Data firm Pitchbook on Wednesday published its , which explored two key regions for European venture capital markets--the UK & Ireland and France & Benelux--and the different stages of venture capital deals.
“The decline in valuations in 2023 was well documented as macroeconomic conditions changed across the globe and had several ramifications for financial markets,” said Pitchbook in its introduction to the report. “Looking forward, we believe three Rs will shape the level and nature of activity in venture capital (VC) markets in 2024: rates, recovery, and rationalisation.”
Macroeconomic factors like interest rates are still having an impact on activity and how portfolio companies are valued. These in turn will have an effect on valuations and VC activity this year, said Pitchbook, which added that lower valuations--though challenging for startups--can create opportunities in the market and often lead to rationalisation.
Here are a few takeaways from the report.
Opposing trends in valuation medians
In France and the Benelux countries, the median venture-growth valuation in 2023 was down 48.8%, said Pitchbook. It dropped from €36.78m in 2022 to €18.85m in 2023. Other stages were up, with early-stage VC valuations the biggest winners--the median increased 22.2% year-on-year, from €4.91m in 2022 to €6m in 2023.
In the UK & Ireland, on the other hand, venture growth saw the most resilience, said Pitchbook. The median venture-growth pre-money valuation in the region was up 4.8% year-on-year, going from €18.89m in 2022 to €19.8m in 2023. Early stage lagged the most--it was down 6.0% year-on-year, dropping from €5.16m in 2022 to €4.85m in 2023.
France-Benelux and UK-Ireland also see opposing trend in deal value
Like the median venture-growth valuation, the median venture growth deal value in France & Benelux dropped as well. Deal value for this stage was 16.8% lower year-on-year, decreasing from €8m in 2022 to €6.66m in 2023.
Deal value in other stages increased, however, “showing that yet again it was the more mature part of the market--where company valuations are more tied to public markets--that underwent the greatest correction in 2023,” said Pitchbook.
But in the UK & Ireland, median deal value in the venture growth stage increased from €4.38m to €5.1m (an increase of 16.5% year-on-year), following the same upward trend seen in valuations in the region.
Cleantech and AI in the spotlight
Artificial intelligence was a “hot spot” for the venture market in 2023, although market hype “did not fully translate to a large increase in valuation medians,” said Pitchbook. “We saw only marginal increases in median seed and early-stage valuations, with the median venture-growth valuation halving and the median pre-seed valuation down 14.0%.”
In terms of cleantech, deal value and early-stage valuation showed “resilience.” The pre-seed stage showed the most gains in its median valuation, increasing 46% year-on-year (from €2.55m in 2022 to €3.72m in 2023).
Unicorn deal value down 77.5% year-on-year
Unicorns are unlisted companies that have a valuation of $1bn or more. As expected, unicorn deal value declined significantly, said Pitchbook, dropping from €23.1bn in 2022 to €5.2bn in 2023. That’s a 77.5% decrease year-on-year.
“2023 saw 12 newly minted unicorns offset by eight unicorns that “de-minted,” of which six fell out of status through a down round and two through bankruptcies,” said the report. “The number of unicorns facing a down round and thus de-minting sat at a decade high in 2023, speaking to the tough environment such late-stage players faced.”
Europe at the end of 2023 counted 140 unicorns: 79 of them are in the IT domain and 19 are in financial services, with the rest falling into other sectors.
Find the full report .