A few weeks ago we discussed our efforts to get performance data from the European Investment Fund, the EU institution that is the cornerstone of the European venture capital industry.
The body previously seemed to drag its feet, taking around five months to reveal quite limited data about the performance of its portfolio. But this time the EIF, which is directly responsible for 10 per cent of all investment in European venture capital firms, has been more forthcoming with more detailed information.
The two charts below show the performance of the fund’s portfolio, broken down by the vintage and also the location of the managers it backed. The full release is here:
The data are limited in parts. For example, there are some vintages where no performance data are provided due to the low number of funds raised in that year. Similarly, a handful of countries are bundled together.
In general, the number of funds is relatively low, which makes it more likely that it might be skewed by the outperformance or underperformance of a handful of managers.
Despite this, we’re going to assume that the EIF data are a useful proxy for European venture performance in general.
One reason why this might not be a good assumption is that, unlike other investors, the EIF has a policy objective. The institution is supposed to support the development of the venture capital sector, even in places where it barely exists to begin with. Inevitably, therefore, it will make investments that a purely profit-motivated actor would avoid and this will no doubt have a predictable effect on its overall portfolio performance.
However, it also makes a wide range of investments, backing names considered to be among the best venture capitalists in Europe. Because of that breadth, and the fact that other data on European venture capital performance have not been far off the EIF numbers, we think the data are suitable enough to draw the outlines of the trends in European venture over the past two decades or so.
For example, there is the abysmal performance of funds raised around the peak of the dotcom boom. The bottom quartile of funds raised in 2000 paid back just 13 per cent of the money they were given by investors. The top quartile only managed to return 54 per cent of the original investment.
In the US, the damage was not as keenly felt. American venture funds raised in 2000 on average handed back 94 per cent of the money investors gave them. The equivalent figure in the EIF data is just 39 per cent.
The hangover of that relative under-performance is still felt in Europe. An industry consultant recently joked to us that European pension funds would only invest in local venture capital firms again when the managers who remembered the dotcom boom had retired.
After the financial crisis, however, the data shows an uptick in performance, even if the funds still lag their US peers.
Then there’s the geographic data, which suggests that managers based in the UK have the most consistent performance in Europe. The top quartile and bottom quartile are the second-best performing on a cash returns plus current investments basis.
If the EIF really isn’t going to invest in UK-based fund managers again, it will likely have a fairly negative impact on the overall performance of its book.
France, which has a similar sample size, and the Netherlands are slightly ahead or behind depending on which metrics you use.
Interestingly, funds based in Germany, for whatever reason, lag behind. Perhaps Berlin is cooler for startups than it is for VCs.
Related links:
Transparency in European venture capital — FT Alphaville
Does the European Investment Fund have good returns? — FT Alphaville