In Lazard Venture & Growth Banking's first ScaleUp Views we will discuss:

  • Macro overview - Venture & Growth continues to grow at a rapid pace with the U.S. still leading the charge
  • COVID-19 - The global pandemic has affected every asset class in the world, but VC-backed companies have by far resisted the best
  • European VC-backed companies - We measured the strength in the underlying constituents of a hypotethical 2017 EU funding vintage and evidence suggests strong resiliance of European VC-backed businesses
  • What next? - Continued build up in dry powder should allow for a quick rebound of the VC & Growth asset class, but more needs to be done...
  • Lazard T100 Index - Introducing Europe's (and the world's) first growth active index

Key takeways:

  • The value creation from major VC-backed companies in Europe demontrates that the VC model is working in the region, and evidence suggests, it is now more than holding its own against the equivalent market in the US.
  • The disruption caused by COVID-19 will be significant, but in some cases can be a net benefit as technology transitions accelerate. Many venture-backed companies are addressing and driving these transitions.
  • There have been record amounts of capital raised in VC funds over the past year, most of which needs to be deployed in the next 2-3 years. At the same time the number of opportunities in Europe to deploy into is also growing. There is a clear opportunity for this capital to be allocated efficiently and quickly as we exit the crisis.

Strong secular growth trend in venture & growth equity…

Over the last decade, the venture & growth asset class has been through an extended period of strong secular growth; experiencing a 14% CAGR in venture capital (deals below $50m) and 21% CAGR in venture growth ($50m+ deals). While there have been cycles in the market, with peaks in both 2015 and 2018, there has clearly been a consistent strengthening in the level of activity in the market with the asset class continuing to attract more capital.

Venture Capital & Venture Growth Volume Globally 2009 - 2019

Source: Pitchbook

Note: VC = <$50m deal size; GE = >$50m deal size

… but the US venture/growth market is still 4x bigger than Europe...

Although the US venture & growth market is still 4x the size of Europe’s, Europe has been catching up over time.

The differences in the market between the US and Europe were largely due to the timing of the 2000 internet bubble. The US had two decades of strong performance in the venture asset class preceding the 2000 bubble. While the bubble led to poor returns during this period; in the US it was considered as a cyclical blip, and activity resumed soon after the effects of the crash had subsided.

However, in Europe, the venture space had not started to attract significant investor attention until the end of the 90’s; and thus the funds raised during this period didn’t perform as well, leading to a less positive sentiment toward the asset class in Europe.

Capital invested in US & European venture/growth 2015-2020

Source: Pitchbook

... but positive evidence has been building in Europe over the past decade...

This sentiment led to a prevailing view that 'Europe can't scale startups like the Americans can'. Sceptics would point to the fact that the European venture community hasn't to date been able to produce a global leading tech or healthcare company of scale as an indicator of its limitation rather than a challenge to be met.

However, over the past eight years, this view has been turned on its head with a number of global leading tech and healthcare companies produced from European origins across many different verticals, as demonstrated in the table below. More capital has been attracted to the European ecosystem.

Top 10 European VC-backed exits since 2013

Source: Lazard VGB Database

... and deal distribution across sizes in US & Europe has been surprisingly similar.

Whilst there has been more capital entering the European venture asset class, there is also a higher number of quality companies being developed in Europe that have global appeal and unicorn potential. The funds allocation and deal distribution between the US and Europe has been similar over the last 5 years and shows that world leading European companies are, in fact, being funded to a similar magnitude as in the US when they emerge.

It is now clear that Europe can produce start-ups that have the potential to become world leading companies, but in order to reach full potential it will be necessary to attract more capital into the asset class.

Volume and distribution of deals US & Europe 2015 - 2020

Volume / Frequency spread

Source: Pitchbook

COVID-19 has impacted VC & venture growth deal volumes more in Europe than US.

This year to date, there has been a slowdown in VC & venture growth deal activity as a direct consequence of COVID-19. In addition to the effects of the crisis, there has likely been some impact from a slight cyclical downturn in the market from a peak reached in 2018.

While it is difficult to measure the exact impact of COVID-19 as large deals make the results lumpy, it looks like the slowdown is more pronounced in Europe than the US, with the amount of capital invested in Europe down by c.24%, compared with c.10% in the US. There are, however reasons to expect this to be a temporary effect rather than a lasting one.

Change in volume of Q1 GE deployed in Europe vs US



Source: Pitchbook Note: VAC = <$50m deal size; GE - >$50m deal size

Tech M&A activity historically highly correlated to overall market sentiment …

It remains unclear what the economic impact and duration of the COVID-19 pandemic will be. However, if the impact mirrors that of prior US recessions, it could take several quarters for Tech M&A activity to rebound. Previous crises had led to a slowdown in M&A activity as companies focus on the internal navigation of the crisis rather than pursuing M&A deals. This dynamic could have an impact on current M&A activity and in the next few quarters going forward.

