Why PE has fared better than VC in Europe

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The Research Pitch

January 20, 2024

Agricultural biologicals: A huge shift is underway toward more sustainable farming practices. Our research dives into a key facilitator of this change: agricultural products derived from natural sources. Read more.

Credit webinar: Last year, the US broadly syndicated loan and private credit segments battled a challenging leveraged finance market—and each other. What's ahead in 2024? We'll discuss it all on Wednesday. Register here.

VC Dealmaking Indicator: Just how investor-friendly was the venture negotiating environment heading into 2024? See our new data.

The state of PE & VC: In case you missed them, we released our flagship US PE and VC reports last week—a combined 83 pages of data and analysis on the key trends of 2023 and what's to come this year:

US PE Breakdown
PitchBook-NVCA Venture Monitor

Why European PE held relatively strong in 2023 compared to VC

Welcome to The Research Pitch. I am Nicolas Moura, an EMEA private capital research analyst, and this week we published our 2023 annual European PE Breakdown and European Venture Report.

Across European private markets in 2023, VC activity fell much harder across deals, exits, and fundraising than PE, which remained much more resilient as an asset class.

Deal value was 46% lower YoY for VC while only 27% lower for PE. Exit value for VC was down 71% YoY while staying roughly flat for PE.

Fundraising is the most surprising data point as PE had a near-record year in terms of capital raised, almost €120 billion, while VC raised a mere €17 billion, down 39% YoY.

The drop in European VC deal value was much lower.

The key to understanding why this happened lies in understanding the exogenous factors which affect both asset classes. The European Central Bank essentially doubled interest rates over the course of 2023, which increased borrowing costs for sponsors and portfolio companies alike.

In turn, this lowered the capital available across the spectrum, from dealmaking to M&A for exits and all the way to fundraising. It also lowered company valuations as the discount factor increased. For example, the median EV/EBITDA for PE went from 12.3x in 2022 to 10.2x in 2023, the lowest since 2013.

Startups in the VC ecosystem moved away from growth-at-all-costs toward establishing paths to profitability, while in PE, there was a clear move away from multiples expansion through leverage and rather a focus on EBITDA and margin expansion.

In periods of uncertainty, such as 2023, we saw investors flock to experienced managers with proven track records. In VC, almost 55% of capital raised last year came from experienced firms, while in PE it was 71%.

For more data and analysis, download our free reports:

European PE Breakdown

European Venture Report

Best,

Nicolas Moura, CFA
Analyst, EMEA Private Capital

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What does the future hold for healthtech unicorns?

The last few years have been a rollercoaster for healthtech unicorns—from the 2021 IPO bonanza to today's tougher fundraising environment and limited exit prospects.

By our count, there are 70 VC-backed healthtech unicorns, and this group has collectively raised over $31 billion with an aggregate valuation exceeding $173 billion. This represents a large pool of possible public listings over the coming years, though we expect M&A to be the eventual outcome for many of these companies.

Our new research unpacks deal trends and market expectations for these unicorns and provides our view on exit outcomes—along with our healthtech IPO watchlist—for the year ahead.

We think the market environment will continue to be tough for late-stage healthtech startups as the sector faces public market headwinds and a small number of acquirers; for this reason, we do not think lower rates will provide a meaningful boost in the near term.

Still, the IPO floodgates could open for healthtech unicorns if and when a notable startup decides to take the leap. Eventually, we expect the IPO chicken-and-egg problem will be resolved as market conditions improve.

For more data and analysis, download the free research: Evaluating Healthtech Unicorns

Enjoy the report and please reach out with any feedback!

Best,

Aaron DeGagne, CFA
Senior Analyst, Healthcare

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Thematic Research

Voluntary Carbon Markets

Voluntary carbon markets allow companies to buy carbon credits representing their emissions reductions or removal.

And VC funding in the space has accelerated rapidly—from $100 million in 2017 to around $1.5 billion last year.

Click to access the full VCM market map.

Businesses that build VCM infrastructure and services have been some of the biggest winners, along with certain credit producers.

But substantial costs and other factors have created challenges, according to our research note:

read the free research

Industry & Tech Research

Emerging Space Brief: Carbon Nanotubes

Carbon nanotubes are small sheets of graphene rolled into a tube and used in a variety of fields, including medicine and batteries, due to their semiconducting properties.

Our analysts offer an overview of the tiny tech and cover key VC deals and trends in the space:

read the free research

Emerging Space Brief: Humanoid Robotics

The future of startups specializing in robots that mimic human appearance and behavior may not be as far away as you think.

Our research dives into the humanoid robotics sector, providing an overview of its current shape and the potential VC opportunities:

read the free research

Webinars & Events

Don't miss these upcoming webinars!

Jan. 31: Given the strong public equities rebound to 2021 highs, investors are wondering when private equity will demonstrate similar results. Our US PE team will examine the trends that defined the market in 2023 and share what to expect in the year ahead. Register here.

Feb. 6: Our tech analysts Derek Hernandez and James Ulan will sit down with founders from Y Combinator's newest crop of CRM startups to discuss how they're taking on incumbents, leveraging AI, and more. Register here.

Feb. 15: Dwindling cash runways coupled with a stagnant exit environment have created intense challenges for the US VC ecosystem. Our quarterly Venture Monitor webinar will feature key highlights from the report and discuss key trends investors need to be aware of. Register here.

In the News

Our insights and data featured in the press:

Companies have asked investors to cut the interest rates on about $62 billion of sub-investment grade loans in January—already the largest monthly total in three years. [WSJ]

Why General Catalyst's purchase of health system Summa Health is "unprecedented." [MedCity News]

Data on a tough year for European VC. [Sifted]

If you're a journalist interested in interviewing our analysts or requesting data, contact our PR team.

ICYMI

More of our recent research (* - report preview):

Market updates

PitchBook Benchmarks
Global Markets Snapshot: December
US PE Middle Market Report
Global Private Market Fundraising Report

Thematic research

Industry & tech research

Credit research

Coming next week (subject to change)

Global M&A Report
Fintech: State of the Industry
Comp Sheets: Healthcare Services, Medtech

Thanks for reading! Feel free to email us any time with feedback, questions, or tips!

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Why PE has fared better than VC in Europe

Older messages

Can healthtech unicorns find an exit?

European VC simmers down

VC's role in voluntary carbon markets

VCs dream of more-human robots

Takeaways for VC from healthcare event

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