Deal Flow 3.0: 5 Things We Learned About European Tech Deal Terms in 2022

Despite a shift to economic headwinds, investors injected more than $95 billion into the European tech market in 2022, the second-largest amount ever. To see how deal terms changed, Orrick analysed more than 500 transactions we closed for clients in Europe in 2022 with an aggregate value of more than $12 billion. Here are five things we learned:

1. Market instability led to a shift towards more investor-friendly terms, including:

   • Founders were required to stand behind warranties in 44% of venture deals despite wide agreement of less need for founders to be financially liable for warranties. We expect this to change now that model forms from the British Private Equity & Venture Capital Association (BCVA) confirm a market norm of requiring company-only warranties.
   • Only 47% of equity financings included a top-up to the option pool – as companies became more cautious of hiring in difficult times and investors were more reluctant to suffer the dilutive impact.
   • A pushback against the surge in founder veto matters that were so frequently accepted in 2021.

2. Average deal size dropped even as deal volume remained high:

   • Company-side venture deals: average size declined 42.7% (from $20.8 million in 2021 to $11.9 million in 2022).
   • Investor-side venture deals: average size declined by 34.9% (from $52.2 million in 2021 to $33.9 million in 2022).

3. We saw an uptick in the volume, size and value of venture debt transactions with an increased level of competition between lenders.

4. FinTech continued to be our top sector for investment activity, though FinTechs took the brunt of rising inflation and reduced investment budgets, leading to a 21% drop in investment levels across Europe in 2022.

5. SaaS & Platforms saw the largest growth in deal volume (x1.5 increase). Investments into Retail & Marketplaces fell by 65% last year after booming in 2021.