EIFVCSurvey2018 - eif.org · ICT and Life Sciences are perceived as the two most promising...

EIF Research & Market Analysis

Working Paper 2018/48

EIF VC Survey 2018Fund managers’ market sentimentand views on public intervention

Helmut Kraemer-Eis ■Antonia Botsari ■

Salome Gvetadze ■Frank Lang ■

ii

Helmut Kraemer-Eis heads EIF’s Research & Market Analysis division.

Contact: [email protected]

Tel.: +352 248581 394

Antonia Botsari is Research Officer in EIF’s Research & Market Analysis

division.


Tel.: +352 248581 546

Salome Gvetadze is Research Officer in EIF’s Research & Market Analysis

division.


Tel.: +352 248581 360

Frank Lang is Senior Manager in EIF’s Research & Market Analysis division.


Tel.: +352 248581 278

Editor:

Helmut Kraemer-Eis,

Head of EIF’s Research & Market Analysis, Chief Economist

Contact:

European Investment Fund

37B, avenue J.F. Kennedy, L-2968 Luxembourg

Tel.: +352 248581 394

http://www.eif.org/news_centre/research/index.htm

Luxembourg, April 2018

Scan above to

obtain a PDF

version of this

working paper

mailto:[email protected]





iii

Disclaimer:

This Working Paper should not be referred to as representing the views of the European Investment Fund (EIF)

or of the European Investment Bank Group (EIB Group). Any views expressed herein, including interpretation(s)

of regulations, reflect the current views of the author(s), which do not necessarily correspond to the views of EIF

or of the EIB Group. Views expressed herein may differ from views set out in other documents, including similar

research papers, published by EIF or by the EIB Group. Contents of this Working Paper, including views

expressed, are current at the date of publication set out above, and may change without notice. No

representation or warranty, express or implied, is or will be made and no liability or responsibility is or will be

accepted by EIF or by the EIB Group in respect of the accuracy or completeness of the information contained

herein and any such liability is expressly disclaimed. Nothing in this Working Paper constitutes investment, legal,

or tax advice, nor shall be relied upon as such advice. Specific professional advice should always be sought

separately before taking any action based on this Working Paper. Reproduction, publication and reprint are

subject to prior written authorisation.

iv

Executive summary1

This study presents results of the EIF’s first VC Survey, a survey among venture capital general partner

(GP)/management companies headquartered in the EU-28 and some additional countries (mainly

Norway, Switzerland and Turkey). The surveyed population includes both companies in which EIF

invested as well as companies in which EIF has not (or not yet) invested.

The EIF VC Survey consisted of questions covering three main topics:

The VC market sentiment,

Market weaknesses and public intervention, as well as

The value added, products and processes of the EIF.

This EIF Working Paper summarises the findings of the first two parts, mentioned above. The study

provides a detailed overview of the respondents’ state of business and market activity as well as their

general perception of the European VC market. In doing so, we look at the current situation,

developments in the recent past, and expectations for the future.

Market sentiment

State of business

The state of business is perceived positive, with the vast majority of the fund managers

reporting an improvement over the last year and a positive outlook for 2018.

Availability of funding and fundraising environment

A large majority of the fund managers consider that there is a lack of funding to finance

VC-supported companies’ prospects in general; but fewer believe that this is an issue

affecting their own portfolio companies in particular.

Fewer than half of the fund managers consider the fundraising environment over the last

year to have been good; with only one third of the respondents expecting an improvement

in 2018.

Finding co-investors to syndicate is perceived relatively easy by the majority of

respondents; with expectations remaining largely the same for 2018. However, two fifths

of the fund managers did report difficulties in finding co-investors.

Investments and portfolio development

The number of qualified investment proposals received and of new investments

undertaken are both expected, on balance, to increase in 2018.

Portfolio development during the last year has been at least in line with expectations; with

further improvement expected for 2018.

1 We would like to thank the anonymous respondents to the survey. Without their support and valuable replies this project

would not have been possible. This paper benefited from comments and inputs by many EIF colleagues, for which we are

very grateful; we also would like to express particular thanks to Oscar Farres. We would also like to thank colleagues from

Invest Europe and from the Trier University for their support. All errors are of the authors.

v

Trade sales dominated the exit activity in 2017, while improved exit opportunities are

expected for 2018.

Important challenges in the European VC business

Exit environment, fundraising, and IPO market are perceived as the three biggest

challenges in the European VC business.

Recruiting high-quality professionals is perceived as the biggest challenge faced by

VC-supported companies; securing financing is ranked second.

The extent of the regulatory requirements applied in the European VC business is largely

expected to remain the same, bringing no significant change to the VCs’ state of business.

Overall prospects of the European VC market, promising countries and industries for future VC

investments

The overall VC market in Europe and investment activities in the European VC market are

both expected to improve in 2018.

Fund managers are rather confident about the long-term growth prospects of the VC

industry in their market and in Europe altogether.

While Germany, UK and France are still perceived as the three most promising countries

for VC investments in 2018, the UK might lose ground, in particular to Germany.

ICT and Life Sciences are perceived as the two most promising industries for VC

investments in 2018.

Alongside traditional industries, the importance of relatively newer sectors such as

Cybersecurity, Fintech and Deep Technology is also expected to rise in the future.

Variations across countries and industries do exist in certain aspects of the survey. In

particular, the uncertainty surrounding the Brexit implications seems to have negatively

affected the market sentiment of UK-based fund managers.

Role of the public sector

Public support in general is perceived crucial for the European VC market.

The VC managers are especially calling for an improved public role for increasing

investment volumes and targeting different stages in venture capital financing.

The vast majority of the respondents (64%) indicated governmental support should be

increased for early stage businesses.

The fund managers are more satisfied with the European programs than with national or

regional programs.

Involvement of pension funds as investors appeared to be the most important element that

is currently underdeveloped.

The respondents perceive the readiness of large private institutional investors to invest in

European VC to be poor and they appreciate governmental programs that encourage

other private LPs to invest.

vi

Policy implications:

The lack of funding to finance portfolio companies’ prospects is still perceived significant.

The challenges relating to fundraising and exit opportunities prevent European venture

capital from becoming a more attractive asset class. At the level of the portfolio

companies, securing financing is perceived as the second most important challenge (after

“recruiting high-quality professionals”).

The VC managers still perceive the European VC market as underdeveloped in some parts

and not dynamic enough. In particular, the large private institutional investors are not

ready to invest in European venture capital. European VC funds are too small to be

attractive to large private institutional investors. Moreover, cultural attitudes as regards

risk perception play a big role. The European VC market seems to lack risk appetite and

LPs state not to be well informed about the track records of VC funds’ performance.

In general, the market needs to raise awareness about the social and economic impact

of VC. It needs more success stories, which according to the respondents, can be

supported by data-driven research. The market needs to demonstrate that the European

VC companies are viable, that they have strong financial returns and successful exits.

To stimulate the ecosystem, public support can play a role in two ways: (i) by tax incentives

and simplified and harmonised regulatory systems, and (ii) by the provision of more public

resources to increase investment volumes and encouraging other private LPs to invest.

The survey respondents stated that the provision of more public resources could help in

order to crowd in large private institutional investors. Currently, the involvement of pension

funds as investors appeared to be the most important element of the VC ecosystem that is

underdeveloped. Moreover, the VC market needs to be more harmonised across Europe.

The fund managers called for supporting pan-European funds, more cross-border

investments, and a harmonisation of legal frameworks and tax systems. It also appears

that the full picture of the public VC supply is unknown to many funds. The respondents

think that better coordination is needed among the governmental programs targeting the

same instrument/product/sector/country and mapping investors would also be helpful.

In general, the respondents expressed their appreciation regarding the governmental

support programs. Compared to national or regional programs, the European programs

appear to be more appreciated.

