Europe sees dramatic drop in Q1 venture capital outflow activity

After a record 2021, exit activity backed by European companies fell substantially in the first three months of this year.

Total outbound value in the first quarter reached €7.7 billion (approximately $8.1 billion) spread over some 296 transactions. If the current pace of outflow activity continues, 2022 will be well below last year’s peak of €125.7bn.

“The outbound market has been slow so far in 2022,” said Nalin Patel, senior analyst at PitchBook. “The outflow has been hampered as traders and investors take a wait-and-see approach rather than risk an exit that could prove costly and have a negative impact on a portfolio company’s valuation.”

Public listings suffered the most from lackluster appetite for exits. Last year, a flood of venture capital-backed startups rushed to public markets to capitalize on pandemic-related tech growth. However, when markets entered correction territory in the first quarter, Europe saw just 16 listings compared to 44 in the same period in 2021, according to PitchBook’s European companies report for the first quarter of 2022.

The drop in public prices was precipitated by rising interest rates, inflation and geopolitical concerns with Russia and Ukraine, which caused investors to flee high-growth technology stocks. Furthermore, the record valuations achieved in the frothy environment of 2021 are increasingly difficult to justify after the exit.

With the turmoil in public markets, acquisitions are likely to become more attractive to venture capitalists looking to exit. In the first quarter, a total of 144 such deals were made for a combined value of €5 billion. Lower valuations for tech companies could be a draw for strategic acquirers looking to increase their bids.

Read more: European companies report for the first quarter of 2022

Featured image from MirageC/Getty Images

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