The European venture capital landscape


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The European venture capital landscape

  1. 1. The European venture capital landscape Bruno Robino European Investment Fund Athens, 28 June 2006
  2. 2. Agenda <ul><li>Private equity in Europe: 2005 a record year </li></ul><ul><li>EIF venture capital in Europe </li></ul><ul><li>Vision for the future </li></ul><ul><li>Conclusion </li></ul>
  3. 3. <ul><li>Private equity in Europe: 2005 a record year </li></ul>
  4. 11. * Source: EVCA / Thomson Financial Venture Economics / PricewaterhouseCoopers
  5. 13. Divestments at cost € 29.8bn
  6. 14. Key points <ul><li>Fundraising: </li></ul><ul><li>more than double over 2004 reaching € 72bn </li></ul><ul><li>80% of funds expected to be allocated to buyouts </li></ul><ul><li>Investments: </li></ul><ul><li>reached a record at € 47bn, a 27% increase over 2004 </li></ul><ul><li>buyouts represent 68% by amount invested </li></ul><ul><li>venture investments +23% over 2004, representing 27% by amount invested </li></ul><ul><li>and 75% by number of investments </li></ul><ul><li>Divestments: </li></ul><ul><li>at cost up to 52% at € 30bn </li></ul><ul><li>Write-offs decreased at around 5% of total amount divested </li></ul>
  7. 20. Key points <ul><li>Investments benchmarks 2005: </li></ul><ul><li>Long term net return since 1980: 10.3% </li></ul><ul><li>Top quarter return 22.9% </li></ul><ul><li>Increased distributions, with realisations above 2000 record level </li></ul><ul><li>Strong performance compared to other asset classes </li></ul>
  8. 21. <ul><li>EIF venture capital in Europe </li></ul>
  9. 22. EIF at a glance 1994 EU specialised financial institution for SMEs, acting through: Venture Capital (fund of funds) and Guarantees for SME portfolios AAA Subscribed capital of EUR 2 billion : - 62 %: European Investment Bank - 30 %: EC for the EU - 8 %: 20 financial institutions PPP Art 2 : «  pursuit of Community objectives  » such as growth, employment, knowledge-based economy, innovation, regional development, Lisbon Art 24 : « generate an appropriate return on its resources  »
  10. 23. Venture Capital activities <ul><li>Acting as a Fund-of-funds </li></ul><ul><li>Public Private Partnership, selecting funds </li></ul><ul><ul><ul><li>Eligible to EU Objectives </li></ul></ul></ul><ul><ul><ul><li>Able to generate risk-commensurate returns </li></ul></ul></ul><ul><li>Biggest European early-stage investor (with a 15% market share) </li></ul><ul><li>Respected investor (even in the crowded lower mid-market) </li></ul>
  11. 24. EIF : mainly a manager of external resources (mandates) EUR 600m EUR 4 000m EUR 800m To be committed in venture capital funds and financial institutions in the EU and Candidate Countries European Community Revolving over 500 000 SMEs indirectly benefited from EIF support BMWA - ERP Etc… Up to EUR 1bn Dahlia SICAR S.R.
  12. 25. European fund-of-funds market
  13. 26. EIF: Venture Capital <ul><li>EUR 3.2 bn have been committed in about 220 funds </li></ul><ul><li>Disbursements represent 60% of the amounts committed </li></ul><ul><li>Young age of the portfolio </li></ul><ul><li>EUR 1.8bn still available for future investments </li></ul><ul><li>2 944 companies in the underlying portfolio </li></ul><ul><li>Total invested by portfolio funds in these companies EUR 7.5bn </li></ul>
  14. 27. Credentials <ul><ul><li>Venture Capital commitments of EUR 3.2bn (as at end 2005) </li></ul></ul><ul><ul><li>Key investor in major markets </li></ul></ul><ul><ul><li>Niche opportunity seeker in smaller markets </li></ul></ul>
  15. 28. EIF vs the European Venture Capital market EIF portfolio stage distribution by % of amount invested European PE/VC market stage distribution by % of amount invested <ul><li>EIF: tendency towards early stage investments (49%) </li></ul><ul><li>EIF: investments biased towards tech (56% in ICT and LS) </li></ul><ul><li>EU: tendency towards later stage buyouts (57%) </li></ul>* Source: EVCA / Thomson Financial Venture Economics / PricewaterhouseCoopers
  16. 29. EIF’s investment focus <ul><li>49% of portfolio are early stage investments - EU average 12% between 2000-2004 (source: EVCA). </li></ul><ul><li>57% are tech-related , primarily ICT and life sciences, </li></ul><ul><li>balanced by buyout, development and generalist (30%). </li></ul><ul><li>EIF always operates alongside private sector investors. </li></ul><ul><li>Diversified geographical investment focus provides good opportunities outside main areas. </li></ul><ul><li>Aims to attract more private sector funding to VC space. </li></ul>
  17. 30. A unique positioning and mix of expertise <ul><li>The largest VC portfolio in Europe (about 220 funds) with most of the current top quartile teams (core) and the emerging ones (satellite) </li></ul><ul><li>A repeat investor in top funds </li></ul><ul><li>Ability to construct portfolio that meets specific risk profile – proprietary system </li></ul><ul><li>Ability to structure transactions that meet the risk appetite of most potential investors – financial engineering, guarantees </li></ul>More complex products for more demanding clients
  18. 31. EIF’s Value-added <ul><li>Long-term, committed and pro-active investor </li></ul><ul><li>Recognised know-how </li></ul><ul><li>Rigourous selection and due diligence procedures </li></ul><ul><li>Pari-passu cornerstone investor </li></ul><ul><li>Active monitoring; regular presence </li></ul><ul><li>Widespread network in European venture capital industry </li></ul><ul><li>Looking also at the more difficult segments (seed, first time teams) </li></ul>“ More than money”
