As increasing number of U.S. investors are finding Europe’s growing firms an attractive place to put money even as venture capital (VC) investment into the region’s tech start-ups slumped sharply in the third-quarter due to uncertainty around Brexit.

According to data from analysis firm Pitchbook, representing a 38 percent year-over-year decline in capital invested and a 31 percent drop in deal count, a total of 2.63 billion euros ($2.89 billion) was invested across 577 completed transactions in the third quarter of 2016.

Still, when put into context, investment in Europe’s start-ups remains resilient. Rate at higher totals than any quarter between 2009 and 2014, more than 2.6 billion euros of VC has been invested in Europe during each quarter this year, Pitchbook said. And the investments are well placed to record the second-highest level of capital invested in the last decade this year as it is still on pace.

A number of factors including uncertainty around Brexit as well as broader macroeconomic factors have been cited as the third-quarter decline in the region.

“We’ve seen a distinct pause in (the third quarter) across exit activity, fundraising and investments. This may represent a return to normal, or we may be seeing some of the effects of Brexit as the VC community navigates an uncertain economic and political environment,” Nizar Tarhuni, senior analyst at PitchBook, said in a press release.

VCs have been cautious about spending in the aftermath of Brexit and the majority of the European technology industry has been against Brexit. While start-ups in the fintech industry are unsure about what it means for regulation, many firms are still in the dark about what a Brexit could do to the free movement of workers from across the continent.

Grabbing around 35 percent of total funding activity, Ireland and the U.K., however, continue to be the biggest countries for deals in Europe. Reflecting a total volume figure that is down just under 3 percent during the same time frame and a capital invested figure that comes in relatively flat on a quarterly basis, just over 1 billion euros was invested across 207 deals in the countries. According to Pitchbook, the total financings is set to be put on track to come in at the lowest level since 2011 as 2016 is on pace to see over 4.4 billion euros invested across around 900 deals at the current yearly run rate.

U.S. VCs are increasingly pouring money into start-ups in the U.K. and Ireland and this is but one bright spot. Accounting for 66 percent of total deal activity and the highest level of involvement by American VCs since 2008, 136 financings involved participation from U.S. investors of the total of 207 financings completed during the third quarter. Nearly two thirds of closed deals this year have come with U.S. investor participation in Europe as a whole.

“This is absolutely good,” Richard Muirhead, partner at London-based VC firm Open Ocean Capital said.

“What we want is to have great entrepreneurs with great companies to get funded well. Investors form the U.S. is a nod to the caliber and potential for global success and underpinned by success in areas where Europe has been transformative – fintech (financial technology) and AI (artificial intelligence) for example,” Muirhead said.

However, in order to fund later stage start-ups, there is a need for European VCs to grow, Muirhead added.

(Adapted from CNBC)

Categories: Economy & Finance