State of the (European) Union in VC

Feb 3, 2015
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state-of-union-euA couple years back I argued that the state of the union for VC in Europe was bleak. In particular, I was referring to the tax-advantaged retail fund sector — most prolific in France but not unheard of in some other European countries like in the form of the UK’s VCT vehicles.

Today in contrast, things look a lot more promising. Not necessarily on the fiscal engineering side: French fiscal fund schemes have continued their precipitous decline and have consolidated into a few actors who mastered the distribution of these vehicles to the general public. Rather, on the free market side of the sector, there is cause for optimism.

Institutional LPs and family offices are re-discovering the asset class. Granted, there remains an uncomfortably high dependency on public funding bodies like the European Investment Fund and the Banque Publique d’Investissement (the latter specific to French VC funds). However, these institutional LPs and family offices are sophisticated investors that are performance-driven. Their singular focus on investment returns pressures the general partners managing the VC funds in which they invest to actually deliver. It’s a healthy pressure that aligns interests and rewards results, albeit not always 100% flawlessly but certainly far more effectively than the opaque world of tax incentives.

Evidence of this encouraging new climate is born out by substantial new fundraisings of established players like Partech, Ventech (they focus on “tech” for avoidance of doubt), Serena Capital, Idinvest, and Keensight, to name just a few recent ones in France alone, not to forget heavy-hitters like Index and Accel.

Moreover, new VC funds created over the past few years are beginning to demonstrate that Silicon Valley-style best practices can be exported to Europe. Passion Capital, WhiteStar, and Forward Partners in the UK come to mind, as do Henq, Hummingbird, and Volta Ventures in the Benelux.

Another phenomenon at play is the increasing awareness of the potential for European startups internationally. Perhaps it’s partly due to spillover from the global tech euphoria, but European tech is beginning to consistently crank out billion dollar valuations and exits. During the past few weeks alone, we’ve witnessed billion-dollar range investment valuations for Adyen, Shazam, and TransferWise, all involving international VCs. Astonishingly, this interesting analysis from Go4Venture finds that U.S. investors participate in 2/3 of European deals that are over $10 million. Investors in Asia, both at the direct and LP level, tend to prioritize the U.S. over Europe for their international exposure to developed markets; however, I predict that some savvy early leaders from Asia will start to pay more attention to European opportunities.

This is all still quite preliminary. The European tech ecosystem has a lot of work to do in embracing and financing innovation in all it forms, as the CEO of Bosch reminded us yesterday. Nonetheless, I submit that for the first time in a long while, the state of the European Union in VC is strong.