May 2, 2023

Non-VC investors shy away from European startup deals

European startup deals involving corporates, SWFs and PE firms are at a five-year low — bad news for late-stage companies

Amy O'Brien

3 min read

European VCs have hit the brakes on investment since last year. Europe saw its slowest VC fundraising quarter since Q3 2016 in Q1 this year. 

But the region’s fundraising crunch isn't all down to VCs. New data shows a similar slump in capital deployment from non-VC investors — including corporate VC arms, private equity and sovereign wealth funds. 

In the first quarter of this year, VC deal value with nontraditional investor participation reached €8bn, according to Pitchbook data, which suggests that 2023 is on track for the lowest level of such investments since 2018. Pitchbook classes nontraditional investors as corporate venture capital (CVCs), private equity (PE) and sovereign wealth funds (SWF).


Europe’s unicorns will be hardest hit

Investors and analysts say this is bad news for growth-stage companies. So-called megarounds, of $100m+, have traditionally relied on non-VC investors to bump up overall totals. Just take some of 2022’s megarounds:’s $1bn Series D included GIC, Singapore's SWF, and the Qatari SWF, while Scalapay’s $497m Series B included Chinese investor Tencent. 

This is due to a later-stage funding gap in Europe — the region’s VC funds just aren’t big enough to settle unicorns’ bills alone. 

But in 2023, the evolving macro environment — with its high interest rates, high inflation and more challenging growth landscape for startups — has got these investors tightening their capital allocation, too. 

“A large component of the overall figure for most large deals that VC-backed companies secure are going to involve some form of non-traditional investor,” Nalin Patel, analyst at Pitchbook, tells Sifted. 

“So when you lose their participation you lose the ability to move the needle upwards for the entire startup industry.” 

Large late-stage deals are what’s driven up European total investment value in recent years and helped the region begin catching up to Silicon Valley. Patel points out that the lack of record valuations n the last six months is largely down to the retreat from non-VC investors. 

“VC firms will still invest, but as they cut down on risk they’re targeting earlier stages, which are more insulated from the market slump,” he says.

“But owing to where non-VC investors focus, we’ll likely see declines in valuations and liquidity issues at later stages as they pull out.” 

Different investors may have different tactics 

CVC deal activity has plummeted as banks, Big Tech and large IT companies struggled with their own liquidity crunch. 

“We’ve seen a renewed focus on core business for the corporates, which have been focusing on what they actually do rather than on speculative or nice-to-have investments,” says Daniel Turgel, partner at law firm White & Case. 


Patel points out that it’s difficult for a corporate conducting mass layoffs to justify parting with capital for startup investments to its board. 

“We’ve not seen these large tech companies conduct layoffs in decades — they’ve always been the pinnacle of corporate industries and generated significant returns in public markets,” he says.

By contrast, private equity firms are sitting on record amounts of dry powder, and recent spikes in energy prices mean that sovereign wealth funds are well equipped to invest more into tech. So far in 2023, SWF participation in global VC deals is retreating, but analysts tell Sifted we could see a divide between corporates and SWF and PE money appear further into the year. The latter two may look to seal opportunistic deals with startups desperate for cash.

“If you’ve got the capital or dry powder to deploy, now is a great time to gain exposure to a VC-backed company that was growing at a really high rate and may now be facing a valuation comedown,” Patel says.

“It could work out very well for them — two to three years down the line, they’ll have a larger return than they would have gained at the peak of VC market competition in 2021.” 

Amy O’Brien is Sifted’s fintech reporter. She tweets from @Amy_EOBrien and writes our fintech newsletter — you can sign up here

Amy O'Brien

Amy O'Brien was a reporter at Sifted, covering fintech