How Venture Capital Supports High Growth Companies 28/06/12 Public Hearing: Improving Access to Finance for SMEs

Transcription

1 How Venture Capital Supports High Growth Companies 28/06/12 Public Hearing: Improving Access to Finance for SMEs European Economic and Social Committee

2 Why is venture capital important in Europe? Venture Capital Investment by Sector (2011) 17.64% 0.21% 3.82% 2.74% 2.08% Agriculture Business & industrial products Business & industrial services Chemicals & materials Communications Every euro invested in early stage VC is statistically associated with 10 euros of GDP growth % 11.38% 0.51% 4.51% 3.26% Computer & consumer electronics Construction Consumer goods & retail Consumer services Energy & environment Every euro invested in later stage VC is statistically associated with 3 euros of GDP growth % 2.81% 0.33% Financial services Life sciences Real estate Over 45% of venture investment is in hightech companies % Transportation 30% 25% 20% 15% 10% 5% 0.58% 0% Unclassified 1, 2: Deutsche Bank Research Venture Capital Adds Economic Spice ( ): Source: EVCA / PEREP Analytics 3: EVCA A company that has exclusive ownership of certain intellectual property rights such as design rights, patents, copyrights, etc. which are critical elements in adding value to the products and business of a company and which are being developed in-house by the company s permanent staff. Creating lasting value 2

3 Venture capital backed companies performed better during the crisis Source: Creating lasting value 3

4 Venture capital is rocket fuel for companies Many Go up Some Go bust Creating lasting value 4

5 The Good News: Continuous Growth of Deal Quantity and Quality! Example Earlybird Dealflow Year on Year (No. of New Leads)* Share of Portfolio Companies with Repeat Entrepreneurs (%)* 1,204 +7% 1, % 1,499 +6% 1, % 2, % ** Fund 2007 Fund * Does not include all leads screened on "fly-by"; gross dealflow factor of min x ** Expected based on dealflow until Sept. 30, 2011 Source: Earlybird Creating lasting value 5 5

6 Supported by US VCs Now Finding Highly Attractive Targets in Europe VC Investments in Europe by US VCs (US$m) +59% Later Stage % Early Stage 38 +4% Source: EVCA Ashton Kutcher & Madonna's manager Creating lasting value 6 6

7 European Venture Capital is Under Capitalised (not inexperienced) Supply-Demand Ratio Venture Capital Industry DACH (Index) 100 Supply Market still saturated with pre-bubble VC funds Immediate drop in venture deal flow by 50% Demand Droves of entrepreneurs run for the woods after bubble burst Exit boom starting in 2005 started to drive up demand 65% of all VC funds slide to oblivion Current supply gap Creating lasting value 7

8 The private sector is turning away from European venture capital Pension funds 11% Sovereign wealth funds 0% Private individuals 5% Academic institutions 0% Banks 7% Capital markets 6% Other asset managers 1% Insurance companies 1% Corporate investors 15% Endowments and foundations 1% Family offices 3% Government agencies 39% Fund of funds 11% * Source: EVCA/PEREP_Analytics Creating lasting value 8

9 Barriers to fundraising Pension funds and insurance companies are often too big to access small venture funds In Europe there is an absence of a class of long-term investor with the skills and interest in innovation & entrepreneurship. Venture funds are small and often lack the time and expertise to raise capital on international markets Pension Funds & Insurance Firms Funding Barrier Venture Capital Average performance of European VC has not been competitive with private equity or property which can blend equity and debt financing Creating lasting value 9

10 Main Challenges for the industry: Structural barriers to fundraising continued The gap in the innovation finance funnel can be bridged by funds of funds In March 2010 EVCA proposed a scheme to use public sector capital to incentivise private sector investors into funds of funds EVCA is working with investors and fund of fund managers to develop this concept further. Pension Funds & Insurance Firms Funds of Funds Venture Capital Creating lasting value 10