European Venture Crossing the Chasm

The Go4Venture Advisers’ European Venture & Growth Equity Market Monthly Bulletin provides a summary of corporate finance activity among emerging European TMT companies. It features a proprietary Headline Transaction Index (HTI) of investment activity, as well as a quick summary of VC & PE-backed TMT M&A exits of $50 million or more.

In the current edition of the bulletin the authors report about the continuing trend to fewer, but bigger, later-stage transactions. But they see a new trend too: European venture is going over the tipping point: actual returns for investors – which will mean returning investors, and new investors. In fact returns are getting better, as reported last month, with net IRR (of funds in which the European Investment Fund is invested) going up from approximately 2% for funds with a vintage of 2000 onwards, to 5% for 2005 and later funds and 10% for funds set up since 2008.

The positive signs for venture as a whole, and European venture in particular, are accumulating:

• US venture is getting back to health with more than $10 billion invested in 2014-Q1, only the second time since 2001 that venture investment exceeded this level in a single quarter (according to Dow Jones VentureSource mentioned in the Wall Street Journal).
• Europe is slow going but European Central Bank (ECB) President Draghi repeated its “whatever it takes” feast with a “Are we finished? The answer is no” earlier this month, probably putting the threat of deflation away, which leaves innovation as essential as before to drive European recovery longer term.

Even if it makes the job of entrepreneurs seeking funding more difficult, the options for funding are getting broader: yes, the Tier 1 funds are obsessed (rightly) about internet plays, but there are plenty of sometimes more specialised funds to tap; corporates are much more active; and of course crowdfunding is gaining momentum.