The insights from the EIF VC Survey will help to further improve EIF’s product offer and the European

VC ecosystem in line with markets’ needs. Moreover, the project forms part of EIF’s work to assess the

impact of its activities and complements the recent and ongoing quantitative analyses of the economic

effects of EIF’s VC operations. It is envisaged to repeat this study regularly. Moreover, based on this

survey, a venture capital market sentiment index (barometer) is in development and will provide the

possibility to track the VC market sentiment over time. Furthermore, additional, precise policy

recommendations are expected to emerge from future waves. As such, this project contributes to

establishing a sustainable venture capital ecosystem in Europe – a key objective of the EIF.

vii

Table of contents

Executive summary ...................................................................................................... iv

Table of contents ....................................................................................................... vii

1 Introduction .......................................................................................................... 1

2 Overview of the sample ......................................................................................... 3

3 Market sentiment .................................................................................................. 7

3.1 State of business ..................................................................................................7

3.2 Availability of funding and fundraising environment ....................................................9

3.3 Investments and portfolio development .................................................................. 17

3.4 Important challenges in the European VC business .................................................. 21

3.5 Overall prospects of the European VC market, promising countries and industries ........ 27

3.6 In focus: Brexit ................................................................................................... 38

4 Role of the Public Sector in European VC .............................................................. 46

5 Concluding remarks and summary of policy recommendations ................................ 60

ANNEX .................................................................................................................... 62

List of acronyms ........................................................................................................... 62

About … .................................................................................................................. 63

… the European Investment Fund ............................................................................... 63

… EIF’s Research & Market Analysis ............................................................................ 63

… this Working Paper series ...................................................................................... 63

EIF Working Papers ................................................................................................... 64

1

1 Introduction

Venture capital is an essential source for start-up and young companies to achieve growth and create

value through innovation. The relevance of venture capital financing, not only for young and

innovative companies but also for the economy as a whole is very high.

The European Investment Fund (EIF) is a specialist provider of risk finance to benefit small and

medium-sized enterprises (SMEs) across Europe. By developing and offering targeted financial

products to its intermediaries (such as banks, guarantee and leasing companies, micro-credit

providers and private equity funds), the EIF enhances SMEs’ access to finance.

The EIF is a leading institution in the European venture capital (VC) market, focussing on the

establishment of a sustainable VC ecosystem in Europe in order to support innovation and

entrepreneurship. The EIF concentrates on building the necessary private sector VC infrastructure to

address market gaps and opportunities with the aim to further enhance the attractiveness of European

venture capital as an alternative asset class.

The EIF works with VC funds, which act as intermediaries and invest into innovative high-tech SMEs

in their early and growth phases. The particular focus is on disruptive early-stage technology

enterprises that typically face financing challenges but also provide outstanding investment

opportunities. The EIF has built a strong expertise in setting-up, managing or advising tailored fund-

of-funds, mostly with resources entrusted to the EIF by third parties such as the European Investment

Bank (EIB), the European Commission, national and regional authorities.

EIF’s Research & Market Analysis (RMA) supports EIF’s strategic decision-making, product

development and mandate management processes through applied research, market analyses, and

impact assessments. In order to facilitate EIF’s activities in European VC and to provide additional

benefit for market participants, RMA aims at gathering and providing relevant information that can

shed more light on this important but still relatively opaque part of the SME financing market. This

EIF Working Paper forms part of that exercise.

In this study, we present results of EIF’s first VC Survey, a survey among venture capital general

partner (GP)/management companies headquartered in the EU-28 and some additional countries

(mainly Norway, Switzerland and Turkey). The surveyed population includes both companies in which

EIF invested as well as companies in which EIF has not (or not yet) invested. See Chapter 2 for a

more detailed overview of the population and the respondents.

The EIF VC Survey consisted of questions covering three main areas:

The VC market sentiment,

Market weaknesses and public intervention, as well as

The value added, products and processes of the EIF.

This EIF Working Paper summarises the findings of the first two parts, mentioned above.

The study provides a detailed overview of the respondents’ state of business and market activity as

well as their general perception of the European VC market. In doing so, we look at the current

situation, developments in the recent past, and expectations for the future.

2

More generally, the insights from the EIF VC Survey will help to further improve EIF’s product offer in

line with markets’ needs. Moreover, the project forms part of EIF’s work to assess the impact of its

activities and complements the recent and ongoing quantitative analyses of the economic effects of

EIF’s VC operations.2

It is envisaged to repeat this study regularly in order to improve the availability of information about

this important market segment. As such, this project contributes to establishing a sustainable venture

capital ecosystem in Europe – a key objective of the EIF.

2 In this context, four studies have been presented so far. See for details Vol I to IV of the series “The European venture

capital landscape: an EIF perspective”; available at http://www.eif.org/news_centre/research/index.htm


3

2 Overview of the sample

The online survey, of which the results are presented in this report, was conducted between 7

November and 18 December 2017. The online questionnaire was received by 2,032 individuals

(managing/investment directors, CEOs, Partners etc.) representing 1,453 different companies

headquartered in the EU-28 and some additional countries (mainly Norway, Switzerland and Turkey).

Out of this group, 379 individuals from 316 different VC companies completed the survey, leading

to response rates of 18.7% at individual level and 21.7% at company level.

The set of 379 complete answers gives a good indication of the overall European VC market state.

Moreover, a significant number of responses come from the UK (72), Germany (50), the Netherlands

(44), France (39) and Spain (22), while the response rates range from 9% in Spain, to as high as

35% in the Netherlands, which allows us to derive a national level analysis for those countries.

Figure 1: Sample and respondents’ distribution by headquarter country

The most frequently mentioned target countries for VC investments (see Figure 6) are the UK,

Germany, France and the Netherlands, which was not a very surprising result, as most of the firms

in this survey are headquartered in those countries. Moreover, the firms of 80 respondents3

invest

only domestically (i.e. only in the country of their firm’s headquarter). The vast majority (263) invest

both domestically and abroad. Among them, 229 respondents indicate the country of their firm’s

3 The terms “respondents”, “VC managers”, “fund managers” and “VCs” are used interchangeably throughout the report.

11%

17%

24%

35%

13%

22%

9%

29%

17%

23%

9%

25%

27%

22%

31%

24%

41%

14%

29%

38%

23%

8%

0%

43%

50%

17%

50%

0% 0% 0% 0% 0%

10%

20%

30%

40%

50%

60%

0

100

200

300

400

500

600

700

Percenta

ge of respondents

No of respondents

Sample Answers Response rate

Q. In which country is your investment firm headquartered?

4

headquarter as their number one most important target country for VC investments. Only 36 fund

managers reported that their firms undertake cross-border investments and don’t invest domestically.

Figure 2: Firms’ investment country focus and headquarter country

The majority of the VC firms (60%) are relatively recently founded, since they are less than 10 years

old (see Figure 3).

Figure 3: Firms’ distribution by foundation year

Almost half of the respondents indicated that their firms are managing total assets under EUR 100m.

The other half reported their total assets to be equal or higher than EUR 100m and a few firms

reported their total assets to be more than a billion euros (see Figure 4).

0

20

40

60

80

100

120

140

160

180

Austria

Belg

ium

Bulg

aria

Croatia

Czechrepublic

Denm

ark

Esto

nia

Fin

land

France

Germ

any

Greece

Hungary

Irela

nd

Italy

Latv

ia

Lithuania

Luxem

bourg

Neth

erla

nds

Norw

ay

oth

ers

Pola

nd

Portu

gal

Rom

ania

Slo

vakia

Slo

venia

Spain

Sw

eden

Sw

itzerla

nd

Turkey

UK

No of respondents

Most important Second most important Third most important Headquarter

1 1 1 1

5

2 21

3

1 1

65

2

4

78

13

1515

12

89

12

20

22

9

21

14

16

22

32

29

27

22

10

0

5

10

15

20

25

30

35

197

2

197

3

197

6

198

1

198

3

198

4

198

6

198

8

198

9

199

0

199

2

199

3

199

4

199

5

199

6

199

7

199

8

199

9

200

0

200

1

200

2

200

3

200

4

200

5

200

6

200

7

200

8

200

9

201

0

201

1

201

2

201

3

201

4

201

5

201

6

201

7

No of respondents

Year of foundation

Q. Select up to three of the most important countries in which your firm invests, in order of importance.

Q. In what year was your investment firm established?

5

Figure 4: Firms’ total assets

For almost 50% of respondents4

the most important stage in which they invest is early stage

businesses, followed by seed (33%) and later/growth (18%) stages (see Figure 5).

