Trends Deep Dive (Part 2) - Global VC Landscape

In this section, we'll share with you what's happening in the VC world and some of the major trends we're seeing, backed up by numbers.

While the impact of COVID-19 on investments was not as drastic as expected (similar to the S&P trend), 2020 still fell short of 2019's record numbers. Similar to the progression of many developed economies, VC investments also experienced a V-shaped recovery. 

We see that the amount of investments in 2021 is far ahead of the record figures of 2019. In fact, the total investment made in the first half of 2021 is almost equal to the sum of the first 3 quarters of 2019. If the trend continues in this way, 2021 will break new records in terms of amount invested. On the other hand, we see that the number of investment rounds is less than in 2019, while records are broken in terms of investment amount. This means that the rounds have grown in size.

Having touched on this issue, as a hot take, we can say that one of the reasons why the investment ecosystem is less affected by COVID-19 is the increase in the number of companies adopting Product-Led Growth, which we strongly believe in.

As the buying and working habits of many startups' customers were changing it became apparent that their current sales methods were not going to suffice. This is exactly why many companies that previously progressed with a Sales-Led model turned to Product-Led.

When we look at the increase in companies adopting PLG in the report published by Bessemer VP, we foresee that this trend will continue. More and more companies are favoring this approach for global scaling - including our portfolio companies.

Going back to the global investment scene, when we look at the geographical distribution of investments, we see the dominance of North America. In 2018, Asia was at par with North America, but in the last 2 years, Europe and North America have been on the rise and investments in Asia are on the decline. When we look at Europe, we see that investments have grown 5 times in the last decade. Although we are still far behind North America, there is a chance to close the gap if we maintain the growth rate.

Although the progress of Europe in terms of investment amount is positive, when we look at the geographical distribution according to the size of the investments, we see that Europe is far behind Asia and North America in terms of large investment rounds. The main reason for this situation is that access to capital is easier in these regions. One of the biggest challenges Europe has to overcome is to keep and support the companies that it invested in at the early stage in Europe, also in the late-stage.

It is also possible to observe that the valuations have increased as European startups have easier access to money for early stage investments and investors show more demand. The pre-money valuations of seed investments have almost doubled in the last 5 years.

In fact, not only the valuations of seed investments have increased. For example, Klarna has just raised money with a valuation of $46B (4 times larger than its previous round in 2020).

Another example is Hopin, which doubled its value in 4 months and raised money with a valuation of approximately $6B. When we consider these, it is possible to assume that a tech bubble like in the US is also present in Europe.

Median valuations of startups in Europe are growing very rapidly in themselves, but still, when we compare the median valuations with the US, we see a difference of about 3 times. This encourages US-based investors to shift to the EU. Because that way, they get arbitrage by investing in companies with cheap valuations in the EU and then helping them grow in the US. 

This arbitrage issue is much bigger between TR and US. We anticipate that US-based investors will also focus on TR as Turkey has been creating success stories frequently lately and they are known around the world.

When we talk about arbitrage, there are usually question marks about the success rate of companies leaving the EU. However, according to Pitchbook's data, the percentage of companies leaving the EU to be unicorns is higher than the US. It is even possible to say that Turkey has a percentage of landing unicorns at these levels with its recent attack. Therefore, investments in the EU or Turkey are not only valued low, but also not weaker in terms of success potential.

As a result of US-based VCs starting to focus on Europe and hence valuations skyrocketing, VCs in Europe are also starting to slip into the early stages. Since it is not very possible to compete with global funds that are stronger than VCs in Europe in terms of AUM, Europe's Series B, C investors now also make Series A and Seed investments. Because otherwise it is very difficult for them to have the ownership they want with these valuations.

We can also consider ScaleX as one of the investors who started to focus on the early-stage more as global investors approached Europe. Turkey, one of our focus areas, has an incredibly positive trend in early stage investment. Continuing to break its own records in terms of investment amount in the last two years, Turkey proves the arbitrage theory we mentioned as its globally scaling companies attract foreign investors.

In the first half of 2021, we saw that investors such as Sequoia Capital, Tiger Global, Mubadala Capital, Index Ventures, Balderton Capital made active investments in Turkey. We expect more to come in the coming period.

In our next blog post, we will talk about the startup and VC ecosystem in Turkey, and what the ecosystem is good at and what challenges it has.

Stay tuned! ⚡ 


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