Venture Capital/Analysis/

Behind the explosion in crossover investing in Europe

Crossover investors like Coatue contributed 26% of VC capital in Europe in 2021

By Eleanor Warnock

Revaia partners Elina Berrebi (left) and Alice Albizzati

European founders have had many new investor names to learn in recent years, as hedge funds like Coatue and Tiger Global became major players in the venture capital industry almost overnight. 

These “crossover investors”, which dabble in both private and public markets, have upped their activity globally — and Europe is no exception. 

26% of VC capital in Europe in 2021 — representing $53.4bn — was contributed by crossover investors versus 13% four years prior, according to a new report by French growth investor Revaia using Pitchbook data. Crossover investors include hedge funds like Coatue, growth equity investors like TCV and big institutional investors that invest ahead of a public listing like T. Rowe Price.

Despite a slowdown in VC investing last year, crossover investors still contributed 18% of all VC capital in the first nine months. That means crossover investing was more resilient in Europe than in the US, with a 50% on-year drop estimated for Europe versus 66% for the US. 

“It’s a phenomenon that is here to stay and it has really supported the rise of growth equity and large capital rounds of $100m+,” in Europe, says Revaia investor Hadrien Comte. 

More moolah to play with

Revaia says venture’s attractive returns have piqued the interest of public market investors. Private investors have also dived into early-stage investing as startups have begun raising bigger rounds and as they expanded their own sectors and stages of coverage. 

For founders, it’s a great opportunity. There are few European funds that can write the kinds of huge cheques that crossover investors can — something that’s often referred to as Europe’s growth equity gap. The average European crossover deal size in 2021 was $165m. For comparison, the median Series C round size in Q3 2022 was $50m, according to Pitchbook.

And these investors can help startups get on the path to an IPO or exit given that they also often manage large public portfolios. 

“They can introduce you to companies who have done things well, as well as banks or intermediaries that can help you to achieve your goals,” says Vincent Huguet, founder and CEO of French startup Malt. Malt raised an €80m round from crossover investor Goldman Sachs and Eurazeo in 2021.  

“I would say it’s mostly the connections that are important in preparing you for the IPO process and having the right people to talk to in order to not make the mistakes they have done in the past or learn from the good things that they have done.” 

The outlook for crossover investors in Europe

Investment in private tech companies cooled off drastically last year — by both crossover investors and more traditional VCs. Comte says crossover investor activity in Europe this year will depend on the strategy of the investor. 

“Some will stay in perpetuity and some will come back whenever market conditions are favourable,” he says. 

Until chunky local growth VCs can emerge, crossover funds will continue to be important contributors of late-stage capital, the Revaia team says. 

Revaia founder partner Alice Albizzati says that continued government support from Europe for later-stage funds will be important to create European growth-stage investors. 

Eleanor Warnock is Sifted’s deputy editor and cohost of Startup Europe — The Sifted Podcast, and writes Up Round, a weekly newsletter on VC. She tweets from @misssaxbys