Figure 5: Firms’ investment stage focus

As shown in Figure 6, more than two thirds of respondents indicated ICT as their most important

industry of investment. The second most frequently invested industry is Life Sciences, followed by

4 Due to rounding, percentages may not always add up to 100%.

5961

66

7472

31

13

0

10

20

30

40

50

60

70

80

<20 20-50 50-100 100-200 200-500 500-1000 >1000

No of respondents

33%

49%

18%

Seed Early Later stage/growth stage

Q. What are your firm's total approximate assets under management (in m EUR)?

Q. What is (are) the most important stage(s) in which your firm invests? (Multiple selection possible)

6

Services, Clean Technologies and Manufacturing. Respondents were also asked about some more

specific areas of investment (see Figure 7). Here, Deep Technology and Fintech take clearly leading

positions.

Figure 6: Firms’ investment industry focus

Figure 7: Firms’ current portfolio including an investee in specific industries

252

21

81

9 16

37

32

51

29

56

21

38

21

39

34

0

50

100

150

200

250

300

350

ICT Clean Technologies Life Sciences Manufacturing Services

No od respondents

Most important Second most important Third most important

147

213

106

31

135

241227

164

270

344

243

119

5 2 3 4 1

19

0

50

100

150

200

250

300

350

400

Cybersecurity,

space

and/or dual use

(civil /

defence)

technologies

Fintech Agriculture / bio-

economy

Blue economy /

sustainable use

of

maritime

resources

Energy efficiency

/

renewable

energy

Deep technology

No of respondents

Yes No I don't know

Q. Select up to three of the most important industries in which your firm invests.

Q. Does your current investment portfolio include an investee in the area of …

7

3 Market sentiment

As discussed in the Introduction of this report, one part of the survey focused on market sentiment

and aimed at identifying participating VC managers’ perception of the current market situation as

well as of future outlook. Therefore, a significant number of questions covered a range of topics

relating to the state of business, the availability of funding and the fundraising environment, portfolio

development, the challenges in the European VC business, the overall prospects of the VC market

in Europe as well as countries and industries considered promising for future VC investments.

3.1 State of business

VC managers generally appear to be very optimistic regarding both the current and the future state

of their business. An overwhelming majority of 86% consider their current state of business to be

“good” or “very good” (see Figure 8); with 72% of the respondents stating an improvement in

comparison to the previous 12 months (see Figure 9).

Figure 8: Current state of business

The outlook for 2018 continues to be optimistic, given that more than two thirds (69%) of VC

managers expect a further improvement in their state of business over the coming 12 months (see

Figure 9).

1%

12%

86%

Bad/very bad

Undecided

Good/very good

Q. How would you assess the current state of your business?

Current state of business

is perceived positive

8

Figure 9: Past and future state of business

It needs to be noted, however, that a certain degree of heterogeneity across countries does exist (see

Figure 10). Compared to the overall sample, the percentage of VC managers perceiving a positive

current state of business is higher for VC firms headquartered in France (92%), Benelux (92%) and

the Nordics (91%). On the other hand, VC managers based in CESEE and the South appear to be

relatively more optimistic regarding the future prospects of their business, with the relevant

percentages reaching 78%.

Figure 10: Past, current and future state of business – by VC firm headquarter

Note: “Positive current state of business” refers to the percentage of respondents perceiving their current state of business

as “good” or “very good”. “Improvement in state of business, past 12 months” refers to the percentage of respondents

stating that their state of business has “slightly” or “strongly improved” over the past 12 months. “Improvement in state of

business, next 12 months” refers to the percentage of respondents expecting that their state of business will “slightly” or

“strongly improve” over the next 12 months.

5% 5%

23% 25%

72% 69%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

State of business, past 12 months State of business, next 12 months

Percenta

ge of respondents

Slightly/substantially deteriorate(d) Stay(ed) the same Slightly/strongly improve(d)

92%

88%

83%

92%

91%

74%

86%

86%

76%

63%

64% 70%

70%

72%

72% 78%

59%

64%

73% 78%

68%

B en e l u x C ESEE D A C H F r a n c e N o r d i c s Sou t h UK & I r e l a n d

Percenta

ge of respondents

Positive current state of business Improvement in state of business, past 12 months

Improvement in state of business, next 12 months

Q. Indicate how the state of your business has changed over the past 12 months (in comparison to its

previous condition)?

Q. How do you expect the state of your business to change over the next 12 months?

State of business

has improved

in 2017

Further

improvement is

expected for 2018

9

3.2 Availability of funding and fundraising environment

A significant majority of VC managers (64%) agree that there is a lack of funding to finance

VC-supported companies’ prospects in general. At the same time though, fewer (53%) believe that

this is an issue affecting their own portfolio companies in particular (see Figure 11).

Figure 11: Lack of funding, in general and at portfolio level

Focusing on those VC managers who do perceive a lack of funding at the individual portfolio level

(see Figure 12), the greatest percentages are encountered in the South (66%) as well as in the UK &

Ireland (59%); while the lowest in the Nordics (48%), DACH (48%) and Benelux (47%).

Furthermore (see Figure 13), the lack of funding to finance portfolio companies’ prospects appears

to be more severe for investee companies in Clean Technologies (71%) and Services (69%), and

relatively less of a concern for ICT (49%).

17%

26%

19%

21%

64%

53%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Lack of funding in general Lack of funding for portfolio

companies

Percenta

ge of respondents

Disagree/strongly disagree Undecided Agree/strongly agree

Q. From your perspective, in general, do venture capital funds lack funding to finance their portfolio

companies' prospects?

Q. Do you perceive that there is a lack of funding to finance your portfolio companies’ prospects?

Lack of funding

is perceived significant

10

Figure 12: Perceived lack of funding – by VC firm headquarter

Note: “Perceived lack of funding” refers to the percentage of respondents who “agree” or “strongly agree” that there is

indeed a lack of funding.

Figure 13: Perceived lack of funding – by VC target industry

Note: “Perceived lack of funding” refers to the percentage of respondents who “agree” or “strongly agree” that there is

indeed a lack of funding.

59%

54%

68%

74%

48%

64% 6

9%

47% 5

1%

48% 51%

48%

66%

59%

B ene lu x CESEE DACH F rance Nord i c s Sou t h UK &

I r e land

Percenta

ge of respondents

Perceived lack of funding in general Perceived lack of funding for portfolio companies

60%

71%

74%

56%

63%

49%

71%

58%

56%

69%

I CT C lean

Techno log ie s

L i f e Sc i ences Manu fac t u r i ng Se r v i ce s

Percenta

ge of respondents

Perceived lack of funding in general Perceived lack of funding for portfolio companies

11

The aforementioned findings, which suggest that the majority of VC managers do indeed perceive a

lack of funding, are also reflected in the current market conditions. In particular, fewer than half of

the VC managers (49%) consider the fundraising environment over the past 12 months to have been

“good” or “very good”; with only one third of the respondents (35%) expecting an improvement in

the next 12 months (see Figure 14).

Figure 14: Fundraising environment, past and next 12 months

Relative to the overall sample (see Figure 15), VC managers in France and Benelux are even more

optimistic, with 72% and 59% of the respondents, respectively, rating positively the fundraising

environment over the last year. On the contrary, only 38% of the VC managers in the South are in

support of this view. In the same vein (see Figure 16), one third of the VC managers investing mainly

in Clean Technologies also perceive the fundraising environment to be bad.

As regards future prospects (see Figure 17), VC managers in the UK & Ireland seem to be relatively

more concerned, given that 35% (the highest proportion among all regions) actually expect the

fundraising environment over the coming 12 months to deteriorate.

