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European VC Activity Looks Like It Is Going To Get Worse in Q3 – Will It Ever Get Better? published its “European VC Q3 Flash Update” just a few days ago, which seemed to show that venture capital investment into Europe’s start-ups is on track, if not to quite match Q2 2016, then to run it pretty close.

The total amount raised across Europe in Q2 2016 was €4.1bn, according to Dealroom’s figures; €3.1bn post series A, €0.6bn Series A, and $0.4bn seed.

But despite mega rounds from Global Fashion (€330m), GetTaxi (€273m) and Cabify (€109m) between April-May this year, Dealroom’s Yoram Wijngaarde has warned the total raised in Q2 was still approximately €600m less than Q1, which admittedly was the biggest quarter recorded by Dealroom since it began reporting in Q1 2015 (€3.5bn raised).

This was partly due to Spotify’s mega “mega round” of €909m, however, and worryingly, Dealroom say that without the current quarter’s €646m Masmovil funding round, which it argues could be seen as not a funding round at all as Masmovil is a public entity, and the €300m valued growth equity deal undertaken by OVH, which largely comprised secondary shares being issued rather than new capital injected, funding amounts in Q3 2016 would be looking worryingly thin, compared to Q2.

Take away these two rounds (OVH and Masmovil), and you are looking at just €1.3bn raised, on course, with just September’s figures left to factor in, to be the lowest since Dealroom started counting.

And it’s not just deal size, but deal volumes that are reportedly being dragged down; the number of rounds raised are on track (if we use Jul/Aug figures to “guestimate” September’) to hit 650 – 150 less than Q2 2016, and 200 less than Q1, albeit more than quarters 1, 2 and 3 the previous year.

The drop in the number of seed rounds is the most marked, with just 155 raised in the first 2 months – 385 were raised in the previous quarter. Still, says Dealroom, this may be caused by a delay of a few weeks in Dealroom’s team picking up the rounds that founders have added directly to their database.

It’s always tough to make sense of funding numbers and unwise to read too much into them. If anything, the most accurate conclusion to draw from the many different sources of funding data that firms supply the public with is that venture capital cash injections by quarter are surprisingly consistent, give or take a mega round or two; usually between €3.5-€4.5bn. A good September could change the picture considerably.

Perhaps more instructive are Dealroom’s figures concerning amounts raised by country; between Jan-Aug 2016 the UK leads the way with €2.3bn raised, a decrease of some €300m over the same period last year, with Israel second (€1.66, €1.1 last year), then France (€1.5, €974 last year), with Germany, whose funding, Dealroom’s figures show, appears to have fallen off a cliff (€1.3bn this year, €2.4 last) and Sweden (€1.3, €0.86 last) level pegging.

The big success story is Spain, which has rocketed into 6th place, raising €1.1 (don’t forget Masmovil) compared to a paltry €345 over the same period last year. Andale!

Germany, says Dealroom, can lay the blame for its poor performance squarely at Rocket Internet’s door; the erstwhile “Start-up factory” failing to “deliver” any Delivery Hero’s or Hello Fresh’s to date in 2016. Although Jumia, based in Paris, is a Rocket Affiliated company that raised €425m from Africa Internet Group this year.

Speaking of being pickpocketed by Paris, Wijngaarde describes Omar Mohaut’s recent post suggesting Paris is the new Berlin as “exaggerated and premature”, given that start-up beasts like Axel Springer, Burda, and ProSiebenSat1, still operate there, plus several highly successful VC firms that operate out of cities like Berlin, and Munich.

France looks in good shape, however, to receive more and more substantial tranches of venture backed funding; OVH, Parrot, Deezer, and others, Wijngaarde points out, alongside “a strong network of serial founder angels”, means the infrastructure and eco-system are healthy and strong.

Still a good time to be thinking pan-European (oops, Britain)?

Far from being a competition, however, and even in the face of Brexit, Europe’s start-up scene would do well, in our view, to adopt a “United States of Europe” approach to the growing and nurturing of European start-ups, and particularly its Unicorns, rather than arguing the toss about whose city is best.

Now that the EU has backed the likes of Google, Amazon, and Apple into a corner, following through on its threats to prosecute what it has deemed to be, thanks to the efforts, some 5 years plus in the making, of Margrethe Vestager, leader of Europe’s Competition Commission, and her team, illegal tax avoidance in Ireland by Apple, and anti-competitive practices by Google & Amazon, there has never been a better time for Europe to replace them with its own “decacorn”, perhaps, and wrestle some of the corporate power back from the Valley and the rest of the US.

From the UK’s perspective, making overtures towards the likes of Apple as they both exit Europe by the back door, is unlikely to endear it to mainland Europe, but will most likely further deteriorate relations.

Look forward to many more “London is number one for Fin/Health/Fash/Clean Tech style headlines, which, impressive though London’s ability to pull in VC money is, can also be read in 2 alternative ways – we believe our own bullsh*t (most VC investment into Britain comes, from, err, Britain) and “look how much we’re selling the crown jewels to America and China for!”


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