Without a doubt, 2021 was one of the biggest and most complex years yet in terms of startup funding in Europe.
Europe’s rich startup ecosystem is now on par with that of the US in terms of investment and pipeline. New funding technology is exploding in popularity, and the ecosystem is maturing at a rapid rate.
So what’s in store for 2022 when it comes to funding trends? Based on 2021’s ongoing trends and new technologies on the rise, here are our top picks.
Europe will continue to experience an increase in mega-deals.
Atomico’s annual State of European Tech Report clued us in on a pretty staggering statistic about European VC. Mega-deals worth more than $100 million helped Europe reach a record-breaking $100 billion invested in startups in 2021. Perhaps surprisingly, early-stage funding only grew slightly.
It’s therefore looking likely that this trend will continue into 2022. On paper, more VC funding into European startups represents a positive trajectory. Yet, many entrepreneurs have expressed frustration in raising funds while in the early stages.
But there’s a bright spot for the early stage, and it constitutes another trend we’re already seeing for 2022.
Startups’ access to capital will shift as non-dilutive funding increases in popularity.
We’ve already seen how much debt funding has increased in Europe within the last year (the growth rate is almost double that of the US), which means venture debt is shaking off its former reputation as the lesser alternative to venture capital.
Revenue-based financing (RBF), especially, has gained steam among entrepreneurs who want to delay funding rounds, keep their equity or who just aren’t the right fit for venture capital.
VCs are also discovering the benefits of revenue-based financing to supplement dilutive funding. RBF serves as a beneficial add-on for VC firms, as they are able to have clear returns that are easily correlated to the activity and performance of their portfolio companies.
Open banking will continue to drive more hyper-personalized lending.
Increased offerings such as RBF are made possible through open banking. As financial stacks become interconnected, data can be exchanged freely to create more personalized and targeted offerings that also minimize risk.
For example, startups with eligible business models and solid growth trajectories can now receive monthly RBF advances almost instantaneously just by providing access to their payments and marketing platforms. Lenders get a clear picture of a startup’s data and existing processes, making it easier than ever to confirm eligibility for funding. In many cases, this is a completely automated process.
Companies will take advantage of asset tokenization.
In 2021, we watched non-fungible tokens (NFTs) explode in popularity. But something less discussed is that same blockchain technology potentially transforming the funding landscape. As startups begin linking their assets to digital tokens, investors can essentially put up small stakes of ownership in those assets.
On top of that, the nature of blockchain makes these tokenization deals happen more quickly and securely than standard VC deals. Exchanges of private equity on the blockchain are always transparent, which can eliminate the need for extensive due diligence and general skepticism from investors.
Tokenization will be an interesting way for investors to diversify their portfolios and spread out their risk. For startups, it may prove to be an interesting component to their overall funding strategy.
For more information on the trend toward non-dilutive funding for startups, drop us a line at [email protected]