13%

38%

49%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Fundraising

environment, past 12

months

Percenta

ge of respondents

Good/very good

Undecided

Bad/very bad

17%

48%

35%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Fundraising

environment, next 12

months

Percenta

ge of respondents

Slightly/strongly

improve

Stay the same

Slightly/substantially

deteriorate

Fewer than 1 in 2 consider the fundraising environment to have been good in 2017;

only 1 in 3 expect an improvement in 2018

Q. How would you rate the fundraising environment for VC funds over the past 12 months?

Q. Over the next 12 months, how would you expect the fundraising to develop?

12

Figure 15: Fundraising environment, past 12 months – by VC firm headquarter

Figure 16: Fundraising environment, past 12 months – by VC target industry

5% 1

5%

13%

5%

18%

18%

19%

36%

37%

45%

23%

39%

44%

37%

59% 49%

42%

72%

42%

38%

44%


I r e land

Percenta

ge of respondents

Bad/very bad Undecided Good/very good

12%

33%

15%

6%

37%

33%

38%

44%

56%

51%

33%

47%

56%

38%

I CT C lean

Techno log ie s


Percenta

ge of respondents

Bad/very bad Undecided Good/very good

13

Figure 17: Fundraising environment, next 12 months – by VC firm headquarter

Figure 18: Fundraising environment, next 12 months – by VC target industry

The majority of VC managers (56%) found relatively easily co-investors to syndicate over the last

year, while no significant changes are expected in the coming 12 months (see Figure 19). At the

same time though, the responses suggest that two fifths of the fund managers did report difficulties

in finding co-investors.

14%

5%

10%

15%

18%

10%

35%

45%

61%

55%

41%

48%

50%

40%

41%

34%

35%

44% 33%

40%

26%


I r e land

Percenta

ge of respondents

Slightly/substantially deteriorate Stay the same Slightly/strongly improve

18%

14%

14%

11%

19%

47%

48%

52%

56%

38%

35%

38%

35%

33%

44%

I CT C lean

Techno log ie s


Percenta

ge of respondents


14

Figure 19: Finding co-investors to syndicate, past and next 12 months

A more detailed analysis of the responses reveals however significant variations across regions and

industries (see Figure 20). VC managers in France (74%) and the Nordics (67%) report greater

easiness in finding co-investors to syndicate, as opposed to almost half of the VC managers in the

UK & Ireland who found it rather difficult. Similarly (see Figure 21), VC managers investing in Clean

Technologies (67%) and Services (63%) also report the greatest difficulties in finding co-investors,

while the corresponding figures for ICT and Manufacturing are only 35% and 33%, respectively.

The outlook for the next 12 months remains stable regardless of firm headquarter or target industry,

therefore, for the sake of brevity, the related figures are not presented.

Finding co-investors to syndicate is perceived easy; stable outlook for 2018

Q. How easy was it for you to find co-investors to syndicate over the last 12 months?

Q. Over the next 12 months, how difficult do you think it will be to find co-investors to syndicate compared

to the current situation?

10%

73%

17%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Finding co-investors to

syndicate, next 12 months

Percenta

ge of respondents

Slightly/much

less difficult

Stay the same

Slightly/much

more difficult

39%

4%

56%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Finding co-investors to

syndicate, past 12 months

Percenta

ge of respondents

Easy/very easy

I did not search

for co-investors

Difficult/very

difficult

15

Figure 20: Finding co-investors to syndicate, past 12 months – by VC firm headquarter

Figure 21: Finding co-investors to syndicate, past 12 months – by VC target industry

Finally, the overwhelming majority of VC managers (89%) state that they intend to raise another fund

to make VC investments within the next five years – see Figure 22 (with equally high percentages

noted across regions and industries).

36%

37%

38%

26%

33%

44%

49%

3% 7%

4%

10%

5%

61%

56%

58%

74%

67%

46%

46%


I r e land

Percenta

ge of respondents

Difficult/very difficult I did not search for co-investors Easy/very easy

35%

67%

42%

33%

63%4

%

6%

13%

62%

33%

52%

67%

25%

I CT C lean

Techno log ie s


Percenta

ge of respondents


16

Figure 22: Intention to raise another fund within the next 5 years

3%

8%

89%

No

Maybe

Yes

Q. Do you intend to raise another fund to make venture capital investments within the next five years?

Most VCs intend to raise

another fund within the

next 5 years

17

3.3 Investments and portfolio development

Almost one third (125 out of 379) of the VC managers that participated in the survey state that the

number of qualified investment proposals they received over the last 12 months did not exceed 100

(see Figure 23). At the same time though, a considerable proportion (60 out of 379) report receiving

between 500 and 1,000 proposals.

More than two thirds of the surveyed VC managers do not invest in more than 6 of these investment

proposals (see Figure 24). The implied average investment rate (Number of proposals invested

in/Number of qualified investment proposals received) for the entire sample is 5.5%; it does vary,

however, across firms. For example, for VC firms not receiving more than 10 qualified investment

proposals, the implied average investment rate reaches 40%, significantly decreasing thereafter the

more proposals a firm receives.

Figure 23: Number of investment proposals received and implied investment rate

25

58

42

16

26

38

27

36

60

27

24

40%

13%

6% 6%

3%2% 2%

1% 1% 1% 1% 0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

0

10

20

30

40

50

60

70

Average im

plied in

vestm

ent rate

No of respondents

No of investment proposals received

No of respondents in each cluster Average implied investment rate per cluster

Q. Approximately, how many qualified investment proposals did you receive in the last 12 months?

Q. In how many investment proposals did your firm invest (absolute number of companies)?

18

Figure 24: Number of proposals invested in

VC managers expect, on balance, an increase in the next 12 months both in the investment proposals

they will receive as well as in the number of new investments they will undertake (see Figure 25).

Results not presented here for the sake of brevity reveal a very similar pattern across regions and

industries.

Figure 25: Investment proposals and new investments, next 12 months

When asked about the actual development of their portfolio over the last year (see Figure 26), most

VC managers (46%) state that investee company performance was in line with expectations, while

an equally significant proportion (44%) state that it even exceeded expectations. It is worth noting

85

100

74

22

37

30

13

18

0

20

40

60

80

100

120

0-2 3-4 5-6 7-8 9-10 11-15 16-20 >20

No of respondents

No of proposals invested in

3%8%

42%

42%

54%50%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Investment proposals, next 12

months

New investments, next 12

months

Percenta

ge of respondents

Slightly/strongly decrease Stay the same Slightly/strongly increase

Q. How do you expect the number of qualified investment proposals to your most recent fund to develop

in the next 12 months?

Q. How do you expect the number of your new investments to develop over the next 12 months?

Investment proposals

and new investments

expected to increase

in 2018

19

that VC managers are even more optimistic when it comes to the future portfolio development, as

85% expect further improvement in the year ahead.

Figure 26: Portfolio development, past and next 12 months

As will be seen in subsequent questions, the exit environment appears to be a major consideration.

VC managers reported no exit activities (see Figure 27) in the last 12 months for the vast majority

(78%, on average) of their portfolio companies.

However, the prospects for 2018 are perceived positive (see Figure 28); almost two thirds (64%) of

the VC managers expect an improvement in the exit opportunity development of their investee

companies.

9%

46%

44%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Portfolio

development, past

12 months

Percenta

ge of respondents

Slightly/strongly above

expectations

As expected

Slightly/significantly

below expectations

1%14%

85%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Portfolio

development, next

12 months

Percenta

ge of respondents

Slightly/strongly

improve

Stay the same

Slightly/substantially

deteriorate

Portfolio development during 2017 was in line with expectations;

further improvement is expected in 2018

Q. How did your portfolio companies develop over the last 12 months?

Q. Over the next 12 months, how do you expect that your overall portfolio will develop?

20

Figure 27: Exit activities of portfolio companies in the past 12 months

Figure 28: Exit opportunities for portfolio companies in the next 12 months

78%

11%

4%

3%

2%

1%

0% 20% 40% 60% 80% 100%

No exit

Trade sale

Insolvency liquidation

IPO

Secondary sale

Other exits

Average % of portfolio exit via each activity

4%

32%

64%

Slightly/strongly

decrease

Stay the same

Slightly/strongly

increase

Q. Assess the exit activities in your portfolio during the last 12 months (fill in 0 if not applicable).

Q. What is your expectation regarding the exit opportunity development of your portfolio companies in the

next 12 months?

Trade sales dominated

the exit activity

in 2017

Improved

exit opportunities

expected for 2018

21

3.4 Important challenges in the European VC business

The exit environment is currently perceived as the biggest challenge in VC business5

. Fundraising

and IPO markets (one aspect of the exit environment) complete the list of the top three challenges

(see Figure 29).

