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While the European funding landscape is healthy at the seed stage, there seem to be issues with the so called Series A Crunch in some European markets. According to some number crunching on the latest Dow Jones VentureSource done by DFJ Esprit and Go4Venture Advisers there was more scarcity of follow-on funding in the UK compared to France and Germany in the first half of 2013.
There have been a total of 28 follow-on investments over $5 million in France, 25 in the UK and 18 in Germany, but the average sum of money invested is higher in the UK with $23m compared to $11 million in France. France and Germany are also catching up in terms of smaller deals with 49 in the UK, 46 in France and 18 in Germany.
Still, the UK remains on top in terms of overall funding. From the $1.8 billion invested in European startups during the first six months the UK received $656 million, France $399 million and DACH (Germany, Austria, Switzerland) $343 million.
Commenting on the DFJ Esprit report, Simon Cook, CEO of DFJ Esprit says
“What this data clearly shows us is that Europe is successfully launching fledgling businesses but there is a scarcity of available capital for the follow-on funding to get them to the next stage. In Silicon Valley the ratio of large investment rounds compared with smaller ones is over 1 to 1 – in this latest data for Europe it is less than half that level.”
During the Edtech Europe Summit in early May I had the chance to talk with Charles McIntire, co-founder of IBIS Capital, about the funding landscape for European edtech startups. He pointed out to me that
“… the real challenge in Europe is the fact that we don’t have a very good culture of investing in earlier stage businesses. And we see that in the US there is much more active investment as we talked about in the session this morning. Both deal sizes and amounts are dramatically different. And that obviously has a long term impact on what will happen in the e-learning industry in Europe.”
In general, European startups are not limited by market size or talent, they are often limited by their ability to raise money. Tax incentives seem to have a positive effect on early stage investments. The report closes with the following statement.
“The success of European Venture depends on more large and globally successful new companies being created from Europe.
For UK, the imperative now is to expand the level of private investment beyond early-stage funding. The EIS scheme has the key elements in place with EIS Approved Funds but these are not used in practice as they have fallen behind other changes in legislation. This is the area to focus attention to coordinate the investment power of private individuals to increase the availability of follow-on funding in UK.”
You can find the entire report on Sourcewire.
Picture by sfluehnsdorf via Morguefile