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 exciting bunch gathered in the Conference room, including my neighbour, a Consultant at KPMG specialising in due diligence accounting for Venture Capital.

The host of the evening was Ulf Axelson, the Group Professor in Finance and Private Equity at the London School of Economics. LSE has just started a Master's degree program in Private Equity.

Byron Deeter, the managing partner in Bessemer's Menlo Park, California Office, was the most interesting speaker. He focuses on investments in cloud computing, mobile and internet sectors which is exactly my area of expertise.

Bessemer's 10 Laws of Cloud Computing and SaaS

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 principal investor in Criteo, France's most successful IPO of recent years.

Felda Hardymon, a senior partner at Bessemer Venture Partners and the Class of 75 Professor of Management Practice at Harvard Business School, was also very interesting. 

His investments have included Parametric Technology, a product cycle-management software provider; sporting-goods chain Sports Authority; office-supply company Staples; and Axis Networks (acquired by ACE), a 4G, wireless-remote radio head supplier.

Also on the panel was Saul Klein, who most recently co-founded Kano and Seedcamp and the 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). 

Skype is one of my favourite companies. It enabled me to cheaply and easily stay in touch with friends and family in Europe when I first moved to the USA in 2005.

11% of US businesses are venture-backed companies, which makes up a whopping 21% of the US Economy. So it's apparently crucial 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. While 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 include:

1) Venture Capital is a younger business in Europe. It only really got going in 1999, while in the US, it started in the late 1980s

2) There is less of a network of VC's and support organisations (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 accelerates the size of the networks.

3) Financing - in the US, the entrepreneur is the star. Funding plays second fiddle. In Europe, it's the other way around.

4) Fear of failure - are Europeans more risk-averse than Americans?

5) Regulatory problems - Byron Deeter talked about the difficulties he had trying to set up Criteo in France. Though a French company chose to have its IPO in the US on the Nasdaq 

Although the 50 square miles of Silicon Valley creates more companies than the rest of the world put together, this talk did leave me feeling optimistic; now is the time for new companies to take off in Europe.

Skype, founded in Denmark (and now owned by Microsoft), is a great template for aspiring European Entrepreneurs.

In the UK, startups are booming, particularly within marketing, and Fintech has generated £3 Billion in investment. The entire sector has been growing rapidly, well over 10% each year.