MT Survey of Surveys: Venture Capital

The late-90s dot.com glory days of start-ups may be long gone, but VC firms are still funding new businesses on both sides of the pond - to the tune of EUR27bn in Europe alone. David Bain reports.

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Last Updated: 31 Aug 2010

For most of us, the dot.com boom seems a million years ago, but cast your mind back to that extraordinary period in the history of business. Remember all those hugely trendy firms like boo.com, clickmango and Boxman? Well, apart from the internet - and hopelessly optimistic management - all these firms had one thing in common: venture capital.

Venture capital funds were as much an integral part of the tech boom as the internet. In the first year of the new millennium, private equity investment - venture capital and late-stage investments - swelled to $142.6 billion in the US and Europe (the European figure includes buy-outs). Four years earlier it had been just $18 billion.

In 1999-2000, it was no great shakes to walk into a meeting with a venture capital firm and persuade them to sign a cheque for a couple of million dollars for a crazy business idea - as long as it involved the internet.

Wasn't everyone doing it at the time? Boo.com convinced French VC Europ@Web to do so in 20 minutes (so legend has it), before burning more than £100 million in 18 months.

Yet it has not always been boom and bust for these firms and the companies they have funded. In the US, where the industry is much more mature and ingrained within corporate financing methods, VCs played a crucial role in funding extraordinarily successful hi-tech companies in Silicon Valley.

Iconic firms such as Apple, Cisco and Google relied on seed capital from Sequoia Capital, US Venture Partners and the like. Indeed, Silicon Valley would probably not have existed without VC funds.

It's a measure of the maturity of the US venture capital market that the amount and depth of data on the sector is far more refined than in Europe. Across the Atlantic, the industry has a history of more than 30 years, whereas venture capitalism in Europe - including the UK - got under way in a significant form only in the late 1980s. US data tends to be more transparent, partly because of the clear divide made there between venture capital and private equity. In European data, the distinction is often blurred.

Not surprisingly, one of the best surveys on the main players in venture capital is based just down the road from Silicon Valley, in San Francisco.

VentureOne has been researching the sector since 1986 and opened a London office in 2000 to bring its expertise to Europe. It teams up with Ernst & Young to produce quarterly and annual reports on the sector.

In VentureOne's latest survey on European VCs, which looked at the number of deals done and assets under management in the first half of this year, the biggest player is the 3i Group - one of the few firms with a brand recognised outside its sector.

The London-based 3i has been a dominant player in venture capital and private equity for more than 20 years, where it has been at the top of most league tables. It's big across Europe and the US, but the group works across venture capital as well as private equity, and has investments in public companies. Firms like Quester Capital Management and Advert Venture Partners are known for their VC investments. Like 3i, they have pan-European businesses.

German VC Techno Venture Management gets top billing in the annual Limited Partnership survey, which looks at VC firms from the point of view of the institutions - such as pension funds and banks - that give them money.

The survey is produced by Almedia Capital, a private equity and placement company based in London. Apax Partners, whose chairman Sir Ronald Cohn is one of the founding fathers of the European VC industry, and Paris-based Sofinnova Partners also score well on this list.

Last year in Europe, venture capital and private equity firms raised EUR27 billion to invest in budding new businesses and buyouts, according to the annual survey by the Brussels-based European Private Equity and Venture Capital Association (EVCA). That's a little less than the year before, and a long way off the record level of EUR48 billion raised in 2000.

The UK continues to be the leading venture capital centre in Europe, largely because of access to a large pool of funds from the City of London and a well-entrenched private-sector ethos. EVCA reckoned that in 2003 more than half of funds raised for VC and private equity deals were done from the UK. Sweden accounted for the next-highest percentage, about 8%, followed by the Netherlands at 7%.

Future surveys are likely to confirm the UK's dominance in venture capital firms, with names like 3i and Apax Partners doing the most deals across Europe. German, French and Scandinavian VC firms should also prosper, but a further shakeout in the sector - which began when the tech bubble burst in 2001 - is expected. And any return to the golden period of venture capital activity - year 2000 - is not around the corner.

