Highland Europe raises €1bn fund for start-up investing despite slowdown

Venture capital firm Highland Europe has closed a new €1bn fund to back start-ups, growing its capital pool for investments as the tech industry is hit by a broader slowdown.

The group has closed its fifth fund to bring its total capital raised to €2.75bn, and will use the new money to finance private software and consumer internet companies across Europe, according to a company statement.

After last raising a €700mn fund in 2020, the more than 40 per cent expansion of Highland Europe’s fund size indicates confidence from the group’s limited partners in its performance, despite a deceleration across the venture capital and tech industry.

Fergal Mullen, a Highland Europe partner, said: “Current market conditions are not easy, but our founder-led companies continue to scale impressively and efficiently, with several world-leaders in the mix. We’re pleased that our investors share our conviction.”

Deals in private technology markets have decreased after reaching a torrid pace during the pandemic. Last year €91.6bn was invested in European start-ups, declining about 16 per cent from the prior record-setting year, according to market researcher PitchBook.

Rising interest rates and the plunging value of public technology stocks have forced a reassessment of start-up valuations and shifted investment opportunities.

“European VC deal value has been on an aggressive upward trajectory in the past three years, but 2022 signalled the end of the annual expansion in capital deployment,” PitchBook analysts wrote in an annual European venture report.

Spun off from Highland Capital Partners in 2012 and based in London and Geneva, Highland Europe has backed such companies as file transfer service WeTransfer, meal replacement maker Huel, and the French analytics start-up Contentsquare, which was valued at $5.6bn this past July. It was also a backer of food delivery start-up Wolt, which was acquired by DoorDash in 2021 in a deal then valued at €7 billion.

Highland Europe has also promoted David Blyghton, who joined the firm in 2014, to partner.

The number of new venture funds closed declined about 30 per cent to 212 last year, from 305 funds closed in 2021, PitchBook said in the report. However, the amount of capital invested in funds was roughly flat as vehicle sizes grow larger.

As venture capitalists have struggled to close new funds, they have grown warier of further investments for cash-burning tech groups leading to a broader re-evaluation of prices for start up shareholdings.

Earlier this week, the FT reported that Chinese fast-fashion retailer Shein, the world’s third most valuable private company, is in talks to raise funds at a valuation of $64bn, down from a peak of $100bn last year.