Figure 29: Biggest challenges in VC business

A certain degree of variation regarding the relative ranking of these challenges does exist across

regions (see Figure 30). In this respect, a very interesting finding is the fact that while Brexit is ranked

very low on the list of challenges facing the European VC business, it is nonetheless perceived as the

most significant challenge for VC firms headquartered in the UK & Ireland (for a more detailed

discussion on the Brexit implications please refer to Chapter 3.6).

5 VC managers who participated in the survey were asked to indicate whether each of the elements listed in Figure 29

constitutes a significant, moderate or no challenge in VC business. The ranking of challenges is based on the mean value

for each item on a 1-3 scale, where “1” indicates “No Challenge” and “3” indicates “Significant Challenge”.

42%

44%

38%

37%

35%

30%

20%

26%

19%

13%

13%

16%

20%

11%

49%

44%

46%

45%

46%

55%

66%

53%

49%

54%

51%

44%

35%

46%

8%

12%

16%

18%

19%

15%

14%

21%

32%

33%

36%

40%

45%

44%

0% 20% 40% 60% 80% 100%

Exit environment

Fundraising

IPO market

Number of high quality entrepreneurs

Small fund sizes

High investee company valuations

Investee company performance

Regulation

Other political uncertainty

Market volatility

Competition through other investors

Cross-border market fragmentation

Brexit

Fee pressure

Percentage of respondents

Significant challenge Moderate challenge No challenge

Exit environment and fundraising

perceived as the biggest challenges in VC business

Q. Where do you currently see the biggest challenges in venture capital business? Please indicate from

significant challenge to no challenge.

22

Figure 30: Top 3 challenges in VC business – by VC firm headquarter

Fundraising

Number of high-quality entrepreneurs


Exit environment

IPO market

Regulation

Fundraising


Exit environment

Exit environment

IPO market



Exit environment


Fundraising

Exit environment

Small fund sizes

Brexit

Fundraising

IPO market

23

At the individual portfolio level, recruiting high-quality professionals is perceived as the number one

challenge faced by investee companies (see Figure 31).

Figure 31: Biggest challenges faced by portfolio companies

While this is a consistent pattern across regions, a certain degree of differentiation is observed

depending on the industry focus (see Figure 32).

Figure 32: Biggest challenges faced by portfolio companies – by VC target industry

256

185

159

133

72

47

0 50 100 150 200 250 300

Recruiting high-quality professionals

Securing financing

Customer acquisition and retention

Internationalisation

Regulatory complexity

Strong competition

No of respondents (multiple selection possible)

Q. What are the largest current challenges faced by your portfolio companies?

Services ICT Clean

Technologies

Life Sciences Manufacturing

Customer

acquisition &

retention

Internationa-

lisation

Securing

financing

Recruiting high-

quality

professionals

Recruiting

high-quality

professionals

perceived as the

biggest challenge

faced by portfolio

companies

Recruiting high-

quality

professionals

24

VC managers were also asked about regulatory requirements applied in the European VC market

and the expected impact on their state of business. The majority of VC managers (55%) expect the

extent of regulatory requirements to stay the same (see Figure 33). Consequently, most VC managers

(48%) do not expect a significant impact on their state of business as a result of regulation. At the

same time though, the responses suggest that a significant proportion of 42% of the surveyed VC

managers do in fact expect an increase in the extent of regulatory requirements, with a consequent

negative impact on their state of business (40% of the respondents) from any such regulatory

changes.

Figure 33: Regulation and its impact on the state of business, next 12 months

Analysing the responses by region (see Figure 34) shows that it is mainly VC managers in the UK &

Ireland (62% of the respondents) – and to a lesser extent VC managers in the Nordics (45% of the

respondents) – who expect regulatory requirements applied in the European VC market to increase

in the year ahead. These VC managers are also the ones who expect to see the strongest negative

impact on their state of business (57% and 61% of the respondents, respectively) as a result of

increased regulation (see Figure 35).

Regulatory requirements expected to stay the same in 2018;

with no significant impact on VC’s state of business

Q. Over the next 12 months, do you expect that the regulatory requirements applied in the European VC

market will …

Q. What impact on the state of your business do you expect from any such regulatory changes?

4%

55%

42%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Regulatory requirements

applied in the European

VC market, next 12 months

Percenta

ge of respondents

Slightly/strongly

increase

Stay the same

Slightly/strongly

decrease

40%

48%

12%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Impact of regulatory

changes on the state of

business, next 12 months

Percenta

ge of respondents

Moderate/strong

positive impact

No Impact

Moderate/strong

negative impact

25

Figure 34: Regulatory requirements applied in the European VC market, next 12 months

– by VC firm headquarter

Figure 35: Impact of regulatory changes on the state of business, next 12 months


At the same time, and relative to other sectors, an increase in regulatory requirements and a

subsequent negative impact on the state of business is mostly anticipated by VC managers investing

mainly in Clean Technologies and in Life Sciences (see Figure 36 and Figure 37).

3%

5%

4%

3% 9

%

2%

2%

53% 6

1%

56%

67%

45%

76%

36%

44% 34%

39% 31%

45%

22%

62%


I r e land

Percenta

ge of respondents


42%

27%

46%

23%

61%

10%

57%

44%

61%

39%

54%

36%

72%

40%

14%

12%

14%

23%

3%

18%

4%


I r e land

Percenta

ge of respondents

Moderate/strong negative impact No impact Moderate/strong positive impact

26

Figure 36: Regulatory requirements applied in the European VC market, next 12 months

– by VC target industry

Figure 37: Impact of regulatory changes on the state of business, next 12 months


4%

5%

1%

6%

55%

48%

51%

78%

63%

40%

48%

48%

22%

31%

I CT C lean

Techno log ie s


Percenta

ge of respondents


38%

43%

51%

31%

49% 48% 41%

67%

63%

13%

10%

9%

33%

6%

I CT C lean

Techno log ie s


Percenta

ge of respondents

Moderate/strong negative impact No impact Moderate/strong positive impact

27

3.5 Overall prospects of the European VC market, promising countries and industries

VC managers are generally quite optimistic regarding the prospects of the VC market in Europe. The

majority of them expect that both the overall VC market in Europe (55% of the respondents) as well

as investment activities in the European VC market (57% of the respondents) will improve in the next

12 months (see Figure 38).

Figure 38: Prospects for the overall VC market in Europe and investment activities in the European

VC market, next 12 months

In this respect, it is also interesting to look at the regional and sectoral differences. VC managers in

the South (see Figure 39 and Figure 40) appear to be the most optimistic regarding future prospects,

with 80% and 76% of the respondents, respectively, expecting an improvement in the VC market as

a whole and in investment activities in particular. At the other end of the spectrum, VC managers in

the UK & Ireland seem more sceptical, with one in five (20% and 23% of the respondents,

respectively) stating that they expect the overall VC market in Europe and investment activities in the

European VC market to deteriorate in the year ahead.

8% 11%

37% 33%

55% 57%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Overall VC market in Europe, next

12 months

Investment activities in the

European VC market, next 12

months

Percenta

ge of respondents

Slightly/strongly deteriorate Stay the same Slightly/strongly improve

Q. Over the next 12 months: Do you expect that the overall VC market in Europe will …

Q. Over the next 12 months: What do you expect to happen to investment activities in the European VC

market?

Overall VC market

in Europe and

investment activities

expected to improve

in 2018

28

Figure 39: Prospects for the overall VC market in Europe, next 12 months


Figure 40: Investment activities in the European VC market, next 12 months – by VC firm headquarter

When industry focus is taken into account, VC managers investing mainly in Manufacturing are the

most optimistic regarding the prospects of the European VC market (78% of the respondents expect

an improvement), while 19% of the VC managers investing mainly in Services expect the exact

opposite (see Figure 41). One in four VC managers investing mainly in Services also expect a

deterioration in investment activities (see Figure 42).

