Trashing Euro VCs

There is some fairly ugly comparitive performance data in a new study on the performance differences of U.S. and European venture capitalists:

In the entire period in question, more than twenty years dating back to 1983, European venture investors have only out-performed their U.S. counterparts in two vintage years, and those were both ones with losses in European and U.S. venture. Ouch. The paper puts it more decorously:

The volume of funds raised for future European venture capital investment has declined since 2000 … The low profitability of the industry could account for a part of the unfavourable development.

You think? Yeesh.

Related posts:

  1. Performance Persistence at Venture Funds
  2. So Many Venture Firms, So Little IRR
  3. AIM-ing at U.S. VCs
  4. The Elephant in the VC Living Room
  5. The Venture Capital Cargo Cult

Comments

  1. Paul,
    The interesting question is why the VC and the MBO performance are inverted.
    If you look at the MBO historical performance US vs. Europe you will get the opposite picture where Europe consistently over performs the US.
    Marc.

  2. David McIntyre says:

    Pull out CA and MA and the US numbers drop in half. Pull out TX and things really start getting ugly.
    Not that a Canadian should be opening his mouth on this topic.

  3. Adam Healey says:

    As someone who raised European VC in 2000 (and frankly not helped European VC IRRs), I would make a few observations about the differences:
    1. European VCs don’t have the benefit of the extensive angel investment capital available in the US which helps seed businesses and get them farther along by the time US VCs get a look at them. Thus, they are in effect serving as both angels and VCs, which would inevitably bring down their IRRs as they don’t get the benefit of angel terms or smaller investment sizes
    2. European VC operates in a less friendly tax and regulatory environment, e.g. stock option legislation in France is onerous, and complex tax laws drive up legal fees and thus minimize IRRs.
    3. European PE is more heavily tilted towards government deals, and as such PE firms with the right relationships can often get better than market terms (don’t get me started about levels of comparable corruption)
    4. European PE is more successful than US PE because more of a company’s value is extracted within this stage of investment, whereas in the US it is more evenly distributed.
    1. European VC is less sophisticated because of a) heavier government restrictions on investments and more onerous tax laws and stock option regulations, b) lack of

  4. Historically, continental Europe is high-context and heavily institutionalized. The top 500 firms have extensively interlocked directorates and shared equity ownership. A graph with lines of linked ownership and shared directors is a dense grid work. All good for cooperation and good feeling, bad for innovation and economic Growth.
    I think a good VC portfolio is impossible without creative destruction and disruption. The result is poor returns, and hence poor fund raising.
    All at the expense of entrepreneurs, investors and GDP growth in general.
    Things are a changing though; France cannot keep this up much longer. And Jacques Chirac setting up more institutional investment, or even a state competitor to Google, will not fix anything.