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The State of European Tech

October 6, 2021

There was an article in Forbes the other day talking about the decline of the pre-seed deals in Europe. The article has the title "the European Pre-Seed Funding Gap" and talks with worry about how it now is harder than ever to raise a pre-seed round in Europe. The article was referring to the data in the chart below, where the turquoise category is the number of deals done within the range of $0-2m. The data shows a significant drop, from a total of 5,300 deals done in 2016 compared to a mere 2,444 deals in 2020 and a general downward trend. The original report can be found here.

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Some, such as those interviewed in the Forbes article, have seen this data and drawn a conclusion based on its first appearance - the appetite for pre-seed investing in Europe is declining. However, I think that this is the wrong conclusion. Instead, I believe that the contrary is true - it is now easier than ever to raise early-stage capital for your startup. How does this tie with the data?

I think the main reason for this is that seed-stage venture firms are making larger investments. They have moved out of the $0-2m and into the $3-5m category, which has actually grown over the period, from 685 deals in 2016 to 788 deals in 2020. The smallest tickets are instead being covered by angel investors, which are much harder to track. Angel investors don't make as much noise as venture firms, so it's not easy to see the deals being done. However, nearly all startups that raise a $3-5m round also have some angels on their cap table, it's just that these rounds are not being reported. The trend with round sizes getting bigger is happening in Europe, just like in the US, and one consequence of this is that the smaller tickets are more fragmented and harder to track.

The ecosystem in Europe is steadily maturing. Compared to a few years ago, the larger cities are now more than ever packed with founders who are building great stuff. Also now, more than ever, is there a plethora of angel investors willing to back them early.