The Global Ventures Summit landed in Luxembourg on 20-21 November during its world tour with the aim to connect influencers of the highest growth startup ecosystems in the world. The event hosted a number of keynote speakers both from the GSV network as well as local experts from public institutions to startups.
Despite the modest number of participants, the event itself was an interesting peak into the trends of the European and the US VC market. Apollonian had the opportunity to voice its own opinion as Tuomas Saarinen took to the stage to speak about the services needed among the VCs and corporates looking for funding.
We weren’t surprised to hear that the keynotes echoed each other. The main message was that the current VC market is booming but quality deals are hard to come by. And while there are more companies being founded than ever, many of them do not get past the first hurdles to the point where the business is growing enough to make them less risky to invest in.
VC and other investors are increasingly interested in the overall sustainability of businesses rather than just a great idea or a stellar team.
Additionally, Europe needs big institutional investors to back up the private market. This means better due diligence, bigger deals and funds and greater management of intangible assets.
US VC insights
Chris Calder from Epic Ventures discussed about the global trends of the VC market whilst talking about finding good deals outside of Silicone Valley. He raised the point that there is more VC money out there currently than ever before. VCs fight for good deals that do not come by very often as companies with a sustainable business are few and far apart.
Low interest rates are pushing more money from traditional investments into private equity creating further pressure in the market.
Alex Estevez from one of the biggest US venture capital firms, Accel, highlighted that is not only delivering the money that the VC is responsible for, but offering the best possible support for their portfolio companies. Their recipe of finding and developing successful businesses is inserting clever people into the companies they invest in, helping the companies with their business model and amplifying their message, and growing the whole ecosystem around the companies.
VCs should also expect to get their hands dirty to win the fight over good deals and future growth. Rolling over their sleeves and working on behalf of their portfolio companies is as important as working on securing funding. This is why changes need to happen in the VC field and on the companies’ side too.
Apollonian views on the European VC market
We feel that while there’s certainly positive momentum for the VC market, there are also hurdles to overcome. We see that the European VC market is still underdeveloped. In our view, the exit environment and IPO market, fundraising and recruiting are the biggest concerns.
Secondary market is almost non-existent with subdued exit values while 70% of US IPOs have negative earnings. VC-market globally has slowed to around 6% growth after a decade of rapid progression fueled by quantitative easing and the tech-revolution.
In Europe, thesize of VCfunds needs to grow and be generally more lucrative for them to be attractive to institutional investors. For the European VC market to flourish, we need institutional investors. European pension funds account only for 2% of VC investments, while in the US pension funds account for nearly 20% of the market. Public investors need more understanding to be able to invest in private equity and partnerships with trusted private advisors to handle deal flow.
We also see the number of funds and capital raised going down, which puts European companies and their competitiveness in a disadvantaged position compared to their US and Asian counterparts. Competitiveness also suffers when a growth company doesn’t have the right talent at the helm. Bigger European companies have difficulties in attracting people that have knowledge of taking a company beyond its first growth spurt – one of Accel’s key pillars of developing their portfolio companies.
Figure 1: Fewer funded companies, bigger rounds
Things to look out for – the European perspective
With tech investments and intangible capital on the rise, investing in great teams is becoming difficult. And while there might be plenty of startups being born not many of them plan to do much hiring.
Many businesses rely on tech platforms and automation which translates to needing less people. In this new environment, focusing on proper intangible asset valuations and the right deal sourcing solutions will give more bang for the investors buck.
Figure 2: Investing in people is harder than ever
The scarcity of capital has forced those who survive to really think of their business’ sustainability. Slowly but surely this has also led the EU to think differently about the measures it deploys to support innovation and R&D. Leveraged funding for IP and R&D-heavy companies are now the focus for 2020.
We agree with Chris Calder about negative interest rates shining a spotlight on private equity and we might also add that socio-economic factors and regulation is pushing new capital flows towards longer-term investment targets.
As a closing note, to facilitate knowledge and talent sharing, Europe needs an overhaul from local hubs to global networks where the cooperation between local startup-hubs and corporations expand both in and out from Europe.