9%

5%

6% 13%

3%

6%

23%

28% 46%

32% 28%

52%

18%

33%

63% 4

9%

62%

59% 4

5%

76%

43%


I r e land

Percenta

ge of respondents


5%

5%

6%

10%

6%

2%

20%

39%

46%

42%

31%

39%

18%

40%

56%

49%

52%

59%

55%

80%

41%

Bene lu x CESEE DACH F rance Nord i c s Sou t h UK &

I r e land

Percenta

ge of respondents


29

Figure 41: Prospects for the overall VC market in Europe, next 12 months – by VC target industry

Figure 42: Investment activities in the European VC market, next 12 months – by VC target industry

To a large extent, the earlier discussion is also reflected in the following questions where on a scale

of 1 to 10, VC managers were asked to state their level of confidence in the long-term growth

prospects of the VC industry in their market and in Europe altogether.

As far as confidence in the long-term growth prospects of the VC industry in their market is

concerned, VC managers are relatively optimistic – mean value of 7.8 out of 10. However, variations

do exist across regions and sectors.

7%

10%

11%

19%

35%

38% 4

7%

22%

25%

58%

52% 42%

78%

56%

I CT C lean

Techno log ie s


Percenta

ge of respondents


9%

14%

12% 2

5%

31%

24% 38%

56%

25%

60%

62% 4

9%

44%

50%

I CT C lean

Techno log ie s


Percenta

ge of respondents


30

In particular, VC managers in Benelux (8.4/10) and DACH (8.1/10) are on average more confident

about the long-term prospects of their market (see Figure 43). By contrast, the level of confidence in

the long-term growth prospects of the VC industry in the UK & Ireland (7.1/10) is on average the

lowest among all regions.

Figure 43: Confidence in the long-term growth prospects of the VC industry in your market


Similarly, according to the responses of the surveyed VC managers, the long-term growth prospects

appear to be higher on average for the Manufacturing (8.0/10) and the ICT (7.9/10) sectors, and

the lowest for the Services sector (7.3/10), see Figure 44.

Figure 44: Confidence in the long-term growth prospects of the VC industry in your market– by VC

target industry

Regarding the long-term growth prospects of the European VC industry altogether, it is VC managers

in the South (8.1/10) and Benelux (8.0/10) who are, on average, relatively more optimistic,

compared to a mean value of 7.5 out of 10 for the overall sample (see Figure 45). VC managers in

8.4

8.18.0 8.0

7.8 7.8

7.4

7.1

6.0

6.5

7.0

7.5

8.0

8.5

Benelux DACH France CESEE South All Nordics UK &

Ireland

Mean valu

e on a 1

-1

0 scale

8.0

7.9

7.8

7.7

7.5

7.3

6.5

6.7

6.9

7.1

7.3

7.5

7.7

7.9

8.1

Manufacturing ICT All Life Sciences Clean

Technologies

Services

Mean valu

e on a 1

-10 scale

Q. On a scale of 1 to 10 how confident are you in the long-term growth prospects of the venture capital

industry in your market? (1 = Not confident at all; 10 = Very confident)

Q. On a scale of 1 to 10 how confident are you in the long-term growth prospects of the venture capital

industry in your market? (1 = Not confident at all; 10 = Very confident)

31

the UK & Ireland are once again much more conservative (6.8/10) in their perceptions. With regards

to industry focus (see Figure 46), VC managers investing mainly in ICT exhibit on average the highest

level of confidence (7.7/10), while those in Services the lowest (6.8/10).

Figure 45: Confidence in the long-term growth prospects of the European VC industry


Figure 46: Confidence in the long-term growth prospects of the European VC industry


In the context of the overall prospects, VC managers were also asked to indicate the countries and

industries that they would consider most promising for future VC investments.

Germany was flagged as a promising country for VC investments in the next 12 months by 221 of

the 379 surveyed VC managers, followed by the UK (152 responses) and France (138 responses).

8.18.0

7.77.7

7.67.5

7.0

6.8

6.0

6.5

7.0

7.5

8.0

8.5

South Benelux France DACH CESEE All Nordics UK &

Ireland

Mean valu

e on a 1

-1

0 scale

7.7

7.5

7.4

7.3

7.1

6.8

6.4

6.6

6.8

7.0

7.2

7.4

7.6

7.8

ICT All Clean

Technologies

Manufacturing Life Sciences Services

Mean valu

e on a 1

-10 scale

Q. On a scale of 1 to 10 how confident are you in the long-term growth prospects of the European venture

capital industry? (1 = Not confident at all; 10 = Very confident)

32

In fact, one in four VC managers indicated Germany as the number one most promising country

(see Figure 47).

Figure 47: Most promising countries for VC investments in the next 12 months

Comparing the most important countries in which VC managers currently invest to those expected to

be most promising for future VC investments enables us to reflect on the extent to which a change in

country focus might take place. Indeed, while the UK, Germany and France currently are the most

important countries and still expected to be the most promising in the European VC industry, their

relative importance might change. In particular, it seems that the UK might lose ground in the

European VC ecosystem, in particular to Germany, while the relative significance of France is also

expected to rise strongly (see Figure 48).

0

30

60

90

120

150

180

210

240

Austria

Belg

ium

Bulg

aria

Croatia

Cyprus

Czech Republic

Denm

ark

Esto

nia

Fin

land

France

Germ

any

Greece

Hungary

Irela

nd

Italy

Latv

ia

Lithuania

Luxem

bourg

Malta

Neth

erla

nds

Norw

ay

Pola

nd

Portu

gal

Rom

ania

Slo

vakia

Slo

venia

Spain

Sw

eden

Sw

itzerla

nd

Turkey

UK

No of respondents

Most promising Second most promising Third most promising

Germany, UK, France: The 3 most promising countries

for VC investments in 2018

Q. According to your expectation, select up to three countries that will be the most promising for venture

capital investments in the next 12 months.

33

Figure 48: Most important countries for VC investments – current vs. future portfolio

We also take into consideration the industry focus of the VC managers and present accordingly the

countries perceived most promising for future VC investments by VCs investing mainly in ICT and in

Life Sciences (the two sectors that make up almost 90% of the sample). The pattern observed for the

entire sample (where Germany, the UK and France were identified as the three most promising

countries) holds for the ICT sector too (see Figure 49). For Life Sciences, alongside these latter

markets, two more countries emerge as important and promising, namely the Netherlands and

Switzerland (see Figure 50).

0

30

60

90

120

150

180

210

240

Austria

Belg

ium

Bulg

aria

Croatia

Cyprus

Czech Republic

Denm

ark

Esto

nia

Fin

land

France

Germ

any

Greece

Hungary

Irela

nd

Italy

Latv

ia

Lithuania

Luxem

bourg

Malta

Neth

erla

nds

Norw

ay

Pola

nd

Portu

gal

Rom

ania

Slo

vakia

Slo

venia

Spain

Sw

eden

Sw

itzerla

nd

Turkey

UK

No of respondents

Most important country for current VC investments

Most promising country for VC investments in the next 12 months

The UK might lose ground, in particular to Germany;

the importance of France is expected to rise strongly

Q. Select up to three of the most important countries in which your firm invests, in order of importance.

Q. According to your expectation, select up to three countries that will be the most promising for venture

capital investments in the next 12 months.

34

Figure 49: Most promising countries for VC investments in ICT, next 12 months

Figure 50: Most promising countries for VC investments in Life Sciences, next 12 months

In terms of the most promising industries for VC investments in the next 12 months, ICT and Life

Sciences are in the lead, with 2 in 3 VC managers stating ICT as the number one most promising

industry (see Figure 51). This is a consistent pattern across regions.

0

30

60

90

120

150

180A

ustria

Belg

ium

Bulg

aria

Croatia

Cyprus

Czech Republic

Denm

ark

Esto

nia

Fin

land

France

Germ

any

Greece

Hungary

Irela

nd

Italy

Latv

ia

Lithuania

Luxem

bourg

Malta

Neth

erla

nds

Norw

ay

Pola

nd

Portu

gal

Rom

ania

Slo

vakia

Slo

venia

Spain

Sw

eden

Sw

itzerla

nd

Turkey

UK

No of respondents


0

10

20

30

40

50

Austria

Belg

ium

Bulg

aria

Croatia

Cyprus

Czech Republic

Denm

ark

Esto

nia

Fin

land

France

Germ

any

Greece

Hungary

Irela

nd

Italy

Latv

ia

Lithuania

Luxem

bourg

Malta

Neth

erla

nds

Norw

ay

Pola

nd

Portu

gal

Rom

ania

Slo

vakia

Slo

venia

Spain

Sw

eden

Sw

itzerla

nd

Turkey

UK

No of respondents


35

Figure 51: Most promising industries for VC investments in the next 12 months

To a certain extent this finding might be driven by the fact that the majority of the surveyed VC

managers invest mainly in ICT. Despite this potential sectoral bias, however, it becomes evident that

the relative importance of Life Sciences and Clean Technologies is expected to increase significantly

(see Figure 52).

