Euro Venture finally holding its own

By October 4, 2006News, Venture Capital

AlarmClock Euro reports the following results of a Silicon Valley Bank (SVB) study:

As a result of the improved exit opportunities, some of the best-performing venture investments are now coming from the European Union. A study of 2,600 venture deals around the globe from the past three years found that, among those that returned more than five times their initial investment, 43 percent took place in Europe, and more than half of all deals that returned 10x or more were European.

There is a bit of Chinese whispers about this data – AlarmClock Euro reports a SVB study carried out by TLCom based on VentureSource data (still with me?) but assuming it all checks out  THIS IS GREAT NEWS

Congratulations to all the entrepreneurs who made it happen.

European Venture Capital is a part of the global asset class called private equity.  Within that we compete for investment from Limited Partners (Limited Partners or LPs – the investors in our funds, mostly pension funds and insurance companies with a sprinkling of far sighted corporates) with the other members of the asset class and with other regions globally.

It maps out something like this:

Private Equity Map 

Forgive me if the formatting is a bit off.

Since the last bubble European VC has probably been the least popular segment on this map – both geographically and by subsector.  To take each in turn:

  • By asset class – from roughly 2002-04 the mid-market was really hot and delivering great returns, particularly across continental Europe.  As always happened too much money poured in, asset prices went up, returns dropped from stratospheric levels and LPs moved on …….. to big ticket private equity. That is mega funds like CVC, KKR etc.  They have been hot for the last year or two but there are signs they have reached the peak of their cycle.  Doughty Hanson yesterday pulled the IPO of a €1bn public fund following record fundraisings both public and private over the last 12 months.  The FT started talking about a bubble in big ticket private equity a few months ago and I would have linked to them if their site wasn’t so horrible – instead here is an AlwasyOn post from last year on the same topic.  So sub-sector wise European venture has been very much the poor cousin of the other two parts of the market.
  • Geography wise Europe has always lived in the shadow of our American cousins at Sequoia, Kleiner, etc. because their returns have been better.  Click through the Sequoia link above as a refresher on the great companies they have helped build – Apple, Yahoo!, Google etc. etc. etc.  Meanwhile India and China have been hotting up (albeit from a small base).

So it has been a tough time for European venture capital and as a result the sector has shrunk substantially.  As measured by funds raised the industry is 10-20% of what it was at the peak of the bubble and A LOT of firms have shut their doors. 

Last year was better, as more money started flowing back into the industry, and now I’m finally starting to get excited about the prospects for European Venture.  According to this survey our returns are starting to look comparable with our US cousins and at the same time the mid-market and big-ticket LBO subsectors are looking less attractive.