Dublin ranks fourth after London, Paris and Berlin in terms of the best cities to attract venture capital funding, according to research by Funderbeam and start-up researcher Tatjana Budkov.

Budkov and Funderbeam looked at 10 cities renowned as Europe’s hottest funding hubs for start-ups and which are attracting the most investment, including Amsterdam, Barcelona, Berlin, Dublin, Helsinki, London, Madrid, Paris, Sofia and Stockholm.

‘If you’re seeking to raise funding, the Irish capital offers start-ups a much cheaper alternative than London, backed by a very enabling Government that is working to put Dublin on the tech map’

– TATJANA BUDKOV

London, Paris and Berlin are still the best cities to attract VC funding and between them raised $38.6bn or 72.9pc of all VC investments in Europe’s innovation hubs between Q1 2014 and Q1 2016.

London – Europe’s self-proclaimed fintech capital – has raised the lion’s share of all VC funding, with $26bn in VC raised, and it is home to JustEat, ASOS and Transferwise. Also, more than 25 VC firms have established themselves in London since 2010.

By comparison, while Paris has witnessed a rebirth in French VC, Parisian start-ups raised just over $6.7bn, a fraction of its British neighbour.

Berlin, which ranks as third, raised $5.8bn in VC investments.

“What caught our attention about the digital oasis of Europe is that, unlike London, the hub has more foreign VC firms than local ones – attracting the likes of Benchmark, Index Ventures and Union Square,” said Budkov.

“It also has a solid culture of corporate venturing funds investing in early-stage start-ups.”

In other words, the key to growing your status as an innovation hub for start-ups is to encourage international VCs to set up in the city, a sentiment echoed last week by HubSpot founder Brian Halligan who described Dublin as the “scale-up capital of Europe.”

Dublin has drawn $4.32bn of VC dollars.

“If you’re seeking to raise funding, the Irish capital offers start-ups a much cheaper alternative than London, backed by a very enabling government that is working to put Dublin on the tech map.”

Start-ups in Madrid raised over $4.1bn between 2014 and 2016, followed by Amsterdam, where Dutch start-ups raised $1.8bn in VC investments. The other cities covered in the report included: Stockholm ($1.46bn), Barcelona ($1.41bn), Helsinki ($993.6m) and Sofia ($105.6m).

A turnaround as Series C funding is on the rise in Europe

Budkov pointed out that Europe has historically lagged behind Silicon Valley in the volume of venture capital investments and in 2015 venture capitalists invested over five times more money in the US than Europe.

Despite this, or in spite of this, Europe is home to 16 of the world’s fastest-growing unicorns, including Sweden’s Spotify and Germany’s Delivery Hero.

But, because of this imbalance, very few start-ups survive to raise the coveted Series B and C rounds

This causes a domino effect through the entire ecosystem leading to an absence of growth and late-stage funding.

According to Budkov and Funderbeam’s data, however, this has been slowly changing, with Series C rounds officially overtaking Series A by volume invested.

“Absorbing $12.3bn (or 23.4pc of total VC investments) in just over two years, European start-ups are coming of age, and scaling enough to attract the attention (and capital) of growth funds,” Budkov said.

“Whilst Series A follows closely behind at $12.04bn, Europe is now demonstrating that it is entering the big league.

“This is great news for start-ups – who previously faced the challenge of a shortfall of growth capital. However, it does not dispel the threat that this surge is also tied to heightened vanity metrics and valuations so favoured by Silicon Valley VCs.

It is not only Series C rounds that have skyrocketed across Europe. Growth rounds have also overtaken early-stage fundraising in investment volume.

Series D saw over $9.59 billion in deals, equivalent to 18.11pc of total investments.

Late-stage funding is also on the rise, with Series E attracting $4.11bn in investments.

“An increased number of growth and late-stage funds are bolstering this demand, as well as corporate venturing arms that are fuelling, rather than competing, with their start-up counterparts,” Budkov said.

“More access to paper valuations and late-stage funding are giving European start-ups more reasons to raise cash and stay private rather than go public, again, following US trends in VC funding.”

Dublin is also a contender in terms of early-stage funding

City Angel Seed Series A Series B Amsterdam 4.06% 3.52% 4.33% 3.90% Barcelona 4.50% 4.35% 3.85% 2.91% Berlin 3.57% 9.13% 10.56% 12.31% Dublin 7.09% 5.19% 5.03% 6.21% Helsinki 5.34% 5.50% 2.83% 3.11% London 51.69% 50.01% 50.71% 50.75% Madrid 4.86% 5.48% 3.95% 4.87% Paris 14.32% 12.76% 13.09% 13.20% Sofia 0.00% 0.74% 0.39% 0.34% Stockholm 4.57% 3.32% 5.26% 2.40%

London, Paris and Berlin have been able to raise the most early-stage capital, making up 74.8pc of all investments.

London takes the lion’s share, with over 50pc of all early-stage investments ranging from angel to Series B.

For angel investments, Dublin and Helsinki are strong contenders, having attracted together over $75m in early-stage rounds.

Berlin fails in this regard – accounting for just over 3pc of all angel deals – although this may be an indication that start-ups are bypassing angel investors to raise seed funding instead.

The largest proportion of angel investment (51.69pc) can be found in London, followed by Paris (14.32pc) and then Dublin (7.09pc).

Brexit could dampen appetite for investment

Budkov said there are clear signs that Europe could follow in the wake of Silicon Valley as venture capitalists widen their net.

“There are uncertainties which may, however, dampen VC investments in these cities.

“The upcoming ‘Brexit’ will dull investment for the time being as a European exit puts into question European market growth and reach for London-based startups.

“France is also taking a rather militant stance against tech giants – its recent Google raid made headlines, and Paris hasn’t exactly embraced Uber and Airbnb with open arms – raising doubts to the growth potential of tech start-ups serving this space.

“Berlin, despite being a digital oasis, saw a relatively disastrous post-IPO share price for start-up-darling Rocket Internet.

“As a result, we’re likely to see more and more entrepreneurs consider launching their start-ups in more tech-friendly, less saturated and cheaper European hubs.

“As long as Europe keeps its head on its shoulders, and doesn’t get sucked into another tech bubble, it fares well for the future.”

Dublin image via Shutterstock