Despite the corona crisis, venture capitalists continue to invest heavily in European start-ups. In the first six months of this year, according to calculations by KPMG, an amount of $19.9 billion was invested in start-ups. That is $1.1 billion more than in the last six months of 2019. However, the number of transactions fell sharply, from 1,383 in the last six months of last year to 1,062 in the first half of 2020.
Investors’ attention was focused on the more mature startups, which involve less risk. The most notable investments in Europe in the past three months were in the British Deliveroo ($575 million), the German N26 ($570 million) and the also German Lilium ($270 million). This is reflected in the Venture Pulse, KPMG’s research into global investment in startups.
$127 billion worldwide
Worldwide, almost $127 billion was invested in start-ups in the first half of 2020. This is slightly less than the total investment of $136 billion in the last six months of 2019. Worldwide, too, the number of transactions fell significantly during these periods, from 13,404 to 10,126.
“The global pandemic has significantly changed consumer behavior in Europe and accelerated a number of digital trends,” says Mark Zuidema, partner at KPMG Corporate Finance. “The use of online food delivery, for example, but also e-commerce, contactless payments, and digital payments. This clearly affects the nature of the investments made by venture capitalists.” Zuidema expects that, in the coming period, the attention of venture capitalists will focus on consumer behavior, the changes in this behavior, and the impact on the viability of various products, services, and business models.
“For some sectors, changes in consumer behavior may lead to a decline in investment and possibly even to significant consolidation. Start-ups active in health technology, biotech, and fintech and companies offering B2B solutions will remain in the eye of investors. Also, start-ups in the areas of cybersecurity and data & analytics can expect more investments, especially due to the rapid increase in remote working as a result of the corona crisis.”
Brake on investments
Though Europe has recently shown considerable resilience, Zuidema expects venture capitalists to be more cautious in the coming months. “Investors will take more time for potential transactions, especially when conducting due diligence investigations. This will have an impact on the number of deals and the investment level. Moreover, given the current economic challenges, there will be pressure on the valuation of companies. This will allow opportunistic investors to look for good deals.”
The limitation in international travel will, according to KPMG, ensure that many venture capital investors will focus more on opportunities in their local markets. “For startups in emerging countries that are in the growth phase, this will have major consequences. After all, they are often heavily dependent on international investments.”