  19. 32. <ul><li>EIF’s vision for the future </li></ul>
  20. 33. EIF’s strategy <ul><li>Continue to develop EIF existing markets (Early stage, Expansion, Small BO) </li></ul><ul><li>In parallel, promote new niches </li></ul><ul><li>With the aim to: </li></ul><ul><li>increase the availability of risk capital in Europe </li></ul><ul><li>stimulate the development of a high growth market in Europe </li></ul><ul><li>improve the investment environment </li></ul><ul><li>benchmark best practices in Europe </li></ul>
  21. 34. EIF’s focus Later-stage Buy-out IPOs Tech Transfer Incubators Business Angels Expansion / Dev.Capital Early Stage Pre-Seed Seed SME LIFE CYCLE « VENTURE CAPITAL » « PRIVATE EQUITY » New policy areas European Investment Fund CIP COVERAGE CURRENT MANDATES COVERAGE GAP
  22. 35. The innovation cycle covered by EIF <ul><li>New investment focus </li></ul><ul><li>Business Angels </li></ul><ul><li>Side Funds </li></ul><ul><li>Tech transfer </li></ul><ul><li>Incubators </li></ul><ul><li>Pre-Seed </li></ul><ul><li>Existing markets </li></ul><ul><li>Early Stage </li></ul><ul><li>Expansion </li></ul><ul><li>Development Capital </li></ul>Fundraising underway in these new areas New fundraising in our existing markets CIP TTA JEREMIE
  23. 36. CIP: Competitiveness & Innovation Framework Programme <ul><li>Successor programme for MAP for period 2007–2013 </li></ul><ul><li>European Commission proposal was adopted on 6 April 2005 </li></ul><ul><li>Co-decision procedure by European Council & Parliament </li></ul><ul><li>Objectives </li></ul><ul><li>Generate economic growth and create more jobs </li></ul><ul><li>Boost the productivity, competitiveness and innovation capacity </li></ul>
  24. 37. CIP – the proposed instruments <ul><li>High Growth Innovative Companies Scheme (VC) (EUR 518m) </li></ul><ul><li>GIF1: Early stage (ex ETF Start-Up) </li></ul><ul><li>GIF2: Later stage (job creation, generation change…) </li></ul><ul><li>SME Guarantee Facility (EUR 468m) </li></ul><ul><li>SME loans, Microcredit, Equity and mezzanine </li></ul><ul><li>SME loan securitisation risk-sharing scheme </li></ul><ul><li>Capacity Building (EUR 60m) </li></ul>
  25. 38. Tech Transfer <ul><li>“ There is considerable weakness of early stage ventures in Europe … due to structural differences in the transfer of technology from labs to industry (compared to US)” . ECFIN paper for the EFC – March 2005 </li></ul>US University Revenues (€m) Columbia University 115.4 University of California 65.3 Stanford University 50.0 University of New York 49.9 Sloan Kettering Institute for Cancer Research 43.3 University of Rochester 33.5 Europe University Revenues (€m) Pasteur 32.6 Edinburgh University 4.5 Utrecht* 4.0 Cambridge 3.1 INRIA* 3.0 VIB* 2.7
  26. 39. Technology Transfer R&D Tech transfer / proof-of-concept Marketable product «Licensing» Special Protection Vehicles Virtual LAB Created by leading R&D Centres Potential exits for the SPV projects Licensing to corporation Sale to corporation Purchase / investment by other investors IPO Investment focus of TTA «Technology» Intellectual Property «Prototype» Intellectual Property Looking for new funds from EU to stimulate tech transfer «Spin-off» Special Protection Vehicles «Hybrid» Special Protection Vehicles Funding gap Funding: FP7 Funding: CIP
  27. 40. JEREMIE <ul><li>JEREMIE is an initiative of the Commission (DG Regio) launched in October 2005 </li></ul><ul><li>Joint” because it combines resources from EC, National Public Authorities, EIF, EIB and/or other International Financial Institutions (IFIs) </li></ul><ul><li>JEREMIE is not an organisation, but a series of coherent actions </li></ul><ul><li>Main Targets: </li></ul><ul><li>Optimising use of ERDF funding for enhancing the access to finance for SMEs through sustainable and « revolving » financial instruments </li></ul><ul><li>Leveraging ERDF funding with EIB loans as well as EIF expertise in creating tailor-made instruments </li></ul><ul><li>Develop the role of Entrepreneurship in EU </li></ul>
  28. 41. JEREMIE: Phases Venture Capital Funds Preparation of Operational Programmes EVALUATION PHASE 2006 2007 - 2013 IMPLEMENTATION OF NATIONAL FUNDS DISBURSEMENT PROCESS Microfinance Providers (MCPs) Tech Transfer Activities Guarantee schemes Transforming parts of the ERDF grants into financial products for SME Multiplier effect on the budget by attracting EIB & IFIs’ lending SME SMEs SME SMEs SME SMEs SME SMEs SME SMEs
  29. 42. <ul><li>“ It is easier to pick a good wine if one starts with a list of the vintage years. </li></ul><ul><li>As in wine-making venture capital has its good years and of course its bad years. </li></ul><ul><li>Sometimes the quality of the year is not apparent until some maturation has taken place, but in many cases the indicators are apparent from the environment and maturation merely serves to confirm what everybody feared in the first place [..]. </li></ul><ul><li>Quality brands will always stand out.” </li></ul><ul><li>Chris Smart, General Partner at IDGVE, 2002. </li></ul>Conclusion Private equity as winemaking?
  30. 43. Thank you for your attention European Investment Fund tel.: (+352) 42 66 88 1 fax: (+352) 42 66 88 200 Bruno Robino [email_address] For more info: [email_address]