3Q Deal value pacing to pass 2014 total. Spotlight: UK and Ireland. Fundraising drops in 3Q after strong 1H PAGE 5 PAGE 7 PAGE 11

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1 3Q 2016 IN PARTNERSHIP WITH 2016 Deal value pacing to pass total PAGE 5 Spotlight: UK and Ireland PAGE 7 Fundraising drops in 3Q after strong 1H PAGE 11

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3 Credits & Contact PitchBook Data, Inc. JOHN GABBERT Founder, CEO ADLEY BOWDEN Vice President, Market Development & Analysis Content NIZAR TARHUNI Senior Analyst KYLE STANFORD Analyst ELIZABETH ARMON Analyst BRYAN HANSON Data Analyst JENNIFER SAM Senior Graphic Designer Contact PitchBook pitchbook.com Contents RESEARCH EDITORIAL Introduction 4 Overview 5 Rounds by Region & Sector 6 Spotlight: UK & Ireland 7-8 Q&A: Merrill Corporation 9 Exits 10 Fundraising 11 3Q 2016 League Tables 12 SALES sales@pitchbook.com COPYRIGHT 2016 by PitchBook Data, Inc. All rights reserved. No part of this publication may be reproduced in any form or by any means graphic, electronic, or mechanical, including photocopying, recording, taping, and information storage and retrieval systems without the express written permission of PitchBook Data, Inc. Contents are based on information from sources believed to be reliable, but accuracy and completeness cannot be guaranteed. Nothing herein should be construed as any past, current or future recommendation to buy or sell any security or an offer to sell, or a solicitation of an offer to buy any security. This material does not purport to contain all of the information that a prospective investor may wish to consider and is not to be relied upon as such or used in substitution for the exercise of independent judgment. ABOUT MERRILL CORPORATION Merrill Corporation provides technology-enabled platforms for secure content sharing, regulated communications and disclosure services. Clients trust Merrill s innovative applications and deep subject expertise to successfully navigate the secure sharing of their most sensitive content, perfect and distribute critical financial and regulatory disclosures, and create customized communications across stakeholders. With more than 3,800 people in 41 locations worldwide, clients turn to Merrill when their need to manage complex content intersects with the need to collaborate securely around the globe. 3

4 European VC market more resilient than expected Introduction Despite the persistent concerns we ve seen in the media related to Brexit and a sluggish economic backdrop, the European venture market has actually remained relatively in line with the global VC market. Things aren t necessarily falling off of a cliff, but just as we ve experienced a slowdown in total deal counts in the US, we ve also seen a pause in Europe. Further, we ve also continued to see investors put more capital to work in European deals, while betting less frequently. In short, the cyclicality we re seeing in Europe really doesn t alarm us any more than it would in the US. One thing that should be considered is that the types of growth concerns around Europe will have a more pronounced impact on older and legacy industries. Many venture-backed companies aren t at a point to be overly impacted by a slow-growth macro economy, especially at the early stage, and with that, investors will still look for quality companies and entrepreneurs to back. Sure, there can always and typically will be reverberations that trickle down to everyone should the economies in the region continue to stumble for a prolonged time, yet we think where we are right now points to a more cyclical environment than an abrupt downturn in sentiment. Throughout this report we examine European VC deal, exit and fundraising activity and also provide a spotlight on activity within the UK and Ireland the Nordic region is also treated upon in more detail. We hope this report helps inform your decision making process and as always, feel free to reach us at reports@pitchbook.com with any questions or concerns. MAKE WAY FOR SMARTER, ON-THE-FLY MEETING PREP Introducing PitchBook Mobile. The same excellent data, technology and service from the PitchBook Platform, now available on a mobile device. Available for Search: PitchBook NIZAR TARHUNI Senior Analyst US UK +44 (0) demo@pitchbook.com pitchbook.com 4

