At the welcome reception for the EVCA Conference in Barcelona – where the good and the great of European VCs come to mingle – the mood is distinctly upbeat.
No talk of Sevin Rosen, no talk of a broken Venture Capital model, no talk of closed public markets..
Quite the contrary, European fund-raising has had a great year, the IPO market is turbo-charged, great companies are being built. No cause to be despondent, no reason to panic.
The harsh, long nuclear winter of 2001 – 2003 seems to be finally over.
But not everyone is so optimistic. In its issue dt 1st Sept ’06, the European Venture Capital Journal carried an article by Joanna Hickey titled, “Europe Looks Behind”.
It explored why pessimism persists about European VC:
- Lackadaisical returns – still lag US – although critics say that the best firms match their US counterparts (unfortunately I have no hard and broad-based evidence)
- Lack of infrastructure (such as exit markets…with liquidity)
- Insufficient number of experienced investors
- No operational backgrounds/ mostly bankers and accountants (I was reminded of a recent article in the FT in which Jajah founders were quoted as saying, “The venture capitalists here (in US) have a completely different approach. In Europe, they are acting more like a bank institution – they are giving you small portions of money based on milestones and if you don’t reach the milestone you don’t get it and all the time you have a money problem” – sad)
- Lack of global ambition
- Lack of a clear (and bold) investment strategy
but also cited reasons for optimism
- Statistics (re. performance) do not tell the full story and they are backward looking
- Top-quartile performance is on par with the best in US
- Entry prices are far lower
- Exit environment is improving
- A select group of VCs is emerging
So is the glass half-full or half-empty? Regardless, there are still some fundmental issues which haunt European Venture Capital…and tomorrrow I will be looking for answers to at least some of these:
- The lack of enough 2.5x – 3x exits
- Lack of enough innovation and risk-taking
- Lack of a large enough domestic market (a la US/ China)
- Stifling laws and bureaucracy (try firing a worker in UK these days)
- Dire fund-raising environment
From an overcast evening in Barcelona, looking forward to a sunny tomorrow…