European Startups Raise Highest Quarterly VC Financing Since 2001



LONDON—European startups have had a bumper few months, raising €2.1 billion (more than $2.8 billion) from venture-capital investors in the second quarter of 2014, the highest quarterly total since 2001, according to data from Dow Jones Venture Source.

The influx of funding into privately held European companies echoes a similar investment boom in the U.S., where private companies raised $13.8 billion in venture capital in the same period, according to Dow Jones Venture Source. And it came at a time when world financial markets rallied in sync, with stocks, bonds and commodities all rising.

“People who wait for the right moment are probably all investing now,” said Michiel Kotting, a partner at Accel Partners, a venture capital firm with offices in London.

Venture capital investors say they are finally seeing more U.S. interest in European companies, after several companies went public with near-billion-dollar valuations, such as French advertising company Criteo CRTO +1.33%, Finnish game maker Supercell and Swedish-Anglo game maker King Digital Entertainment KING -1.15%.

Mr. Kotting said that the current environment was different than the dot-com bust in 2000, because funds were making repeated investments in companies and looking for maturity and profits.

“It’s the opposite of the bubble 12 years ago,” he said.

Neil Rimer, of Index Ventures, said the difference between now and the dot-com bust of 2000 was that investors are looking to bet on “legitimate businesses,” not those that vaguely have something to do with the internet for the sake of adding a .com to their portfolio.

“We’re in a very, very fertile market right now and we’re seeing lots of great entrepreneurs who are combining technology and business model innovation to go after big sectors,” Mr. Rimer said.

In Europe, consumer services companies led the way, with online retailers, car-sharing and movie and music distribution companies completing the largest deals. The biggest round of funding was claimed by Russian online retailer Ozon Group, which raised $150 million in April, while the U.K.’s Kobalt Music Group Ltd., which helps musicians collect royalties, raised €84.4 million in June.

Investors say there is more competition among each other for deals, making it more expensive to buy stakes in companies.

Deals are, on average, getting slightly larger. The number of deals fell 6% to 365 in the second quarter of 2014 from 406 in the second quarter of 2013. But the median deal size – the point at which half of deals were worth more and half less – rose to €2.2 million ($2.9 million) from €1.5 million ($2 million).

“It’s clearly easier for companies to raise money,” said Frederic Lardieg, a principal with Octopus Investments.

Activity was strongest in the U.K., where companies raised 28% of the total amount in the second quarter, followed by France with 19% and Germany with 15%.

Index Ventures, which has offices in Geneva, London and San Francisco, was the busiest firm in Europe, with 16 deals completed.

Ozon Chief Executive Maelle Gavet said that when she started talking to investors a year ago, she sensed that they were ready to put their money to work.

“In general, the impression was there was a lot of money around but very little opportunity to invest for all of these investors,” she said. “They were looking for the golden opportunity.”

The online retailer was able to close the $150 million round in June, even amid all the turbulence in Ukraine and when the ruble was volatile.

She said Ozon will plow the money into their warehouses, delivery systems, inventory selection and technology.

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