Moving forward in tough times - Why VC’s will
continue to build successful global tech
companies.
Growing Galileo 2009
Brussels 28 January 2009
Georges H. Noël, EVCA Director
About EVCA
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Established in 1983 and based in Brussels
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Represents the European private equity and venture capital
industry (PE/VC) and promotes the asset class within
Europe and throughout the World
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1,300 members in over 55 countries, representing more
than 80% of European PE/VC Assets under Management
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PE/VC fund management companies
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Institutional investors (banks, pension funds, insurance
companies, family offices, endowments, foundations...)
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Professional advisors (lawyers, auditors, placement agents,
investment bankers...)
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National (European) Trade Associations
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Activities: Professional Standards, Public & Regulatory
Affairs, Research, Publications, Training, Conferences &
Networking events
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Team 40 people based in Brussels and Bucarest (Statistics)
Agenda
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About EVCA
Mission of Venture Capital
A few key data & recent developments
Key success drivers to build global leaders
What is the profile of target companies?
What is the added value provided by VC’s?
Conclusions
A key “Mission” of Venture Capital
is to finance companies
developing emerging or breakthrough
technologies and develop those companies
over a longer term (up to 5-10 years)
What has been achieved so far by
European VC’s?
During the 8 years from 2001-2008
€57bn equity has been invested into
21.320 technology companies
e.g. an average of €2,7m per company
Recent Developments on the VC
Market I
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In 2008 217 VC Funds raised $49bn worldwide (out of
768 PE funds raising $553bn) of which European VC’s
raising some 7$bn
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Currently in early 2009 483 VC’ funds are targeting $97bn
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Despite the financial turmoil 29% of institutional
investors intend to increase allocation to PE/VC and 67%
to maintain current levels
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Fundraising becomes growingly global: 2.600 active
investors in PE/VC funds from 72 countries
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Most of portfolio companies of VC funds continue to
perform well
Source: Prequin / EVCA Desk Research
Recent Developments on the VC
Market II
100% equity, zero debt and fast growth characterize our business and
explain why VCs are much less affected by the financial crisis than other
financial institutions.
3 Key challenges for VCs impacting also the tech companies:
Fundraising:
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Extremely difficult in S2 of 2008 and expected to continue in 2009
Banks, some insurances and some pension funds are affected by
liquidity squeezes.
Rapid Internationalization (fund raising and portfolio level).
e.g. Earlybird, Germany €130m, 2 lead investors Abu Dhabi Investment
Authority, U.A.E. and Osaka Gas, Japan.
Exits:
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Industry challenged by market conditions with IPO markets closed and
weak M&A market due to the financial turmoil.
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Only exceptional trade sales delivering cash to investors
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Holding periods have risen => pressure on reverves of funds built for 10
years life
Lack of patient capital (from 10 years to 15 years):
8 to 15 years to build a business. Often imperatives for early returns, and
premature exits as a barrier to reach maturity.
Recent Developments on the VC
Market III
Investments:
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Low entry prices which makes the outlook for investment
excellent (Vintage years 2009 and 2010).
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Trend to focus on larger & later stage investments. Pressure
by LP’s on holding periods in order to realize cash returns
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Funds which have closed in 2007/08: Focus on follow up
investments on most promising companies in the portfolio.
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Lack of patient capital (from 10 years to 15 years). 8 to 15
years to build a business. Often imperatives for early returns,
and premature exits as a barrier to reach maturity.
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EU VC firms have achieved some key successes: Skype,
MySQL, Q.Cells, Ersol, CSR, etc.
What is driving European Venture
Capitalists over the next decade?
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Core technology expertise
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Global consumer markets
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Large localized markets
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Central & Eastern European
development
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Regulatory environment for
VC ecosystem moving in the
right direction
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Strong IPO
market in
“normal” years
Global M&A
opportunities
Financial
Markets
Innovation
Drivers
Entrepreneurial
Spirit
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High profile
successes
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Entrepreneurial
activity
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Clusters
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Serial entrepreneurship
What are the key success drivers for
building a global leader?
 Aspiration
 Experience
 Business model
 Access to networks
Source: London Business School / EVCA
Pyramid of Success: VC‘s and Entrepreneurs
Reputation
External
Resources
Experience
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Investment experience
Industry experience
Entrepreneurial
experience
Aspiration
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Building scalable
businesses
Striving to grow
international
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Industry contacts
Contacts to investors
Other contacts, e.g. headhunters
Business Model
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Funding strategy
Investment preparation
100 day strategy
Time allocation
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What are Venture Capitalists
looking for?
VC - focus on high growth potential companies only:
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Management team
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Market potential
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Industry and previous entrepreneurial experience
Balanced management team with complementary skills
Management experience
Ability to develop an exit strategy & to grow the company towards it
High growth, competitive products and services
Accurate market size with real growth potential
Company processes & status
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Good strategic and financial planning, or ready to implement it
The right tools and information systems to provide
management and investors with timely and relevant data
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transparent legal structure
Source: EVCA Barometer May 2005
Satellite / Space related sample
investments by VC’s
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iOpener (D-NL - mapping real-world competitions): first VCbacked ESA spin-off by Triangle Venture Group - €4,1m – 2006
Galileo Masters Winner
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21Net (UK – broadband internet access to Thalys high-speed
trains): Octopus Ventures - £1,5m
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Ip.access (UK – 3G femtocell system ): Amadeus Capital
Partners, Scottosh Equity Partners, Rothschild Gestion, Intel
Capital, Cisco, Motorola Ventures, ADC - $10m
What is the Added Value typically
provided by a VC?
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Partnership sharing risks and awards within the framework of a
pre-negotiated contract
Smart & patient capital to build global leaders
Professional Corporate Governance standards
Strategic advise and support through active board membership
High-performance management standards
Extended network
Increased visibility and standard with investors, suppliers,
clients, head-hunters, potential managers, co-investors
Advise and support in times of crisis
Assistance with subsequent financing transaction
Definition of an exit strategy
Alignment of interests between managers and VC
So in conclusion why VC’s continue
to be bullish in the macroeconomic
backdrop?
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Europe’s Innovation quality and world class
technology
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Growing strength of the European
entrepreneurial base
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Growing maturity of the European VC
Ecosystem
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Europe’s VC industry has sufficient dry-powder
available
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Lesson from the past: down-cycles are
producing the best historical vintage years)
Thank you!
For more information:
www.evca.eu or georges.noel@evca.eu