Wednesday, April 06, 2016

Has Venture Capital finally arrived in Europe ?

Now that I'm back in London after 10 years working and studying in the USA, it's fortuitous that my office is a stone's throw away from my Alma Mater, The London School of Economics. They have regular lectures and recently I decided to go back to attend one on Venture Capital in Europe. The LSE Finance Department invites me to these from time to time.
There was quite an interesting bunch gathered in the Conference room, including my neighbor, a Consultant at KPMG specializing in due diligence accounting for Venture Capital. The host for the evening was Ulf Axelson, who is the Abraaj Group Professor in Finance and Private Equity at the London School of Economics and the director of the Financial Markets Group. LSE has just started a Master’s degree in Private Equity Which He now runs.
Right away I learned a new word - 'Decacorn' - it's like a Unicorn (Tech start-up that reaches the 'magical' $1 Billion valuation) but instead it reaches the even more magical $10 Billion valuation. On the panel included the Chief of Staff of Lord Rothschild's investment group, Magnus Goodlad; Magnus has 14 years’ private equity experience, including early stage UK technology and venture capital investment. Magnus previously spent ten years at Top Technology Ventures/IP Group where he held various roles, including Chief Operating Officer.
Felda Hardymon, who is a senior partner at Bessemer Venture Partners and the Class of 75 Professor of Management Practice at Harvard Business School. His investments have included Parametric Technology, a provider of product cycle-management software; sporting-goods chain Sports Authority; office-supply company Staples; and Axis Networks (acquired by ACE) a 4G, wireless-remote radio head supplier.
Byron Deeter, who is a managing partner in Bessemer’s Menlo Park, California Office (working at the same company as Felda Hardyman) where he focuses on investments in the cloud-computing, mobile and Internet sectors. He was the founding CEO of Trigo Technologies, acquired by IBM. Byron is the co-author of "Bessemer's 10 Laws of Cloud Computing and SaaS", the BVP cloud index, BVP's cloudscape and BVP's next cloud unicorns. He was the main investor in Criteo, France's most successful IPO of recent years.
Saul Klein who most recently co-founded Kano and Seedcamp, as well as being co-founder and original CEO of Lovefilm International (acquired by Amazon). He was also part of the original executive team at Skype (acquired by eBay).
11% of US businesses are venture-backed companies, which makes up a whopping 21% of the US Economy. So it's clearly important to US business. This article was referenced at the beginning of the talk.
9% of US Venture-backed companies IPO versus only 4% in Europe. Whilst 28% of US companies are bought out versus 20% in Europe
Some of the theories on why Europe is behind the US in Venture financing included:
1) Venture Capital is a younger business in Europe. It only really got going in 1999, whilst in the US it was going strong in the early 1990's
2) There is less of a network of VC's and support organizations (Law firms, Consultants etc.) in Europe than in the US. Part of this problem is caused by employees not moving around enough in Europe. In the US it's far more common to change jobs quickly than in Europe. This change creates bigger and bigger networks, with much more interplay between individuals.
3) Financing - in the US the entrepreneur is the star, financing plays second fiddle. In Europe (particularly London which is dominated by the Financial Services Industry) it's the other way around. At one point someone asked 'what's more important - the Venture Capitalist or the Entrepreneur? and everyone agreed it was the Entrepreneur. However, in Europe entrepreneurs are often left feeling like they are begging for scraps from bankers, not creating a potential gold mine.
Aside; my other favorite quote of the night was 'There's nothing more useless than a Venture Capitalist without a checkbook'
4) Regulatory problems - Byron Deeter talked about the difficulties he had trying to set up Criteo in France. Though a French company they chose to have their IPO in the US on the Nasdaq 
5) Psychology of Europeans - are they more risk-averse than Americans? Certainly, it seems harder to get capital to invest in European countries right now.
Although the 50 square miles of Silicon Valley creates more companies than the whole of Europe, this talk did leave me feeling optimistic; that now is the time for new companies to take off in Europe. Skype, which was founded in Denmark, is a great template to look at for aspiring European Entrepreneurs.
I've also been inspired by talking to a friend who works at a UK Venture builder called Blenheim Chalcot, which currently generates over £300 Million in revenue from investing in 40 new ventures in the UK. They also support these firms with anything from office space to Marketing and Legal services.

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