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Key Findings

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Investors

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Purpose

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Policy

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Appendix

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VCs and LPs

It's hard to point to a single reason why the level of interest in European tech has increased in the way it has over the past five years. But it would be foolish to look past the hard data. The fact is that European VC returns are now globally competitive and that has caused LPs to wake up. On a one-, three- and five-year horizon, Cambridge Associates data, the most widely cited benchmark of venture capital performance, shows that its index for European VC performance is either on par or significantly outperforming indices for both US VC and, importantly, European Private Equity.

Horizon pooled return (net) by fund index, June 2019

Legend

  • Europe Developed Venture Capital Index ($)
  • Cambridge Associates US Venture Capital Index
  • Europe Developed Private Equity Index ($)
  • MSCI Europe Index ($)
Note:
As of 30 June 2019, $

LPs from around the world are becoming increasingly interested in European tech. They recognise the quality of technical talent in Europe and want access to this potential. There is also a realisation that the next Silicon Valley isn't going to be a single location; instead, it will be a number of cities that attract and aggregate the world's best talent and build ecosystems around this.

Alice Bentinck

Entrepreneur First

Co-founder

2018 was another record year with European VCs raising more than $13B, and fundraising activity in the first six months of 2019 (>$7.5B) indicates that the full year total for 2019 could go on to surpass that level. Larger funds of greater than €250M represent over 40% of capital raised in 2018.

Funds > €100M


66%
of all VC funds raised in 2018 are from funds with a size of >€100M.

VC funds raised ($M) and number of VC funds closed per year by fund size (€M)

Legend

  • <€25M
  • €25-50M
  • €50-100M
  • €100-250M
  • >€250M
Note:
H1 2019 figures are preliminary. Taken from the European Data Cooperative, developed by Invest Europe. EDC data converted at EUR:USD of 1.1367, the rate on 30 June 2019.

The overall median fund size at final closing reached $53M in the first six months of 2019, continuing the gradual increase in average fund size in Europe over the past five years.

Average VC fund size


$53M
Size of median VC fund closed in Europe in H1 2019

Median and mean fund size ($M) at final closing by year

Legend

  • Median
  • Mean
Note:
H1 2019 figures are preliminary. Taken from the European Data Cooperative, developed by Invest Europe. EDC data converted at EUR:USD of 1.1367, the rate on 30 June 2019.

In the UK and Germany the mean fund size at final closing has surpassed $100M, but elsewhere in Europe average fund sizes are still much lower. On a European-wide basis, the mean VC fund has a final closing at $45M.

Median and mean fund size ($M) at final closing by year by sub-region, 2014-H1 2019

Legend

  • Median
  • Mean
Note:
Taken from the European Data Cooperative, developed by Invest Europe. EDC data converted at EUR:USD of 1.1367, the rate on 30 June 2019.

The median size of first-time VC funds closed in Europe hit $62.5m in the first half of 2019. This is up nearly 3x on median fund sizes from five years ago. The increased fund size is a reflection of the sophistication of new generation first-time fund managers in Europe, as well as a necessary response to the increased round sizes in European early-stage venture.

Median and mean fund size ($M) at final closing per year by fund type (2014-H1 2019)

Legend

  • Median
  • Mean
Note:
H1 2019 figures are preliminary. Taken from the European Data Cooperative, developed by Invest Europe. EDC data converted at EUR:USD of 1.1367, the rate on 30 June 2019.

Looking back on a cumulative basis at total funds committed to European VCs since 2014, government agencies have been the largest contributors - supporting the European VC ecosystem with $9B. They are followed by corporate investors and private individuals as the next two largest LP types.

Government agencies


$9B
Funds allocated by government agencies to European VCs since 2014

VC funds raised ($B) by LP type, 2014-2018 cumulative

Legend

  • Funds raised ($B)
Note:
Taken from the European Data Cooperative, developed by Invest Europe. Excludes Unclassified. EDC data converted at EUR:USD of 1.1367, the rate on 30 June 2019.

The record high of more than $13B raised by European VCs in 2018 came despite a decline in government agency investment of almost $1B. This drop was more than offset by large increases in investment by fund of funds, pension funds and family offices.

VC funds raised ($M) per year by LP type, 2014-2018

Legend

  • Government agencies
  • Fund of funds
  • Corporate investors
  • Family offices
  • Private individuals
  • Pension funds
  • Other asset managers (including PE houses other than fund of funds)
  • Banks
  • Insurance companies
  • Endowments and foundations
  • Capital markets
  • Sovereign wealth funds
  • Academic institutions
  • Unclassified
Note:
Taken from the European Data Cooperative, developed by Invest Europe. EDC data converted at EUR:USD of 1.1367, the rate on 30 June 2019.

