As venture capital flows freely, Europe's haves and have nots emerge

Data Insights

There can be little doubt that private drug developers had a hugely successful 2015 on the financing front, with $2.4bn* more raised than in 2014. And a look below the topline figures shows that companies at almost every stage of development benefited from the uptick in cash moving through the system.

Looking on a regional basis it seems that over the last five years the pot split between the US and Europe has stayed roughly the same – the former taking the lion’s share, around 80% each year. However, the polarisation of capital towards bigger rounds appears to have been more marked in Europe, where there has been a substantial decline in the number of financings over the last couple of years (see tables below).

Dividing the pot - VC investments in the US and EU
Total investment
 2015  2014 2013 2012 2011
US+EU total  $9.06bn $6.62bn $4.73bn $4.53bn $4.07bn
US total $7.04bn $5.24bn $3.35bn $3.67bn $3.28bn
EU total $2.02bn $1.38bn $1.38bn $0.86bn $0.79bn
US as % of total 78% 79% 71% 81% 81%
EU as % of total 22% 21% 29% 19% 19%
Total finance deals
2015  2014 2013 2012 2011
US+EU total  343 438 388 401 370
US total 287 362 284 302 277
EU total 56 76 104 99 93
US as % of total 84% 83% 73% 75% 75%
EU as % of total 16% 17% 27% 25% 25%

The analysis above shows a remarkably stable share of the cash between the US and Europe over the last five years, notwithstanding the blip of 2013. Where a difference can be seen is in the number of finance deals – this has fallen in both regions, but much more markedly in Europe.

The trend for bigger rounds has largely been driven by the opening of the IPO window and the need for companies to beef up their balance sheets before approaching public investors – hence the emergence of big pre-IPO rounds boosted by so-called crossover investors. However, since the financial crash investors have also increasingly adopted a safety in numbers approach, and many prefer to become involved in larger syndicates.

Perhaps in Europe, a region with a reputation for more cautious investors, these trends have become more marked. Although the big jump this year in European series B funding was skewed by Acerta.

The table below shows that in both regions the average amount raised in A, B and C round has climbed substantially over five years. Interestingly, both regions seem to be supporting their companies with similar amounts of money. 

VC funding by round
Avg size of series A rounds ($m) Avg size of series B rounds ($m) Avg size of series C rounds ($m)
2015 18.60 21.99 31.00 55.02 27.04 25.15
2014 10.64 14.02 18.59 25.03 15.42 13.48
2013 11.39 8.85 14.67 14.53 17.35 16.80
2012 10.20 5.00 12.57 8.84 16.25 12.84
2011 10.69 8.01 15.47 12.01 15.93 9.19

A look more closely at how the whole sector is splitting the cash shows that the big surge in private monies raised last year prompted an uptick in almost every stage of investment. Perhaps more worrying for those involved in company formations is an apparent drop in seed capital, although this could perhaps partly be explained by the trend for companies to emerge from “stealth” mode straight into a big series A round.

Still, the strong gravitational pull towards companies with a clear exit strategy for private investors must surely be having some impact on those without such turbocharged development plans.

A similar trend appears to be emerging in the IPO data for this sector, with the average amount raised climbing while the number of transactions falls (Biotech IPOs slow, but appetite for size remains unsatisfied, January 13, 2016). For those working in less trendy therapy areas life is perhaps not necessarily any easier.

The analysis above demonstrates a trend EP Vantage has noted previously: a growing concentration of big series B and C rounds, with earlier-stage companies capturing less of the overall growth in venture investment with A rounds (2014 sets post-crash venture record, but you ain’t seen nothing yet, January 19, 2015).

Again, the presence of crossover investors eager to see a public floatation has much to do with this trend, although these are also typically the companies nearing the key clinical milestones of phase II data and thus attract the most partnering and acquisition interest.

Venture investors are looking to maximise their return, so it is not surprising to see them flocking to the companies viewed as speedy exits. What will be interesting to watch is how these trends change if the rough market conditions of early 2016 continue and IPO activity slackens.

*This story was updated on January 20 to reflect the addition of new data

To contact the writers of this story email Amy Brown or Edwin Elmhirst in London at or follow @AmyEPVantage or @EPVantage on Twitter

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