In Europe, there’s nothing investors love more than a bit of software-as-a-service (SaaS) — other than, perhaps, fintech. 

A new report published today by GP Bullhound gives a snapshot of how the tech slowdown is hitting this VC favourite. 

The report shows that 33% of SaaS CEOs plan to head out fundraising in 2023 — despite the fact that fundraising is tough and looks to remain so. 

Plenty of CEOs will also be looking to buy other companies. That makes sense as more companies that are not performing will be looking for an exit, and other better-capitalised companies will be looking to grow by acquiring others at competitive prices. 

Since Q3 2021, European SaaS merger and acquisition (M&A) deal volume has been decreasing — 192 deals were done in Q3 2021, compared to 119 in Q3 2022 — but the value of those deals is trending upwards — from €4bn in Q3 2021 to €7.1bn in Q2 2022 and €20bn Q3 2022. (That €20bn is somewhat thrown out of whack by two mega deals.) 

We’ve already seen that happen; one of the largest European buyers of VC-backed startups this year is Norway’s B2B SaaS company Visma.

The UK has been the most active market for SaaS M&A in 2022, followed by France and Germany. 

Also notable from the GP Bullhound report: the gap between the valuations of listed US and European SaaS companies is narrowing. At the end of 2021, US SaaS companies were valued 10.5x more than their European counterparts. On September 30 this year, that had dropped to 1.7x more.

The era of enterprise software in Europe

In the past five years, Europe has created more enterprise software startups (3,956) than even fintech startups (3,280), according to VC firm Atomico’s latest State of European Tech report. Europe’s B2B SaaS giants include Germany’s Celonis, HR tech unicorn Personio and Finland’s Relex Solutions. 

Over that time, investors have plugged just short of $50bn into enterprise software startups, and a whopping $78.3bn into financial services startups. Enterprise software has been a major target for VC investment given the profit margins on these businesses — which are usually around 75-80%, according to GP Bullhound. 

That’s especially eye-catching at a time when all investors are saying that reaching profitability is the priority. 

But funding into both fintech and B2B SaaS has dropped this year. Fintech funding is down 22% in 2022 compared to 2021, while enterprise software funding is down 11% over the same period. European fintechs drew $22.4bn in investment from January to October 2022, while enterprise software startups drew $14.4bn. 

Amy Lewin is Sifted’s editor and Eleanor Warnock is Sifted’s deputy editor. Together they host The Sifted Podcast and write Up Round, a weekly newsletter on VC