Indeed, pension funds appear to be waking up to the European VC opportunity. They contributed just short of $1B to European VCs in 2018, a material increase on the average commitment of just $395M per year for the period between 2014 and 2017. The emergence of fund of funds with a mandate for European VC is also notable. Fund of funds contributed $1.2B in 2018, more than any other LP type except government agencies.

Pension funds


$902M
Size of total investment by pension funds in European VC in 2018 (a record)

Funds committed ($M) to VC funds by LP type (>$500M), 2014-2017 vs 2018

Legend

  • VC Funds 2018 ($M)
  • Average VC Funds 2014-2017 ($M)
Note:
Taken from the European Data Cooperative, developed by Invest Europe. Excludes Unclassified. EDC data converted at EUR:USD of 1.1367, the rate on 30 June 2019.

Looking at 2018 commitments as a multiple of average commitments in the four previous years, pension funds, family offices and endowments and foundations have shown the greatest increase in their allocations to European VC, a clear indication of the increased institutional investor interest in the asset class.

Funds committed to VC funds by LP type (multiple), 2018 versus average per year 2014-2017

Legend

  • Multiple (2018 vs. average 2014-2017)
Note:
Taken from the European Data Cooperative, developed by Invest Europe. Excludes Unclassified. EDC data converted at EUR:USD of 1.1367, the rate on 30 June 2019.

The value creation in venture is based on innovation. Great companies can be created anywhere and at any time in a market cycle. That makes venture an interesting complement to other asset classes where the value creation are more related to interest rates and stock markets. The European VC market has matured and grown and has been proven by successful exits. Still, many managers are too young to have experienced a market downturn. But the increased market size makes the market more resilient to a potential correction.

Christina Brinck

Sixth Swedish National Pension Fund

Investment Director - Fund Investments

The diversification of the LP base for GPs in different regions is at very different levels depending on the maturity of the local VC ecosystem. The GP investor base in the UK, the most developed European VC market, benefits from access to a heavily diversified LP base. This is in contrast to GPs based in Central & Eastern Europe, where there is still a large dependency on funds raised from government agencies. The Nordics, meanwhile, has the strongest relative support from pension funds, which make up 16% of all VC funds raised in the sub-region since 2014.

VC funds raised ($M) by GP region and LP type, 2014-2018

Legend

Note:
Taken from the European Data Cooperative, developed by Invest Europe. EDC data converted at EUR:USD of 1.1367, the rate on 30 June 2019.

UK-based VCs have raised $17B in cumulative funds since 2014, followed by French ($11.7B) and German ($7.6B) VCs. Given its status as Europe's fourth-largest economy by GDP, the fact that Italian VCs have raised only $1.2B over the same period is particularly noteworthy. The launch of the recent €1B National Innovation Fund in Italy with a mandate that includes investing in VC funds could help to move that number in the right direction.

VC funds raised in UK and Italy


$1.2B vs $17B
Total amount raised by Italian and UK funds respectively since 2014

VC funds raised ($M) by country, 2014 to H1 2019

Legend

  • VC funds raised ($M)
Note:
2019 based on data to H1 2019. H1 2019 figures are preliminary. Taken from the European Data Cooperative, developed by Invest Europe. EDC data converted at EUR:USD of 1.1367, the rate on 30 June 2019.

On a population-adjusted basis, VCs based in Luxembourg and Switzerland have raised the highest amount of funds, a reflection of their attractiveness as global financial centres. The Netherlands and the UK also rank high on a per capita basis, while large European markets such as Italy, Spain and even Germany still have relatively underdeveloped VC ecosystems compared with the most advanced European countries. Estonia is an example of a country that has seen a rapid development in the local VC ecosystem with the emergence of a new generation of VC funds, such as Karma Ventures and Tera Ventures.

VC funds raised per capita by country of GP by year

Legend

  • $ raised per capita (2013-2015)
  • $ raised per capita (2016-2018)
Note:
Taken from the European Data Cooperative, developed by Invest Europe. EDC data converted at EUR:USD of 1.1367, the rate on 30 June 2019.

It's interesting to look at the geographic distribution of VC funds raised in different sub-regions of Europe and their stage of focus. The distribution of VC funds with an early-stage venture focus is fairly even across Europe, but there are greater levels of regional concentration for multi-stage and later-stage venture VC funds. Southern Europe stands out for its smaller share of VC funds raised across Europe in the past five years.