5 Fewer deals, larger sums Overview Europe's venture industry has continued along with relative resilience throughout 2016 despite the various concerns we've seen in the media related to Brexit and a continuously sluggish economy. Though deal count fell for the third VC invested on pace for second highest total of decade European VC activity Deal Value ( B) # of Deals Closed 1,262 1,414 1, , , straight quarter in 3Q much like it has around the rest of the venture world the overall value of these completed deals is paced to fall only slightly below last year's decade-high total of 14.7 billion. More than 2.6 billion of VC has been invested in 2, , , , , Europe during each quarter this year, which is a higher total than any other quarter between and. A handful of outsized transactions have underpinned this year's deal value, to be sure six deals have closed on over 100 million but even smaller deals have grown in size. With that, the median late-stage deal size climbed to over 5 million for the first time since the financial crisis, while the median size of earlystage deals is tracking to come in higher for the third consecutive year. All in all, financings of over 1 million accounted for over 60% of all completed European deals for the first time since. US investors looking to diversify their portfolios abroad have continued to find Europe an attractive option. 65% of closed deals in 2016 have included US investor participation, and with the pound and euro each falling against the US dollar recently, there will continue to be a currency-related mutual benefit for such investment. Deal count at each stage sluggish through 3Q European VC rounds (#) by stage Capital invested remains strong despite low deal count European VC invested ( B) by round size 2,500 2,000 Angel/Seed Early VC Later VC 1, M+ 10M- 25M 5M- 10M 1M- 5M 500K- 1M Under 500K 1,500 1,000 1,

6 Nordic's activity increasing Rounds by region & sector The UK and Ireland continue to pace the continent in terms of deal activity, grabbing roughly 35% of completed deals. Deal count in the region stayed roughly level during 3Q, while nearly all other regions saw a significant fall. The Nordic region is one that has quietly established itself as a major player within the European venture industry over the past several years. Other than the UK and Ireland, the Nordics were the only other European region to see more than 100 completed financings (112) in 3Q, and have now surpassed the 100-deal mark in seven of the past 10 quarters. One reason for the growing rate of investment is the strong network of investors located within the Nordics. State-owned or funded Finnvera, TEKES, SEED Capital Denmark and Almi Invest have made a particular point to invest in Nordic startups, each participating in more than 30 VC deals since the beginning of. After slumping in 2Q, the UK & Ireland saw an uptick in its relative proportion of European activity, despite Brexit European VC activity by region 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 2016 UK/Ireland Southern Europe Nordic Region GSA France/Benelux Central & Eastern Europe Activity is down across all sectors European VC rounds (#) by sector Software taking in 30% of European VC invested European VC rounds ( B) by sector 4,500 4,000 3,500 3,000 2,500 2,000 1,500 HC Devices & Supplies Software IT Hardware Commercial Services Consumer Goods & Recreation Pharma & Biotech Other Media Energy HC Devices & Supplies Software IT Hardware Commercial Services Consumer Goods & Recreation Pharma & Biotech Other Media Energy 1,

7 Spotlight: UK & Ireland Overview of UK & Ireland VC activity While the VC landscape across the UK and Ireland has moved in relative lockstep with the global venture market, aggregate capital invested in the region remained resilient in the wake of the UK referendum to leave the EU. Last quarter, just over 1 billion was invested across 207 deals; a figure that comes in relatively flat on a quarterly basis, and a volume statistic that is down just under 3% during the same timeframe. At the current yearly run rate, 2016 is on pace to see over 4.4 billion invested across roughly 900 or so deals, which would put total financings on track to come in at the lowest level we ve seen since aggregate capital invested is pacing to close 2016 at the second-highest level of the last decade. UK & Ireland VC activity 1,831 Deal Value ( B) # of Deals Closed 1,381 1,457 1, Median UK & Ireland VC round size ( M) While most traditional VC-backed industries are unlikely to be heavily affected by the broader effects of the UK referendum, we may see implications for specific industries, for instance, fintech. Over the years, London has established itself as an epicenter for the fintech industry, in addition to a broader European financial hub. EU membership granted the region free movement of human capital, the capacity to scale in other European markets, as well as access to a single European capital market and digital market initiatives. As London s advantages from its membership in the EU could potentially subside to an extent, Angel/Seed Early VC 4.27 Later VC

