SaaS Snapshot: Shifts in the European Enterprise Software Space

saas-snapshot:-shifts-in-the-european-enterprise-software-space

Are things looking up for the Enterprise Software sector in Europe? 

We  partnered with HSBC Innovation Banking to find out. 

This joint report explores the biggest shifts in European enterprise software from H1 2023 and H1 2024, with a focus on VC funding, venture debt, and what it means for founders.

We caught up with Jean-Laurent Pelissier, Managing Director, Head of Enterprise Software (HSBC Innovation Banking) at SaaStock Europe to get his take on the findings.

A flight to quality for VCs

The data in this report compares VC funding patterns in H1 2024 to the same period in 2023. A key finding? VC deals are down but overall investment is up–driven by a marked increase in funding to growth stage SaaS.

In H1 2024: 

  • Almost two thirds of funding (65%) went to Series C+ companies up from 38% in 2023.
  • Series A funding was down 34%.

Jean-Laurent explained that, in this market, investors are targeting companies with proven product-market fit that are accelerating their growth globally, in a more structured way than we’ve seen in previous years.

Digging into the reasons behind this shift, he said: 

“Investors still need to deploy capital. I think that’s key. A lot of the later stage companies were also extremely well funded from 2021 and 2022–when equity capital was a lot cheaper and much more abundant. But now they’re at a point where, if they want to keep growing and executing on their plans to become dominant players in the space that they operate in, they need to raise further capital. And so these companies are back in-market. A lot of them also looked at right-sizing their approach to ensure that they have sound fundamentals, that they’re very efficient companies, which I think is very attractive to investors. And so that has brought capital back into the Series C ecosystem.”

Interested in the full findings? Download the report.

AI and fintech reign supreme

Looking at investment by SaaS sub-sectors, AI and fintech came out on top.  There was a clear resurgence for fintech as investment into the sector almost doubled YoY. According to Jean-Laurent, this shows a resilience in the sector, particularly B2B software for financial institutions where the product and client base are inherently ‘sticky’.

Unsurprisingly though, AI still dominates as the speed of innovation keeps it top of mind for investment:

“There’s a lot of excitement around AI for good reason. And the key reason is that it could have a very disruptive effect in terms of how companies operate, how the economy in general operates, and it really can impact each of our day to day lives.”

Looking to 2025, Jean-Laurent predicts further investment in AI as the industry settles and we see how it can really be applied to solve key business issues:

“It’s similar to the typical VC underwriting approach in the sense that not all of them are going to succeed. We’re probably going to see some of these companies evolving quite quickly based on the technology that’s coming out on the AI side. Some of the software AI applications that are available today are going to be potentially disrupted by new entrants coming in. So I think we’re going to see a lot of iteration over the next few years.”

Diversifying capital: A rise in venture debt

In addition to VC funding, this report also looks at how the capital mix is evolving across venture debt, private equity, and corporate finance. 

One of the most interesting insights is that venture debt has “skyrocketed” with 40% of deals now including a debt component. Speaking to this, Jean-Laurent said:

“If you go back a couple of years..there was a lot of equity and it was quite cheap… Companies didn’t have to think so hard about balanced capital structures and ensuring that they’re the right asset class to finance the right growth initiative. Today, where equity is quite expensive, companies and founders need to think a little bit more about what are some of the different types of capitals available. There’s a lot of private credit that’s available in the market. And that’s a great use case in order to try to accelerate that growth [and] grow that enterprise value without necessarily diluting yourself along the way.”

Advice for founders in 2025

Overall, this report gives reason for cautious optimism in 2025. A view echoed by our CEO and Backfuture General Partner, Alex Theuma: 

“As we look to 2025, with the industry focused on building more efficient businesses, the outlook is bright for SaaS companies to thrive once the tailwinds come back. We could be at the dawn of a new golden era.” 

With capital returning to the market, Jean-Laurent shared some final advice for founders who are looking to fundraise over the next 12 months: 

“I would advise that companies focus on their core metrics, that they focus on ensuring that they’ve got sound fundamentals, sound product-market fit, and then to start fundraising as early as possible. Because it does take a long time, especially in this environment where there is less money available than there was two years ago. It’s important that companies start that journey early on so that they’re not facing more stressful situations further down the line.”

Get the full findings: Download the full report.

Get ahead in 2025

With the focus on efficient growth still at the heart of VC decision making and AI continuing to make waves in the industry, the next 12 months are going to be interesting for SaaS. 

Check out some of our latest resources for actionable advice to help you get ahead in 2025. 

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