Share of total VC funds closed (%) by GP region by venture stage focus, 2014-H1 2019

Legend

  • Early stage venture
  • Later stage venture
  • Venture (all stages)
Note:
H1 2019 figures are preliminary. Taken from the European Data Cooperative, developed by Invest Europe. Total may not sum to 100% due to rounding.

But looking at the dollar-weighted distribution of VC funds raised by VC across the region shows there is a greater level of concentration of capital availability. VCs in the UK and France hold the greatest firepower in terms of dollar amounts raised, while GPs in CEE and Southern Europe have far less capital to deploy.

CEE VC funding


4%
Share of total European early-stage venture funds raised by VCs based in CEE since 2014

Share of total VC funds raised (%) by GP region by venture stage focus, 2014-H1 2019

Legend

  • Early stage venture
  • Later stage venture
  • Venture (all stages)
Note:
H1 2019 figures are preliminary. Taken from the European Data Cooperative, developed by Invest Europe. Total may not sum to 100% due to rounding.

The geographic target focus of funds raised by GPs from different European sub-regions also stands out because of the wide variance. VC funds raised from the UK & Ireland are most likely to be investing with a pan-regional or global mandate, while VC funds raised by GPs based in the CEE are most likely to have a local mandate specific to one country or a small set of neighbouring countries.

Distribution of VC funds by GP region and geography target for all venture stages, 2014-H1 2019

Legend

  • % of local
  • % of pan-European/Global
Note:
H1 2019 figures are preliminary. Taken from the European Data Cooperative, developed by Invest Europe. Only includes VC funds stating their geography targets.

There are interesting differences in the LP composition of VC funds in different regions across Europe. VC funds from less mature markets in CEE are more dependent on government agency funding, while those funds from more advanced markets like the UK have a greater level of LP type diversity.

VC funds raised by GP region and LP type, 2014-2018

Legend

  • Government agencies
  • Corporate investors
  • Private individuals
  • Fund of funds
  • Family offices
  • Other asset managers (including PE houses other than fund of funds)
  • Pension funds
  • Banks
  • Insurance companies
  • Endowments and foundations
  • Capital markets
  • Sovereign wealth funds
  • Academic institutions
Note:
Taken from the European Data Cooperative, developed by Invest Europe. Excludes Unclassified. EDC data converted at EUR:USD of 1.1367, the rate on 30 June 2019.

The overwhelming share of VC funds raised in Europe flows to follow-on funds, which account for almost 80% of the total. That being said, more than $1.7B has been committed to 28 first-time Europe VC fund managers in just the first six months of 2019.

Funds raised ($B) and number of funds closed per year by fund type

Legend

  • First-time VC fund
  • First-time VC fund of established firm
  • Follow-on VC fund
Note:
H1 2019 figures are preliminary. Taken from the European Data Cooperative, developed by Invest Europe. EDC data converted at EUR:USD of 1.1367, the rate on 30 June 2019.

First-time fund managers are most dependent on raising from government agencies and corporate investors, but also receive meaningful contributions from private individuals and banks. Follow-on funds, unsurprisingly, are able to raise from a more diversified LP base.

Share of funds (%) raised by fund type and type of LP, 2014-2018

Legend

  • Initial first VC fund
  • Follow on VC fund
Note:
Taken from the European Data Cooperative, developed by Invest Europe. Excludes Unclassified. Total may not sum to 100% due to rounding.

Europe has produced some very strong performing first-time VC fund managers. The European Investment Fund's returns analysis shows that first-time VC fund managers make a large share - approaching half - of their Top 10 best-performing funds.

Distribution of top-performing EIF backed VC fund managers split by emerging versus established funds

Legend

  • IRR, Emerging
  • TVPI, Emerging
  • IRR, Established
  • TVPI, Established
Note:
Data relates to EIF-backed European ICT funds only. Emerging funds are defined as any fund between Fund I and III. Based on data up to Q2 2019.

I see far more openness to European VC than when we raised our first fund four years ago.

I see far more openness to European VC than when we raised our first fund four years ago. There are more examples of big outcomes in recent years that I think are fuelling that interest, and far lower in-prices and relatively less competition (although I think that's changing in the later stage rounds when it's more of a global investor universe). There are also more operators coming onto the investment side (instead of retiring!), and that's a really positive force for the ecosystem as a whole.

Leila Rastegar Zegna

Kindred Capital

Founding General Partner

Based on their interactions with different LP types VC respondents to the survey stated that corporates, family offices and private individuals are the LP types, most frequently cited as having shown an increased appetite for investment in the European VC asset class in the last 12 months.

In the last 12 months, which LP types have you spoken to and how has their appetite for European Venture Investment changed?