8 other aspiring fintech hubs including Berlin, Amsterdam and Stockholm could see more investment and entrepreneurship shift in their direction. Germany has attracted talent by utilizing a combination of tax breaks and government involvement in its venture market to create a self-nurturing ecosystem a compelling arrangement that may ultimately entice VC-backed companies even outside of the fintech sector to leave the UK & Ireland region. Further, the landscape surrounding the flow of institutional money in the UK s venture capital industry will be interesting to observe moving forward. The European Investment Fund (EIF) has long been one of the largest limited partners funneling capital into UK VC, so as the Brexit dynamic continues to play out, it will be interesting to see what the effect will be in terms of how the EIF continues to fund UK-based GPs. Exit value in the UK/Ireland region came in at 1.3 billion last quarter across 64 completed transactions, representing a YoY decline of over 15% and 45%, respectively. Challenging market conditions particularly affected the IPO exit route during the third quarter as companies increasingly moved to either delay or cancel their offerings. As was exemplified by the success of Ranger Direct Lending (LON: RDP) and Blue Prism (LON: PRSM), not all offerings are off the table, yet future offerings should be evaluated on a case-by-case basis. While some companies will likely be able to hold fairly efficient processes, some will certainly have to hold off. This is very similar to what we expect to see in the US as markets remain choppy. Over 60% of 2016 financings have been at least 1M UK & Ireland VC deals (#) by size Deals of 25M+ account for over 44% of VC invested UK & Ireland deals ( B) by size 100% 90% 25M+ 100% 90% 25M+ 80% 70% 10M- 25M 80% 70% 10M- 25M 60% 5M- 10M 60% 5M- 10M 50% 40% 1M- 5M 50% 40% 1M- 5M 30% 500K- 1M 30% 500K- 1M 20% 10% 0% Under 500K 20% 10% 0% Under 500K UK & Ireland VC deals (#) by sector UK & Ireland VC deals ( B) by sector 100% Pharma & Biotech 100% Pharma & Biotech 90% 80% 70% 60% HC Devices & Supplies Other Software 90% 80% 70% 60% HC Devices & Supplies Other Software 50% Media 50% Media 40% IT Hardware 40% IT Hardware 30% Energy 30% Energy 20% 10% Consumer Goods & Recreation 20% 10% Consumer Goods & Recreation 0% Commercial Services 0% Commercial Services 8