This could lead to a V-shaped recovery in Tech M&A activity, as has been the case during previous cycles where post-crisis we saw a few quarters of limited activity followed by a strong rebound with large and landmark deals taking place.

Tech M&A activity from 1999 to 2020

Source: FactSet as of 9-Apr-20. Note: Analysis based on U.S. technology transactions with deal value of >$50m.

… but acquirers of VC backed companies have attractive liquidity positions.

A recovery in M&A activity post crisis could be driven by the magnitude of liquidity available to the most active players in purchasing venture-backed assets. Of the companies acquiring venture-backed assets in the last 5 years; 2/3 of the buyers are in the heathcare and technology sectors and have over $300bn of cash on hand, and no net-debt. Many of these acquirers are also businesses that may be benefitting or net-benefitting from the crisis.

As we move into a more benign environment, this fire power combined with a continued appetite for deal making could lead to an uptick in venture-backed M&A activity.

Liquidity position of acquirers of key VC-backed assets in the last 5 years

Source: Pitchbook / FactSet / Lazard Venture & Growth Banking. Note: VC-backed M&As over $250m in EV

Big tech is particularly well capitalised for positive M&A activity.

The world's biggest technology companies were well capitalised coming into the crisis, with over $600bn in liquidity. While it would be unrealistic to expect anywhere near full deployment of this liquidity into the M&A market, it does demonstrate the magnitude of potential fire-power available for venture-backed companies.

Liquidity of selected technology companies

Source: FactSet as of 4/9/20. 1 Chart not to scale.

VC-backed companies that went public in last 5 years have greatly outperformed the market…

The NASDAQ is up more than 20% YTD, a strong outperformance of the S&P 500, with the YTD stock price performance of previously venture-backed companies that have completed IPOs since 2015 looking even better. This outperformance is testament to the performance of the asset class and its perceived public benefit. Several companies have increased their performance due to greater familiarity with their services and platforms.

For example:

  • Many companies in the healthcare sector are working to develop vaccines, treatments, and encouraging lifestyle improvements that have the potential to mitigate the effects of COVID-19.
  • In the SaaS space, the public have become reliant on virtual communication tools such as Zoom and other platforms that are enabling remote working.
  • In the consumer space, the transition to online has accelerated even further through platforms such as Shopify and services such as HelloFresh.
  • The fact that it is only due to the VC and growth equity ecosystem that these companies exist in the first place bodes well for the future of the asset class.

Share Price Change since 1 January 2020 of VC-backed listed companies

Source: FactSet, Lazard Venture & Growth Banking. FactSet NASDAQ100 (QQQ) and S&P 500 (SPY) as of July 10, 2020 Note: VC-backed companies have a $250m market cap threshold and were founded on or after 2000 * Solely based on share price return since January 31, 2020 to July 10, 2020

… and we remain confident that several European private companies will also benefit from the current situation.

The VGB team focuses on the 100 most interesting companies in Europe looking to raise growth capital, called the T100. Within this universe there are also the following examples of companies which are providing tools and technologies that navigate our way out of the COVID-19 crisis.

T100 companies with positive exposure to recent crisis

The 2017 vintage of growth deals look well positioned post COVID-19…

Looking further into the performance of the asset class, IPOs of venture-backed companies have performed well. However it can be more difficult to judge the performance of companies that are still private. As this is a higher risk higher return asset class, it cannot be expected that all the companies funded in a single year will continue to do well.

A reasonable goal is for a 50%+ success rate, which can drive strong financial returns for investors in the asset class. While there can be a lot of focus in the media on companies that go wrong, our analysis suggests the bias is actually towards success, which can generate strong returns on realisation.

We believe that over half of the companies funded through venture growth deals in 2017 are still well positioned now to continue to create significant value. In fact, we believe that the success rate is even better in Europe than the US.

Status from 2017 late stage deals

Source: Pitchbook / FactSet / Lazard Venture & Growth Banking. Note: Lazard Venture & Growth Banking’s own view on status of late stage deals as sourced via PitchBook

... with some variation in sector success rate between US and Europe.

When looking at companies that are performing well from the 2017 vintage, in the US market the success rates are highest in Digital Health, MedTech and SaaS. While in Europe the success is driven by Digital Health (granted this is driven by few deals), FinTech, Life Sciences, and SaaS (again driven by fewer deals).

