According to a new index by venture capital trust AlbionVC, European early-stage SaaS (Software-as-a-Service) companies are expected to see increased fundraising in Q3 and Q4 of 2023.
The report is based on an anonymous survey of 40 investors investing in the European ecosystem across the Seed, Series A and Series B stages. Thirty per cent of the investor base manages assets under management (AUM) of £1B or more ($1,3B)
The surveyed funds predict deploying £2.4B (or $2,6B) in early-stage European SaaS investments by the end of the year. This surge in activity comes after a sluggish start to early-stage fundraising in the initial two quarters of the year.
Following a sluggish Q2, there is an anticipated recovery in the early-stage investment landscape. During this period, a quarter of VCs opted not to issue any term sheets for new investments and the median number of term sheets per fund was only two.
Despite enough investor capital and softer valuations, four percent of portfolio companies received externally led term sheets. Regarding valuations, approximately 67.5 per cent of surveyed investors observed a less competitive market or no significant changes in pricing dynamics.
Twenty per cent of investors noticed a heightened level of competition in deal-making, driven by sector-specific variations. Companies exhibiting exceptional performance and operating in specific segments remained competitive in price and the time required to receive a term sheet.
aVC Index
In response to the funding uncertainty in the early-stage tech sector, AlbionVC, in collaboration with Google Cloud, has developed the aVC index to provide founders with insights into the evolving fundraising market conditions.
The aVC index is like the PMI index for public markets and provides early insight into startup fundraising activity. Unlike other reports, it focuses on future transactions rather than past ones and is published in real-time.
The Q2 2023 aVC index has a score of 54, indicating growth in the number of companies in the active pipeline of investors. A score of 50 represents no change and anything below 50 indicates a market contraction.
The Q2 index stands at 57.1 for Series A investments, signifying an increased number of companies seeking funding from Series A investors. However, early-stage investors have reported a slight decrease in companies raising funds, as reflected by the index score of 46.8.
The Q2 2023 aVC index also revealed several key findings. It showed that dry powder is not driving additional risk-taking as 25 per cent of funds chose not to issue new term sheets in Q2 despite ample available investment capital.
The index also indicated that investors are reporting that processes have become less competitive or have seen no change in pricing. However, 20 per cent of funds said a more competitive dynamic. It indicated that some investors are still willing to pay a premium for promising startups.
The survey found that two out of five investors believe valuations will fall further in 2023. This pessimistic outlook is reflected in the fact that 25 per cent of respondents think valuations could drop 20 per cent or more.
Despite this, respondents expect more investor-friendly terms, indicating that startups may have more negotiation leverage.
When comparing European activity, UK funds have surpassed their European counterparts by issuing more term sheets in the first two quarters. UK funds have issued a median of three term sheets, whereas their European counterparts have issued two.
However, UK funds report fewer companies in their pipeline than European funds. Investors in both regions maintain significant capital reserves, with two-thirds of this capital allocated toward investments.
Read the orginal article: https://siliconcanals.com/news/new-albionvc-index/
