EMEA and APAC early-stage investment insights Q1 2024

Q1 reports have just dropped, and we’ve taken a look into EMEA and APAC early-stage investment trends.

With the rapid digitization of economies and open banking initiatives, there is significant growth opportunity in EMEA and APAC. As a leading global innovation ecosystem, backed by tier one financial partners, Tenity receives thousands of applications of top-notch startups per year, allowing us to identify early trends and investment opportunities.

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Europe: Early-stage VC remains resilient

In Europe, despite the decline in VC activity across deals, exits, and fundraising, early-stage VC remains resilient. In 2023, early-stage funding accounted for €16.6 billion, marking only a 36.1% drop from the previous year, which is relatively minor compared to the larger declines seen in later-stage funding. This stability is indicative of long-term structural growth, despite an overall challenging market (PitchBook).

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European venture capital (VC) is showing signs of catching up to U.S. performance in several key areas.

While historically lagging behind the U.S. in terms of deal flow, exit activity, and returns, Europe is gradually closing this gap. European VC funds have demonstrated improvements in internal rates of return (IRRs), partly due to the rising sophistication of startups and the increased presence of global investors.

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Asia: Earliest stages only see small decline among huge drop in later stage rounds

In Q1 2024, the total dollar amount of funding dropped by 8% compared to Q4 2023, reaching $1.7 billion. This represents a 15% decrease from the same period last year. The number of deals fell by 9% compared to Q4 2023 but saw a sharper decline of 30% from Q1 2023, when there were 1,283 deals.

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Europe and Southeast Asia: Pre-Seed Valuations still significantly lower than in the US

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Pre-seed valuations in Europe and Southeast Asia are notably lower compared to those in the United States.

This disparity can be attributed to several factors unique to each region. In Europe, where the median pre-seed valuation is set on USD5m, the startup ecosystem is vibrant and growing, while access to early-stage funding and investor appetite for risk may not be as robust as in the US. Additionally, regulatory differences and cultural attitudes towards entrepreneurship can impact valuations. Similarly, in Southeast Asia, where the median pre-seed valuation is roughly USD3.8m, although the startup scene is thriving with a burgeoning number of innovative ventures, the investment landscape is still maturing, leading to lower valuations at the pre-seed stage. Despite these differences, both regions offer promising opportunities for investors seeking high-potential startups at relatively lower valuations compared to their counterparts in the US.

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Global Trend: Seed stage picking up steam and lower median round size

Median financing round size has further dropped in Q1 2024, after an already significant decrease in 2023 as compared to 2022. We are now back at 2021 levels, creating an opportunity range for seed investors.

Additionally, in the first quarter of 2024, 50% of all financing rounds were less than USD5m - this is a level not seen since 2016 (for reference, 2023 showed 46% financing rounds under USD5m). (FT Partners)

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Global trend: Strategic Investors are increasingly important

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Since 2021, we’ve seen increased participation of strategic investors or corporate VCs in financing rounds. After a slight drop in 2023, Q1 2024 is on track to 2022 levels. This speaks to increased activity from Corporate VCs and ecosystem plays - the appetite of strategic investors in open innovation and collaboration with startups is rising - which ultimately benefits the whole sector.

We have seen this trend increasing over the last years; our portfolio management philosophy actively encourages connection between our portfolio companies with our global LPs or strategic partners – UBS, Generali, Julius Baer, Swiss Stock Exchange, VISA, Allianz, Microsoft, Ripple, HSBC and many others.

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