Sector success rates in the US vs Europe



Source: Pitchbook / FactSet Note: Lazard Venture & Growth Banking’s own view on status of late stage deals as sourced via PitchBook

Europe has seen a solid bedrock of successful businesses…

This chart demonstrates the sheer magnitude of value creation taking place in Europe since 2017. Of the 2017 vintage, there are 12 key companies that were funded which have gone on to generate collectively approximately $21bn in value. While returns are mostly yet to be realised, it is possible to gain confidence of the profound effects that the start-up ecosystem is having on moving the European economy forward.

Pre-money value ($m) of a selection of top European growth equity companies over time

Source: Pitchbook, Lazard VGB database

… coupled with high levels of dry powder positions the venture & growth market for a strong and fast re-bounce once uncertainty settles

Over EUR20 billion raised by European VCs in 2019 - 2020 alone

2019-2020 YTD

Source: Dealroom / Sifted as of 16-Apr-20.

T100: Europe's Private Growth Index

The funding gap needs closing...

As discussed earlier the evidence has now emerged that there shouldn’t be a structural disadvantage between Europe and the US in terms of ability to create global leading companies using venture & growth financing. However the fact that the European venture & growth ecosystem is undercapitalized compared to the US remains a problem that needs to be addressed in order for Europe to reach its full potential.

Capital invested in growth rounds ($50m+) by region

Source: Pitchbook

... and facilitating allocation of European pension fund capital is key

The recent record fundraising discussed earlier demonstrates that the European ecosystem is making progress in closing the gap, however it is noticeable that much of the capital is coming from outside of Europe rather than from within. There is a significant difference in the way large pension funds are willing to allocate to venture and growth in Europe in comparison to the US market.

Funding of venture funds by type of capital by region

Source: Pitchbook. BVCA report

Introducing the Lazard T100 European private growth indices...

In order to increase understanding of the asset class and its performance we are in the process of launching the world’s first index for the growth equity asset class, the “Lazard T100 European private growth index”.

The goals of this project are to:

  • Establish growth equity as a truly institutional asset class in Europe
  • Provide exposure to some of Europe’s most interesting companies expected to use growth equity financing
  • Provide asset allocators with greater transparency and a measure of performance and quality
  • Encourage large European pension funds to consider allocating to the asset class

... which can measure the performance of the venture growth asset class

The indices will be based on a carefully curated list of 100 companies which we believe to be the most interesting companies expected to undertake a venture growth style financing in the next 12-18 months.

The T100 indices will be a series of indices which can measure the performance of venture growth investments by vintage year. Each vintage year will have its own index which will consist of a synthetic equal weight investment in each T100 company which completes a substantial sized funding round within that year.

In the years following the year of investment, the valuations of the positions will be updated on a quarterly basis in-line with the valuations of further substantive funding rounds, large secondary trades or on a comparable multiples basis where appropriate. As and when companies reach an exit the final value of the position is updated accordingly.

An illustration of what a 2017 vintage would look like...

In order to illustrate what a 2017 vintage of the index might look like, we have used a selection of 46 venture growth transactions completed in 2017. Clearly the selection criteria for the T100 were not in place at this time, so there is a certain level of hindsight bias to the illustration which should be noted.

The transactions selected represent a diversified spread of sectors and countries:

  • FinTech (25%), Consumer (21%), DeepTech (21%), SaaS (15%), Healthcare (16%) and InfraTech (2%)
  • U.K. (39%), Germany (24%), France (11%), Sweden (6%), Spain (5%), Belgium (4%), Finland (3%) and Others (<3%)

Indicative performance of 2017 vintage

Source: Pitchbook, Lazard VGB Database

... indicates very strong performance

As can be seen in the chart above, the performance of this vintage has been strong with a 3x+ increase achieved over a 2.5 year period. This broadly equates to a 61% IRR, albeit unrealised and with likely some benefit from hindsight bias, as mentioned above.

Drilling into further detail, 5 of the 46 companies were unicorns in 2017, and 12 have become unicorns after the launch of the vintage. As would be expected, much of the value creation comes from these companies which became Unicorns.

More details to come....

We are in the process of qualifying companies into our Lazard T100 over the summer and will be looking to formally launch the Lazard T100 in H2 with the first 2020 vintage of the index likely launching shortly after the end of the year. Do reach out to for further detail if you believe your company or companies you are invested in should be in the Lazard T100.

Meet Lazard's Venture & Growth Team...

Garri Jones

Managing Director & Co-Team Lead

Nick James

Managing Director & Co-Team Lead

Julian Tsoi


Christopher Britton


Luke Thomson


Tristan Elbrick


Cristiano Vinattieri


George Mennem


Victoria Barrett


Ahmed Harrath


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