate funding is only included if the company has raised equity capital through a crowdfunding process.

Seeds and angels are made up of seeds, pre-seeds and surrounding angels. Crunchbase also includes venture rounds of unknown series, equity crowdfunding and convertible notes at $300 million (USD or as-converted USD equivalent) or less.

The first-stage consists of Series A and Series B rounds, as well as other types of rounds. Crunchbase includes venture rounds of unknown series, corporate companies and other rounds of more than 3 million dollars, and which are less than or equal to 15 million dollars.

The final stage consists of Series C, Series D, Series E and later-letter venture rounds following “Series. [Letter]” naming convention. Also included are venture rounds of unknown series, corporate ventures and other rounds above $15 million.

Growth Technology is a private-equity round raised by a company that previously raised a “venture” round. (So ​​basically, any rotation from the steps described.)

Photo: Dom Guzman