Global Themes

End of the “nuclear winter” for European VCs?

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…

October 11th, 2006 Posted by Shantanu | Venture Capital in Europe | no comments

The VC Stampede to Asia

I am pretty sure that this is not a complete list but it is interesting nevertheless. Below are names of some very well-known VCs who formally declared their intent to invest in Asia in the last twelve months. 

This move towards investing beyond the “2-hour drive” periphery signals a profound change – whose ramifications will continue to be felt for years. Yet, I find it odd that there are not more people commenting on it.

More remarkable than the impressive list of names is the conspicuous absence of European VCs from the list.

In April ’06, the EVCA did a survey of European VC firms that showed almost half (47%) had no activity at all in Asia (either via portfolio companies or through direct investments).

Why are European VCs so cool/cautious on Asia?

Partly it could be that Asia is still viewed as a “supplier of good or services or (an) outsourcing region” and European investors see neither market opportunity nor any signs of innovation happening there (they are wrong on both counts, of course).

As I was searching for some answers, I came across this gem (buried deep under news archive on Walden International’s website)

It was written in Feb ’01, I guess weeks before the markets began to wobble. It mentioned a few reasons why US VCs were not keen on Asia (this was then). Some of those points resonate in Europe today (excerpts).

1. Distance

“Distance is one key factor keeping the creme de la creme of Silicon Valley VCs from setting up offices overseas. …Sequoia Capital founder Don Valentine said: “In 30 years we haven’t convinced ourselves to set up a presence in Boston. It’s a very difficult business to be good at consistently over a long period of time, and it requires a lot of thoughtful and integrated decision-making….”We make enough mistakes on investments we make here (in Silicon Valley), that we’re not comfortable we can (be successful) 3,000 miles away, never mind 8,000 miles away.”

Keep Reading…

August 17th, 2006 Posted by Shantanu | Europe and Asia, Venture Capital in Asia, Venture Capital in Europe, Venture Capital in US | one comment

Globalization – What’s it got to do with me?

A few days ago, Iggy Bassi (a friend from Monitor Co.) very kindly sent me some excerpts from a book that he has edited with Jeremy Grant titled, Structuring European Private Equity.
 
In an insightful chapter on “European Venture Capital”, Iggy and co-author Vesa Jormakka (Argo Global Capital) make several interesting points.
 
In their introductory paragraphs, they talk about Globalization as being one of the key strategic challenges facing European VCs