European venture capital funding took a dive in 2022 and has not fully recovered since then. With rising interest rates, money is no longer free, and this has had massive implications for fundraising and deal activity. Financial sponsors have slowed down their deployment of capital which in turn has caused less competition for deals resulting in lower valuations, lower round sizes, and fewer deals. Despite significant dry powder to deploy, financial sponsors are expected to continue to be highly selective.
Further, investee companies are also facing multiple challenges. Not only must they cut cash burn to survive while looking for new equity financing, the exit environment and the prices worsened significantly in 2023. Together with fundraising, this has become the biggest challenge in the European venture capital market. Notwithstanding, while the current market environment is challenging, we see first signs of hope for a turnaround in Europe.
In this regional market overview, we look at a general market overview an outline of 10 key European venture capital emerging themes in 2024; and a summary of key deal terms across preferred equity, convertible notes and SAFE instruments.