TOP 10 VC FIRMS IN THE UK

ASSETS INVESTED NO OF DEALS

(EUR m) (Jan-Jun'04)

1 3i 11,109.00 18

2 Apax Partners 9,879.60 4

3 Accel Partners 2,691.90 5

4 Benchmark Capital 2,329.94 3

5 Atlas Ventures 1,728.93 3

6 Aberdeen Murray Johnstone PE 746.35 6

7 Advent Venture Partners 678.30 4

8 Index Ventures 509.80 3

9 Amadeus Capital Partners 447.81 5

10 Quester Capital Management 433.32 7

SOURCE: VENTUREONE

 

 

MOST ACTIVE INVESTORS (Jan-Jun '04)

EUROPEAN VENTURE-BACKED COMPANIES

Deals Assets

EUR (m)

3i Group 46 11,109.00

SPEF Venture 15 303.00

Vaekstfonden 10 200.00

SEB Foretagsinvest 10 131.16

Apax Partners 9 9,879.60

CDC IXIS Innovation 9 426.00

Sofinnova Partners 8 535.00

Techno Venture Mgt 7 1,097.00

Societe Generale Asset Mgt 7 1,000.00

Yorkshire Enterprise 7 43.54

 

 

US VENTURE-BACKED COMPANIES

Deals Assets

(dollars m)

New Enterprise Associates 30 6,000.00

Inter Capital 25 750.00

Sequoia 24 2,153.00

US Venture Partners 23 3,200.00

Austin Ventures 23 3,101.20

Draper Fisher Jurvetson 23 3,000.00

Venrock Associates 22 2,000.00

Menlo Ventures 22 2,710.00

3i Group 19 10,895.50

Mayfield 17 2,400.00

SOURCE: VENTUREONE (EXCLUDING TRANCHES, BRIDGE LOANS AND DEBT

TRANSACTIONS)

In 1999, at the peak of the VC-fuelled dot.com boom, there were 133 listed internet stocks in the US. Despite making combined losses of $3bn on sales of $15.2bn, the market valuation of these stocks was $310bn

SOURCE: INDUSTRY STANDARD/VARIOUS

Ninety per cent of new entrepreneurial businesses that don't attract venture capital fail within three years

SOURCE: THE MONEY OF INVENTION: HOW VENTURE CAPITAL CREATES NEW WEALTH, GOMPERS AND LERNER, HARVARD BUSINESS PRESS

PRIVATE EQUITY RAISED IN EUROPE BY TYPE OF INVESTOR (EUR 000s)

2000 2001 2002 2003

Corporate investors 4,787 2,209 1,896 1,205

Private individuals 3,270 2,506 1,571 804

Government agencies 2,445 2,282 2,894 1,727

Banks 9,554 9,189 6,845 5,436

Pension funds 10,655 10,231 4,253 4,922

Insurance companies 5,687 4,700 3,588 2,214

Fund of funds 5,017 4,645 3,413 4,154

Academic institutions 198 823 428 385

Capital markets 553 198 38 85

Other 1,844 1,425 1,110 4,379

SOURCE: EVCA 2004 YEARBOOK, ANNUAL SURVEY OF PAN-EUROPEAN PRIVATE EQUITY

WHAT IS VENTURE CAPITAL?

Venture capital and private equity are often seen as the same, and indeed firms like 3i and Advent Venture Partners work in both areas of financing. But venture capital forms only a part of private equity: the startup and seed capital bit. VCs sometimes become involved in late-stage and buyout investing, so some blurring in the data between the two kinds of funding is inevitable. This happens in Europe, where some larger private-equity firms operate at all levels, but rarely in the US. Organisations such as VentureOne and the European Private Equity and Venture Capital Association are improving the statistical output, and as the industry matures in Europe, firms should produce better data.

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