Deal Flow 4.0: 5 Things We Learned About European Tech Deal Terms in 2023

Venture capital investment in European startups topped $60 billion last year, higher than pre-pandemic levels but lower than the highs of the prior two years.

To see how deal terms changed, we analyzed over 350 venture capital and growth equity investments our clients completed in Europe last year.

Here are five takeaways – and what they mean for deal terms in the year ahead.

1. Market instability encouraged more investor-friendly terms.

   • Over 95% of deals required the more stringent consent of an investor director, lead investor or an investor majority. We saw a keen desire for investors to retain control of key matters in the operation of portfolio companies.
   • Founders were required to stand behind warranties in 39% of venture deals despite the new British Private Equity & Venture Capital Association model form documents (published in February 2023) providing for company-given warranties only.

2. Deal volume and size declined.

   • A notable drop in later-stage financings affected the average size of rounds.
   • Deal volume dropped as the market slowed.

3. Founders embraced alternative financing methods.

   • We saw an unprecedented spike in new entrants to the market with more seed companies desperate to find a lead investor to dictate terms.
   • We saw an uptick in convertible debt, SAFEs and ASAs, with convertible financings representing 23% of rounds in 2023.

4. Secondary transactions increased.

   • Investors focused on managing their existing portfolios.
   • Over 4% of financing rounds we advised on were stand-alone secondary financing rounds or rounds that included a secondary element involving an existing investor.

5. SaaS and AI were popular among investors. FinTech investments declined.

   • SaaS & Platforms represented 31% of financings in 2023 compared with 23% in 2022.
   • AI accounted for 33% of financings last year.
   • FinTech accounted for 12% of financings in 2023, falling from 28% in 2022.

Read coverage and analysis of the report in TechCrunch and Sifted.