European Venture Funding – Alive and Well

In the eyes of the GO4Venture research team the European venture market has bottomed out. They list three arguments for their view:

• Since summer 2012 investment activity keeps accelerating - even if much of this is growth equity as much as venture per se.
• A whole raft of new market participants (including US investors) are joining in.
• A growing number of funds are replenishing their coffers.

The arguments are followed by an impressive list of funds which announced their fund-raising, both financial and corporate investors:

• Among financial investors, the most striking announcement was Accel‟s with the news of their fourth European fund, with $475mn (€370mn) raised in less than 8 weeks and two thirds of the money coming from US Limited Partners (LPs). The authors comment: “It’s rather ironic that US LPs seem to have more belief in European venture than European LPs themselves.”
  
  
• In many ways this is a vote of confidence in a pan-European approach to venture investing, cherry picking companies for whom to offer active support for international expansion and a brand name to attract the right management talent (Board, Advisory Board and executives). For many European investors, this means redefining themselves to emulate the model or retrench as feeders to the bigger (US) pan-European funds.
  
  
• Other encouraging announcements included:
  - Sector funds: Chrysalix SET (cleantech, target: €100mn), GIMV (healthcare: €100mn), Rock Spring Ventures EU (early-stage life sciences, €80mn), VNT Management (cleantech €77mn)
  
  - Seed funds: CapDecisif (France, €50mn), High-Tech Grunderfund (Germany, €300mn)
  
  - Growth equity funds: XAnge (France, €80mn)
  
  
• For the corporate investors, Nokia Growth Partners announced their third fund at $250mn (€195mn), larger than their previous one which was $225mn in size (€175mn). Again Nokia is the sole LP (despite Nokia‟s own challenges), thereby demonstrating how important innovation investing has become for all corporates. Corporate investing is no longer a cyclical activity which a few companies engage in when times are good, corporate venturing has become a core activity of most companies to help cover the ever broadening innovation beachfront, lock in possible acquisition candidates and stimulate internal R&D via emulation.

On the other hand the discrepancy between a growing level of investment and a flat exit market is growing. In the first months of 2013 the M&A exit market remains a flatliner. This is true for TMT as a whole, as well as for VC and PE-backed TMT transactions worldwide and in Europe. Large corporates are not spending their cash. This is particularly true of US companies with large cash reserve overseas, unable to bring it back to the US without paying taxes, but increasingly in the line of sight of Congress. The other constraint is Wall Street‟s fabled short-termism which prevents public companies from daring moves (with a few astonishing exceptions, e.g. HP/Autonomy). This explains why private equity firms are doing a growing business in the technology sector.