Investment activity continues to follow a negative trend — EIF’s report on the European VC market state

The EIF has prepared the report, surveying almost 500 VCs to get their views on the state of the market. The report shows that European VC funds raised €7 billion in the first half of 2023 — it is almost half of the €13 billion raised in the same period of last year. AIN.Capital shares the key takeaways.

Number of investment proposals received

• The number of investment proposals received has slowed down significantly, but the situation is expected to improve in the near future.
• The share of respondents shows a decrease in the number of investment proposals received more than doubled (from 11% to 24%).
• The positive net balance of 14% suggests that, on balance, the number of investment proposals increased, but slower over the last couple of years.

Number of new investments

• Investment activity continues to follow a negative trend, as the share of respondents reporting an increase in the number of their new investments falls for the second consecutive year.
• At the same time, the share of VCs reporting a decrease in their investment activity (about 28%), this surpases even that recorded during the COVID-19 crisis.

Exit environment

• The exit environment has weakened since 2022 and VCs currently evaluate it worse than during the COVID-19 crisis.
• 72% of respondents stated that the exit environment has deteriorated and only 7% sees improvements.
• The vast majority of VCs also reported a decrease in exit prices, in cmpare with last year’s expectations and continuing on the negative trend.

According to the report, the most important industry in which VCs invest is software, followed by biotech, energy & environment, and healthcare equipment.

Almost 5 in 10 VC fund managers come from VC firms headquartered in Germany (12%), France (10%), the Netherlands (9%), the UK (8%), and Spain (8%). Germany is mentioned more frequently as the most important country for investments.

Approximately 7 in 10 VCs invest in seed (32%) or early-stage (34%) companies. The vast majority of VCs tend to invest only in SMEs. Some VCs aims to invest also in small mid-caps and large mid-caps, probably indicating the participation in later funding rounds in scale-ups.

Gender diversity in VC firms

• 44% of VCs reported no female partners at all in the investment team of their firms. This is half lower than recorded in 2022.
• About 1 in 4 (28%) VCs reported female representation at partner level between 20% and 40%.
• The average female representation in the investment teams of the surveyed VC firms is 17.1%.

• For almost half of VCs, female representation in the senior investment team of their firm is between 20% and 49%.