9 Adam Pang Senior Director Merrill Corporation Adam Pang is an international Senior Director at Merrill Corporation. He has over 15 years experience in providing innovative SaaS technology platforms which specialise in financial transactions, secure content sharing, regulated communications and compliance services. Based in London, Adam is focused on driving international sales and strategy in EMEA. He can be contacted on: +44 (0) or by In the wake of Brexit, what is the European venture capital community focusing the most on, currently? The UK s unprecedented decision to leave the EU has certainly thrown a shadow of uncertainty over Europe's VC and startup ecosystem. However, the full impact of Brexit on the UK economy and VC market are expected to become clearer over the next two to three years as the UK negotiates the terms of its exit from the EU. For startup companies that operate in a dynamic and rapidly changing environment, this means Brexit is not likely to be a top concern at the moment. However, a number of VC investors are beginning to evaluate Brexit impacts on a caseby-case basis, while others are looking for companies to address any implications from Brexit in their business plans. According to PitchBook data, overall VC activity continues to decline in count but overall value is still relatively healthy by historical standards. Is this still more of what we ve seen for several quarters now, where more money is concentrated in fewer financings due to perceptions of increased risk? According to various sources, VC investment in Europe dropped to a five-quarter low during 3Q 2016, despite the total number of VC deals increasing slightly quarter over quarter. This decline in VC investment reflects investment trends and market uncertainties globally, in addition to ongoing concerns regarding the long-term impact of Brexit. Only companies that are able to show investors that they have the right business model to succeed will be able to attract investment in such a cautious and hesitant investment climate. While investors remain cautious, there is growing optimism that 2017 may bring more positive results for the region s VC market. What do you see as the primary issues facing European startups in the current environment? In order to attract funds, investors are looking for companies to meet more substantial external milestones than in the past, whether that means market penetration, increased gross revenues or better profitability. However, there remains a significant lack of institutional capital sources (especially at the early stage) to fund high supplementary costs that startups have to shoulder as they transition to scale. Additionally, despite efforts to reduce bureaucracy, Europe is still subject to geo-fencing, with its 28 member states retaining separate rules in many areas like distribution of content and data privacy, as well as ecommerce and finance. What are your thoughts on the new funds-of-funds vehicle currently being shopped by the European Commission, wherein banks and pension funds would invest alongside member states into a promising private equity or hedge fund? The goal is to make VC funds across Europe bigger on average, and so more attractive to pension funds, sovereign wealth funds and endowments, attracting international capital that could not otherwise be accessed, due to structural barriers associated with the lack of critical mass in VC fund size and over-fragmentation. European VC is strongly dependent on public money, where the European Investment Fund is the biggest player. Sentiment is that the new fund-of-funds provides welcome competition to this development-finance body where strong onus is placed on certain sectors and social goals. However, funds-of-funds also have some wellknown disadvantages, such as a double fee structure, and historically lower performance returns. Please share any additional thoughts or comments you have on the state of the European venture industry Macroeconomic challenges and investor caution are set to continue to dominate the landscape as we move into the next couple of quarters. While there is liquidity in the market, VC investors are tentative in putting money to work, with most deals under more rigorous due diligence. The long-term effects of Brexit are still uncertain, with further impact expected as the UK decouples from the European Union. Furthermore, interest in IPO exits is growing among VC-backed companies and the success of these will be closely monitored as an alternative and perhaps more robust exit strategy. 9

10 Exit value well placed, volume sliding Exits Overall exit value for the year is well set to become the second highest in the past decade. However, that total is a bit misleading as roughly 38% of the total exit value has been derived from a single transaction, Acerta Pharma's 4 billion acquisition by AstraZeneca (NYSE: AZN). A more telling figure for the 2016 exits market thus far may be the 247 transactions that have been completed through 3Q. That figure falls roughly 33% below what we observed through the same period last year, and puts the year on path to realize the lowest exit total in five years. VCbacked exits have been sluggish worldwide for the past 12 months, in part dragged down by surging valuations, but Europe may also be feeling a post-brexit impact. Buyers, especially corporations whose core businesses may be influenced negatively by either the drop of the pound or other effects, may be taking their time in evaluating potential opportunities in order to make sure those opportunities are still viable options for growth. Acquisitions of VC-backed companies finished the quarter at the lowest mark since 4Q. Theoretically, the fall of the pound and euro would make Europe an attractive market for foreign Overall exit value set to be second highest in decade European VC-backed exits Capital Exited ( B) # of Exits Closed strategics, but the current landscape is still experiencing an amount of uncertainty that could cause little to change for the foreseeable future Exits of all types sluggish European VC-backed exits (#) by type M&A value the brightest spot in VC-backed exits European VC-backed exits ( ) by type Acquisition IPO Buyout Acquisition IPO Buyout

