When Britain voted last year to exit the European Union–a move widely known as ‘Brexit’–businesses across the euro-zone girded for a major shift, as the pound sterling dropped to its lowest level in decades. Yet these days, little about venture capital in the EU has changed: Nearly 40 percent of completed rounds in the second quarter of 2017 occurred for U.K. or Ireland-based companies, which is roughly in line with historical levels, recent data finds.
Overall, venture capital activity in Europe continues to decline, according to Pitchbook’s quarterly “European Venture Report.” The report, released this week, found that the overall EU deal count was down for the fifth consecutive quarter in Q2, with only 540 completed rounds. Overall, in 2016, a total of 12.2 billion euros ($14.2 billion) was invested in European startups, down from 15.4 billion euros ($17.9 billion) in 2015. It’s worth noting that U.S. deal activity has seen a similar slowdown in recent months: Companies raised just $69.1 billion in 2016, down from $79 billion the year before, according to a previous Pitchbook report.
More generally, the continued slowdown suggests that Brexit–and the recent political uncertainty across the euro-zone–has had little material affect on startups in 2017. “It’s possible that European startups are overestimating the direct effects of Brexit,” noted Stephen Roper, a professor of enterprise at the Warwick Business School in Coventry, England, in an earlier interview with Inc.
Pitchbook analysts suspect that that decline has more to do with the advent of European incubators and accelerators, which may delay the need for venture capital financing. Accelerators will play a significant role in the future of the venture industry,” the report notes. “Not only will they help create deal flow for later investors, but they may also help sift through ideas that are unviable for a company before [entrepreneurs] reach out for venture capital.”
There’s also indication that startups will see an uptick in the coming months. Earlier this year, the Berlin-based business Delivery Hero went public on the Frankfurt stock exchange at a more than $5 billion valuation. That made it the second-largest, VC-backed offering in the EU since 2014, and could encourage more investors to take equity in young European tech firms, sources say.
One bright spot for entrepreneurs is Paris. The French capital recently opened up the world’s largest startup campus, called Station F, which aims to house more than 1,000 companies on its 366,000-square foot turf. Station F is also home to incubator programs for tech giants including Facebook and Microsoft. Meanwhile, the French government, headed by the recently elected President Emmanuel Macron, is making a concerted effort to spur entrepreneurship in the country: A four-year tech visa program, introduced this year, allows foreign entrepreneurs to start their businesses in France. Macron–who recently pledged to make France a “startup nation”–also aims to lower the corporate tax rate and capital gains taxes. That, in turn, could inspire more angels to invest in startups.