Figure 52: Most important industries for VC investments – current vs. future portfolio

Apart from the already established industries, VC managers were also asked to comment on a series

of relatively newer sectors that are currently in the public discussion and whose importance is on the

rise. More specifically, VC managers indicated how likely they consider it that their final portfolio will

246

23

95

212

56

84

116

3534

37

69

56

44

91

0

40

80

120

160

200

240

280

320

360


No of respondents


308

91

153

76

106

339

176

267

81

137

0

40

80

120

160

200

240

280

320

360


No of respondents

Most important industry for current VC investments

Most promising industry for VC investments in the next 12 months

ICT and Life Sciences: The 2 most promising industries for VC investments in 2018

Q. Select up to three industries that you expect to be the most promising for venture capital investments in

the next 12 months.

While ICT still promising for future VC investments;

importance of Life Sciences & Clean Technologies expected to rise strongly

36

include an investee in these areas. Based on the responses, it is more likely that future VC investments

will involve portfolio companies in Deep Technology, Fintech and Cybersecurity (see Figure 53).

Figure 53: Likelihood for future portfolio to include an investee in specific industries

Note:

Cybersecurity: Cybersecurity, space and/or dual use (civil/defence) technologies.

Bio-economy: Bio-economy/Agriculture.

Blue-economy: Blue economy/Sustainable use of maritime resources.

Energy efficiency: Energy efficiency/Renewable energy.

The aforementioned trend is once again influenced by the current industry focus. Results not

presented here for the sake of brevity show that VC managers investing mainly in ICT (the dominant

sector in the sample) are more likely to include investee companies in the areas of Deep Technology

and Fintech in their current portfolio; and to continue doing so in the future. By contrast, and not

surprisingly, VCs currently investing mainly in Clean Technologies are more likely to include investee

companies in the areas of Energy Efficiency and Bio-Economy in their future portfolios.

Taking everything into consideration, by comparing the number of respondents who state that their

current portfolio includes an investee in a particular area to the number of those who consider it

(highly) likely that their future portfolio will include an investee in that same area, we note that while

a significant number of investees are and will continue to be in Deep Technology and Fintech, in the

future an increasing number of investees in Cybersecurity and Bio-Economy can be expected (see

Figure 54).

238259

156

64

160

273

141120

223

315

219

106

Cybe r s ecu r i t y F i n t ech B io -economy

B lue

economy

Ene rg y

e f f i c i enc y

Deep

t echno log y

No of respondents

Likely/highly likely Unlikely/very unlikely

Q. How likely do you consider it that your final portfolio will include an investee in the area of …

37

Figure 54: Likelihood for portfolio to include an investee in specific industries

– current vs. future portfolio

Note:

Cybersecurity: Cybersecurity, space and/or dual use (civil/defence) technologies.

Bio-economy: Bio-economy/Agriculture.

Blue-economy: Blue economy/Sustainable use of maritime resources.

Energy efficiency: Energy efficiency/Renewable energy.

VC managers were finally given the opportunity to provide their free-text response regarding other

areas that they would consider promising for VC investments in the near future. In this case too,

technology-related areas (Artificial Intelligence, Blockchain, MedTech, FoodTech, PropTech)

featured prominently (see Figure 55).

147

213

106

31

135

241238

259

156

64

160

273

0

40

80

120

160

200

240

280

320

Cybersecurity Fintech Bio-Economy Blue Economy Energy

Efficiency

Deep

Technology

No of respondents

Current portfolio includes an investee in …

Future portfolio (highly) likely to include an investee in…

Deep Technology and Fintech still important;

increasing number of investees in Cybersecurity can be expected

Q. Does your current investment portfolio include an investee in the area of …

Q. How likely do you consider it that your final portfolio will include an investee in the area of …

38

Figure 55: Other promising areas for future VC investments6

Note:

AI: Artificial Intelligence; AR: Augmented Reality; EAS: Enterprise Application Software; IoT: Internet of Things, M-commerce:

Mobile commerce, using devices for commercial transactions online; ML: machine learning; PropTech: technology related

to Property, real estate; SaaS: Software as a Service; VR: Virtual Reality.

3.6 In focus: Brexit

While Brexit per se was not initially intended to be a focus area of the survey, it became evident when

processing the results that UK-based VC managers had responded quite differently from the rest of

the sample in a series of questions relating mainly to the challenges faced by the European VC

market as well as the outlook for the year ahead.

To begin with, while almost 1 in 2 non-UK VC managers consider Brexit a (significant or moderate)

challenge for the European VC business (see Figure 56) – with Brexit, however, ranked very low on

the overall list of the relevant challenges (see Figure 29) – this proportion increases to a remarkable

87% for UK-based VCs. At the same time, for VC managers whose firms are headquartered in the

UK, Brexit is perceived as the number one most significant challenge (see Figure 57).

6 The Figure was generated using Wordcloud whereby the bigger the font size the more frequently the respective answer

was mentioned in the free-text field.

Q. What other area do you consider promising in the near future?

More technology-

related areas also

promising in the

near future

39

Figure 56: Brexit as a challenge in the European VC business – UK vs. rest of the sample

Figure 57: Biggest challenges in VC business – UK-based VCs7

The remainder of this section summarises the key findings where the uncertainty surrounding the

Brexit implications seems to have affected the market sentiment of UK-based VC managers.

7 VC managers who participated in the survey were asked to indicate whether each of the elements listed in Figure 57

constitutes a significant, moderate or no challenge in VC business. The ranking of challenges is based on the mean value

for each item on a 1-3 scale, where “1” indicates “No Challenge” and “3” indicates “Significant Challenge”.

52% 48%

Sample excluding UK

No challenge

Significant or moderate challenge

13%

87%

UK-based VCs

60%

49%

32%

31%

32%

33%

29%

19%

21%

14%

13%

25%

10%

8%

28%

42%

57%

54%

51%

49%

56%

60%

51%

64%

60%

35%

53%

43%

13%

10%

11%

15%

17%

18%

15%

21%

28%

22%

28%

40%

38%

49%

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

Brexit

Fundraising

IPO market

Exit environment

Small fund sizes

Other political uncertainty


Regulation

Number of high quality entrepreneurs

Investee company performance

Market volatility

Cross-border market fragmentation

Competition through other investors

Fee pressure

Percentage of respondents

Significant challenge Moderate challenge No challenge

Brexit is the most significant challenge for UK-based VCs

Brexit perceived

as challenge

much more

frequently by

UK-based VCs

40

Figure 58: Lack of funding, in general – UK vs. rest of the sample

Figure 59: Lack of funding, at portfolio level – UK vs. rest of the sample

19%13%

19%

18%

62%69%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Sample excluding UK UK-based VCs

Percenta

ge of respondents


26% 24%

22%

15%

51%

61%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%


Percenta

ge of respondents


Q. From your perspective, in general, do venture capital funds lack funding to finance their portfolio companies'

prospects?

Q. Do you perceive that there is a lack of funding to finance your portfolio companies’ prospects?

A greater proportion

of UK-based VCs

perceive a

lack of funding,

in general

A greater proportion

of UK-based VCs

perceive a

lack of funding,

in particular,

to finance their own

portfolio companies

41

UK-based VC managers are more pessimistic in their perception of the fundraising environment over

the last 12 months, with 1 in 5 perceiving the fundraising environment to have been “bad” or “very

bad” (see Figure 60). In addition, 38% of the UK-based VCs expect the fundraising environment to

further deteriorate in 2018 (see Figure 61).

Figure 60: Fundraising environment, past 12 months – UK vs. rest of the sample

Figure 61: Fundraising environment, next 12 months – UK vs. rest of the sample

Reflecting the aforementioned concerns is the fact that UK-based VC managers encountered greater

difficulties than their other European counterparts in finding co-investors to syndicate over the past

12 months, with 1 in 2 reporting such difficulties (see Figure 62). Furthermore, no improvement in

this regard is expected for 2018 (see Figure 63).

