The degree of maturity and dimension to which the North American venture capital industry has reached compared to the state of recent development of the European one generates the existence of such great differences that they turn them into markets with completely different rules of the game. A series of recent analyses prepared by Techcrunch and Pitchbook, comparing the investment trends of the period 2007-2011 versus the results of the exits of the period 2012-2016, clearly show these differences.
Evolve fast vs size
During 2007-2011, the European venture capital industry began to take off. Although it continues to represent a fraction of the American one, at least it shows a clear positive trend. To give us an idea of the size, in 2011 there were more than 1,400 investments in Europe compared to just over 4,000 investments in the United States. In other words, European venture capital in 2011 was barely a third of North American venture capital. The average valuation of European rounds was 5 million dollars compared to the average of 7 million dollars in the United States. All of this indicated a rapid development in the European venture capital industry, with the drawback of starting from a much smaller investment base.
Number and evaluation of exits
The investments made in the period 2007-2011 have produced a series of exits in the period 2012-2016 that highlight The problem of European industry: while the average exit in the US is around 200 million dollars, the average exit in Europe is 70 million dollars! In other words, and even correcting for the difference in the average investment round, North American venture capital yields almost exactly twice as much!! Another fact that can make the difference between the size and weight of venture capital in the US vs Europe more graphic is the number of exits worth 250 million dollars in one territory compared to the other. Across Europe, 22 exits of this value were registered, while in the United States there were 166.A good exit in Europe is valued at 100 million dollars, while a good exit in the United States is worth 250 million dollars.
How to make European Venture Capital become increasingly American?
In a recent article for Techcrunch, Victor Basta of Magister Advisors mentions a series of measures that should be taken to fill the gap that currently exists in Series C funding rounds. According to Basta, this would provide the most ambitious CEOs and investors with the opportunity to take advantage of last-stage capital to achieve higher-value exits, exceeding the average of 70 million dollars and in turn creating more European unicorns.
The push for larger rounds would increase the capital available to the most promising companies.
One measure that could be of great help, Basta continues, could be to encourage specific government funding or co-investment for Series C. Through debt instruments that are attractive to companies, with low interest rates, the availability of existing capital would be expanded for companies that are in these stages, generating greater benefits for investors, which in turn would allow part of them to be allocated to other C or subsequent rounds.The increase in the number of visas for highly qualified workers would also help to improve and expand the reach and impact of European technology companies.. In this way, more trust would be generated between companies to be able to recruit a large volume of qualified human capital with which to grow. On the other hand, the creation of specific accelerators for companies with +100 employees, which are very promising and in more advanced stages of development, with more sophisticated mentoring and selective aid programs, would also help to disseminate knowledge and experience, reducing the risks of expansion and funding significantly. Currently in Europe there are a large number of accelerators that accompany newly created companies, but there are almost no accelerators focused on the next phases of growth and expansion of startups. He concludes by saying that without the actions mentioned above, the European venture capital industry would need 20 to 30 years to evolve on its own to the levels of the United States. On the other hand, by carrying out these specific actions, the leveling time could be drastically cut and, achieved within a 10-year horizon, to balance the venture capital of both regions.
