Q3 was a remarkably unremarkable quarter: the VC industry tracked the “doom and gloom” narrative that everyone has been talking about.

Global VC funding was just £84bn in Q3, 45% below the record levels of Q4 2021 and the lowest since the “lockdown quarter” of Q3 2020. Europe synchronised and invested just £26bn in an ever-diminishing number of deals, the lowest we have seen since the Covid lockdown.

Interestingly, the European valuations held their ground: the median valuation increased 3% YTD, whereas the US has seen an 8% drop. One might be tempted to say Europe will hold its valuations — after all, historically, we were very competitive — but in our view, valuations in Europe will/should start falling as well. And this will draw a line at the era of multiple expansion — which drove much of the TVPI returns in VC — and will force the industry to find ways to drive performance in the era of multiple compression. In our view, the only way for VCs to beat the market will be to invest in companies that achieve above-market growth rates. More on this in the section with our portfolio performance.

Software remained the main destination in Europe attracting 1 of every 3 VC dollars with companies like Factoral (£107m), Pigment (£57m), and Railsbank (£46m) all raising capital during the quarter; 20% of all deals and over 50% of the capital are being invested into business automation software, suggesting that enterprises are continuing their digitisation and transformation journey unabated.