11 GPs finding means for extra-large funds Fundraising Three quarters into 2016, just 43 European venture funds have closed, on pace to see the fifth consecutive year where total closings moved lower. On the bright side, 2016 vehicles have amassed 7.5 billion in commitments, just off last year's decade high of 8.4 billion. On a Number of funds closed set to decline for fifth consecutive year European VC fundraising Capital Raised ( B) quarterly basis, only six vehicles closed during last quarter, the largest being Northzone Venture's 300 million Fund III, marking the first time fewer than 10 vehicles closed in a single quarter since The quarter totals are in stark contrast to those of 1Q and 2Q, when a combined # of Funds Closed funds were closed with 6.8 billion in commitments. That said, we don't view the 3Q slowdown as overly alarming, given the massive amounts of capital already raised in 2016 and the hoard of dry powder already sitting in funds. For many reasons, Europe's fundraising climate is much different than that of the US. A lesser number of overall investment opportunities causes European VCs to deploy funds over a longer period of time the median time between funds has been at or above five years since. While the number of overall vehicles closed is down, 84% of funds are hitting their targets, a steep jump over recent years. Capital may be becoming more concentrated toward certain managers, but LPs are finding the quality they need to justify continued investment in European VC. Further, the region will continue to be a pivotal area for LPs to find geographic diversification and exposure to various global VC markets. Vehicles closed on 100M+ make up over 60% of total European VC funds (#) by size Average and median fund sizes grow to decade highs Median & average European VC fund size ( M) 100% 90% 1B+ 200 Median Average % 70% 500M- 1B % 50% 40% 30% 20% 10% 250M- 500M 100M- 250M 50M- 100M Under 50M % 0 11

12 League tables 3Q 2016 Most active angel & seed-stage investors by round count Global Founders Capital Startups 3 DN Capital 3 High-Tech Gründerfonds 3 LocalGlobe 3 London Co-Investment Fund 3 Amadeus Capital Partners 2 Asgard Capital 2 Cambridge Enterprise 2 Catapult Ventures Group 2 Connect Ventures 2 Femmes Business Angels 2 Foundation for Internet Development-Initiatives Keadyn 2 Notion Capital 2 Passion Capital 2 Phillipp Kloeckner 2 Pioneers Ventures 2 PJ Tech Catalyst 2 Project A Ventures 2 Samos Investments 2 SEED Capital Denmark 2 Wayra 2 2 Most active early-stage investors by round count 360 Capital Partners 6 Global Founders Capital 6 Caix Capital Risc 5 High-Tech Gründerfonds 5 Sunstone Capital 5 Balderton Capital 4 Earlybird Venture Capital 4 Imperial Innovations Group 4 Northzone Ventures 4 Rocket Internet 4 Speedinvest 4 Target Global 4 Almi Invest 3 Bayern Kapital 3 e.ventures 3 EQT Ventures 3 Howzat Partners 3 Index Ventures 3 Inveready Technology Investment Group London Co-Investment Fund 3 LVenture Group 3 Passion Capital 3 Peter Thiel 3 Salesforce Ventures 3 SEED Capital Denmark 3 Seedcamp 3 StartupLab Oslo 3 Tekes 3 Wellington Partners 3 Wellstreet Partners 3 3 Most active late-stage investors by round count Almi Invest 3 Bayern Kapital 3 Holtzbrinck Ventures 3 Serena Capital 3 Angel CoFund 2 b-to-v 2 CapHorn Invest 2 Chalmers Ventures 2 ecapital entrepreneurial Partners 2 ETF Partners 2 Glide Healthcare Partners 2 Index Ventures 2 Inventure 2 Life Sciences Partners 2 Mangrove Capital Partners 2 Nokia Growth Partners 2 Northstar Ventures 2 Northzone Ventures 2 Octopus Investments 2 Partech Ventures 2 Straightforward Capital 2 Most active law firms by round count Orrick Herrington & Sutcliffe 15 Cooley 5 DLA Piper 5 Olswang 4 Cuatrecasas, Gonçalves Pereira 3 Arqis 2 Bond Dickinson 2 CMS Cameron McKenna 2 Gunderson Dettmer 2 Mills & Reeve 2 12

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