Source:

Legend

  • Increased appetite
  • Same appetite
  • Decreased appetite
Note:
Venture Capitalist respondents only, excluding respondents that answered 'I do not feel sufficiently informed to comment' and 'I have not interacted with any LPs of this type'. Numbers may not add to 100 due to rounding.

European Buyout raises funds from a diverse LP geographic footprint, with European LPs accounting for less than 50% of total LP commitments. By contrast, European VC funds are still overwhelmingly backed by European investors. There are, however, clear signs of the geographic diversification of the European VC LP base as international interest in the asset class grows. Non-European investors accounted for 20% of commitments to European VCs in 2018 versus an average of 10% for the period 2014-2017.

Funds raised by fund type and LP region, 2014-2017 vs 2018

Legend

  • Europe
  • North America
  • Asia & Australia
  • Rest of the world
Note:
Taken from the European Data Cooperative, developed by Invest Europe. Excludes Unclassified. Total may not sum to 100% due to rounding.

A large share of European VCs reported increased appetite for European venture investment from LPs inside and outside Europe and across all regions, most obviously from Asia and the Middle East.

In the last 12 months, how has the appetite for European venture investment of Limited Partners from the following regions changed?

Source:

Legend

  • Increased appetite
  • Same appetite
  • Decreased appetite
Note:
Venture Capitalist respondents only, excluding respondents that answered 'I do not feel sufficiently informed to comment' and 'I have not interacted with any LPs of this type'. Numbers may not add to 100 due to rounding.

US LP interest in European VC has strengthened as the European tech industry has proven its ability to deliver outsized returns. This is reflected in a 5x increase in funds committed from US-based LPs in 2018 versus 2017. There is also an increase, though much smaller, in LP commitments from Asia.

US LP interest in European VC


5x
Increase in commitments to European VC funds from US LPs in 2018

Funds committed ($B) to VC funds by LP region per year, 2014-2018

Legend

  • Europe
  • Asia & Australia
  • North America
Note:
Taken from the European Data Cooperative, developed by Invest Europe. Excludes Unclassified. EDC data converted at EUR:USD of 1.1367, the rate on 30 June 2019.

As venture capital and innovation continue their global growth, Europe and its surrounding ecosystem remain increasingly attractive on many fronts, including valuations and capital flows. Our Silicon Valley neighbours have echoed this sentiment and are moving teams to Europe in increasing numbers.

David York

Top Tier Capital Partners

Managing Director

The scale of European VC is small when compared against the level of LP commitments to European Buyout funds. Since the beginning of 2018, more than a $100B has been raised by Buyout funds versus around $20B raised by European VC funds. That said, the gap is closing. In the first six months of 2019, the difference was 3.7x versus 7x as recently as 2017.

Funds raised ($B) by fund type per year

Legend

  • Buyout funds
  • VC funds
Note:
H1 2019 figures are preliminary. Taken from the European Data Cooperative, developed by Invest Europe. EDC data converted at EUR:USD of 1.1367, the rate on 30 June 2019.

Pension funds have invested $100B in European Buyout funds since 2014, but only $3B in European VC funds, a difference of 40x. The multiple is even more extreme for sovereign wealth funds, which have invested 79x more capital in European Buyout funds than European VC funds.

Pension fund commitments


40x
Difference in pension funds commitments to European Buyout funds versus European VC funds

Funds committed ($B) to VC and Buyout funds by LP type, 2014-2018

Note:
Taken from the European Data Cooperative, developed by Invest Europe. Excludes Unclassified. EDC data converted at EUR:USD of 1.1367, the rate on 30 June 2019.

The share of capital deployed by different LP types into European VC and Buyout funds varies significantly. While government agencies allocate a greater share of their dollar commitments into European VCs, pension funds allocated a 3% share of the combined commitment to European Buyout and VC funds to the region's venture capital funds. Sovereign wealth funds and insurance companies also allocated at single-digit percentage levels into European VC.

Share of total commitments (%) to European Buyout and VC funds by LP type, 2018

Legend

  • Venture
  • Buyout
Note:
Taken from the European Data Cooperative, developed by Invest Europe. Excludes Unclassified. Total may not sum to 100% due to rounding.

As a result of these vast differences in capital allocation, the composition of the LP base of European Buyout and VC funds looks very different. Pension funds make up 36% of all funds raised since 2014 by Buyout funds, but only 7% of funds raised by European VCs.

Funds raised by fund type and LP type, 2014-2018

Legend

  • VC funds
  • Buyout funds
Note:
Taken from the European Data Cooperative, developed by Invest Europe.

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