European Venture Sentiment Index

Actual state of

European venture sentiment

In a europe-wide, quarterly survey, we assess the current sentiment of venture capital investors and business angels, as well as their current outlook for the coming quarter. Unregulated private investors (such as family offices, high-net-worth individuals, and top-managers), as well as regulated (institutional) investors have a strong impact on the speed of development and disruptiveness of European innovation. On the other hand, European and regional governments have implemented a range of mechanisms, designed to support and foster innovation in specific fields and encourage private co-investments. It is a rather intransparent market, where dynamics of valuations, the climate to raise funds, and only very active investors sense the quality of deal flow in all kinds of stages, regions, and industries.

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European Venture Sentiment Index Reports

The expectations outlined in the previous quarterly report have been confirmed by the Q2 2024 index actual, which precisely matched its forecast of 5.1. This represents a QoQ rise of 2.1% and a significant YoY increase of 16.3%. These changes indicate the anticipated gradual growth of the VC ecosystem in Europe, despite the ongoing period of uncertainty. The primary challenge for both VC investors and startups continues to be concerns over fundraising.

Additionally, the enormous excitement surrounding AI startups distorts valuations and intensifies competition for funds to secure stakes in promising AI ventures. Compared to previous years, the Q2 2024 index actual remains at its highest point since Q2 2022 and nearly reaches the Q1 2022 level, facilitated by slow but steady economic growth.

The Q3 2024 index outlook of 6.1, the highest result recorded since the inception of the index. This also indicates an outstanding rise of 19.3% compared to the preceding quarter and a 38.6% increase compared to the previous year. Consequently, the index actual shows a progressive positive development for the third consecutive time, a trend not seen for a long time. Based on these results, a more optimistic outlook for the European VC ecosystem is expected in the following quarters of 2024.

Methodology

The “European Venture Sentiment Index” is a weighted index. Our index puts emphasis on valuations (if prices of startup shares in Europe are perceived over-, neutral or undervalued). The quality of deal-flow and the ability or willingness of investors to invest currently is another important factor. It’s based on a quarterly recurring survey. We collect answers from a focus group and a smaller control group. Those datasets are collected in two waves. In both groups, we have similar sets of key stakeholders from all major European startup hubs (incl. Switzerland and the UK).

Respondents

Unlike other sentiment surveys, the European Venture Sentiment Index is based on feedback from all kinds of investors from regulated venture capital funds, smaller and larger corporate venture units, accelerators, business angels, and family offices, in different stages, from all European countries and startup-sectors.

Comparability

Sentiment surveys and indices are nothing new, they have been around for decades to quantify how a certain group of people feel about a market or economy. One of the most notable examples is the Consumer Confidence Index (CCI), which provides an indication of future consumption and saving of households. There are also surveys that focus on a specific market or even individual security. How can the results of these market sentiment surveys help market participants?

Let’s look at the Venture Capital industry. This general economic information can undeniably greatly benefit both the investor and startups within a market. Investors can compare their own views and opinions to those of the general market, or across different geographical regions and industry verticals. This will furthermore help them to adjust their investment behavior. Startups can use this information when growing their business internationally when they prepare for fundraising or slow down their business (return to bootstrapping – ahead of time) if the economic environment worsens. Market sentiment indicators are important for us in all industries and markets. However, there is a limited number of market sentiment indices for the venture capital or startup market available which we found useful to work with.

Most indices allow a focus on a specific region, investors group, or industry. Take EIF’s VC Survey, which targets a highly professional group of regulated investors across Europe, but does not take Accelerators or Business Angels into account. Our friends of Deutsche Börse Venture Network conducted a great report on market sentiment during the corona crisis. It offers great insights, but it was a one-time publication.

We have developed our own “European Venture Sentiment Index”, which shows in one simple number the general state of sentiment today and shows the current outlook in a second number.

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EVSI Report Q2/2024

THE LATEST EVSI REPORT – Q2/2024

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