12%18%

39%35%

49% 47%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%


Percenta

ge of respondents

Bad/very bad Average Good/very good

12%

38%

51%

35%

37%

28%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%


Percenta

ge of respondents


Q. How would you rate the fundraising environment for VC funds over the past 12 months?

Q. Over the next 12 months, how would you expect the fundraising to develop?

Relatively more

UK-based VCs

expect the

fundraising

environment

to deteriorate

in 2018

UK-based VCs

are more

pessimistic in

their perception

of the fundraising

environment

in 2017

42

Figure 62: Finding co-investors to syndicate, past 12 months – UK vs. rest of the sample

Figure 63: Finding co-investors to syndicate, next 12 months – UK vs. rest of the sample

Interestingly, a much greater proportion of UK-based VC managers expect the extent of regulatory

requirements applied in the European VC market to increase in the year ahead (see Figure 64); with

a significantly negative impact on their state of business as a result (see Figure 65).

37%

46%

4%

6%

58%

49%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%


Percenta

ge of respondents


9%14%

73%

71%

17% 15%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%


Percenta

ge of respondents

Slightly/much more difficult Stay the same Slightly/much less difficult

Q. How easy was it for you to find co-investors to syndicate over the last 12 months?

Q. Over the next 12 months, how difficult do you think it will be to find co-investors to syndicate compared

to the current situation?

More difficult for

UK-based VCs

to find co-investors

to syndicate

Difficulties

expected to persist

in 2018

43

Figure 64: Regulatory requirements, next 12 months – UK vs. rest of the sample

Figure 65: Impact of regulation on state of business, next 12 months – UK vs. rest of the sample

UK-based VC managers are much more pessimistic regarding the overall prospects of the European

VC market in the next 12 months (see Figure 66 and Figure 67).

4% 3%

59%

35%

37%

63%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%


Percenta

ge of respondents


36%

57%

50%

39%

14%

4%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%


Percenta

ge of respondents

Moderate/strong negative impact

No impact

Moderate/strong positive impact

Q. Over the next 12 months, do you expect that the regulatory requirements applied in the European VC

market will …

Q. What impact on the state of your business do you expect from any such regulatory changes?

2 in 3

UK-based VCs

expect regulatory

requirements to

increase in 2018

Most UK-based VCs

expect a negative

impact on their

state of business

as a result of

increased regulation

44

Figure 66: Overall prospects of the European VC market, next 12 months – UK vs. rest of the sample

Figure 67: Investment activities in the European VC market, next 12 months – UK vs. rest of the

sample

This is also reflected in the much lower confidence that UK-based VCs show, on average, in both

the long-term growth prospects of the VC industry in their market as well as in the long-term growth

prospects of the overall VC industry in Europe (see Figure 68).

5%

22%

37%

38%

58%

40%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%


Percenta

ge of respondents


7%

25%

33%

32%

60%

43%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%


Percenta

ge of respondents


Q. Over the next 12 months: Do you expect that the overall VC market in Europe will …

1 in 5

UK-based VCs

expects the

overall VC market

in Europe

to deteriorate

in 2018

1 in 4

UK-based VCs

expects

investment

activities

in the European

VC market

to deteriorate

in 2018

45

Figure 68: Confidence in the long-term growth prospects of the VC industry in your market and in

the European VC industry – UK vs. rest of the sample

8.0

7.7

7.2

6.8

Confidence in the long-term growth prospects of the VC

industry in your market

Confidence in the long-term growth prospects of the

European VC industry

mean value on a 1-10 scale

UK-based VCs are much less confident about the long-term growth prospects

of the VC industry in their market and in Europe overall

Q. Over the next 12 months: What do you expect to happen to investment activities in the European VC

market?

46

4 Role of the Public Sector in European VC

This chapter covers the section of the survey which asked fund managers for their views on the existing

public interventions. The survey revealed that public support in general is crucial for the European

VC market. The vast majority of surveyed VC managers would want to see more public support, both

financial and non-financial, in most of the areas and elements of the VC markets.

The VC managers are especially calling for an improved public role for increasing investment

volumes and targeting different stages in venture capital financing. More than half of the respondents

(55% and 53% respectively) saw room for improvement in regards to public support measures in

these two areas (see Figure 69).

Third most important area for VC managers was “support for specific industries”. However, this

overall opinion did not seem to be shared by VC managers focused on the Service sector. For them,

(see Figure 70), the third most important area where they would like to see a more dominant public

role was “contribution of guidelines” and “contribution of more non-financial support”.

Regarding “support for specific countries”, relatively more VC managers from the CESEE and the

South countries called for more public support, pointing at the underdeveloped market in their

countries (see Figure 71).

Figure 69: Improvement in public support measures

Note: “Other” excluded.

207199

97

7771 69

65

35

0

50

100

150

200

250

Increase of

investment

volumes

Target

different

stages in

venture

capital

financing

Support for

specific

industries

Support for

specific

countries

Contribution

of guidelines

Support for

specific

products /

instruments

Contribution

of more non-

financial

support

None

No of respondents

Better public support is needed to increase investment volumes

Q. In which areas do you see room for improvement in regards to public support measures in the VC

markets? (Multiple selection possible)

47

Figure 70: Improvement in public support measures – by VC firm target industry

Note: Percentages are based on the number of respondents per industry (for the distribution see Figure 6).

Total number of responses by sector: ICT (510), Clean Technologies (60), Life Sciences (185), Manufacturing (18), Services

(34).

Figure 71: Improvement in public support measures – by VC firm headquarter

50%

81%

69%

33% 38%

50%

62%

56%

67%

63%

17%

76%

43%

22%

13%

23%

5%

20%

11%

13%

19%

10% 1

5%

33%

31%

17%

33%

0%

22%

19%

16%

19%

17%

11%

31%

12%

0%

6%

0%

6%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

ICT C lean

Techno log ie s


Percenta

ge of respondents

Increase of investment volumes Target different stages in venture capital financing

Support for specific industries Support for specific countries

Contribution of guidelines Support for specific products / instruments

Contribution of more non-financial support None

126

77

162

88

54

113

165

0 20 40 60 80 100 120 140 160 180 200

Benelux

CESEE

DACH

France

Nordics

South

UK&Ireland

No of respondents

Increase of investment volumes Target different stages in venture capital financing

Support for specific industries Support for specific countries

Contribution of guidelines Support for specific products / instruments

Contribution of more non-financial support None

48

When asked about public financial intervention (see Figure 72), most of the respondents indicated

that they want to see it on the supply side, by providing financial or other support through

intermediaries such as VC funds. As we have seen from the previous section of the survey, the current

VC market lacks exit opportunities and the exit environment is currently perceived as the biggest

challenge, so perhaps it is not surprising that more than half of the respondents want to see the

public sector contributing to an improvement of exit options. None of the respondents said that

public support is not relevant.

Figure 72: Areas for public financial intervention

Co-investment facilities, accelerators and incubators were most widely mentioned by the fund

managers when asked about financing areas where an increased public support is needed (see

Figure 73).

Relative to the overall sample, venture debt funds seem to be more important for the CESEE countries.

Almost half of the respondents (44%) marked this as a potential area for public support (the related

figure is not presented for the sake of brevity).

286

191

174

144

126

0

0

50

100

150

200

250

300

350

Supply side, by

providing

financial or other

support through

intermediaries

such as VC funds

Contributing to

an improvement

of exit options

Improving the

conditions for

start-ups to

scaling up into

bigger firms

Demand side, by

stimulating

entrepreneurship

to increase the

number of

potentially

investable

companies

Smooth

transition from

grants to market-

based VC

support elements

None of them

No of respondents

Q. In which areas should public financial intervention focus to stimulate the European venture capital

market? (Multiple selection possible)

49

Figure 73: Areas where public support should be increased

Fund managers were also asked in which direction should public support for different investment

stages change. Here, the vast majority of the respondents (64%) indicated governmental support

should be increased for early stage businesses. Only a handful of them suggested that governmental

support should be decreased for this stage. The second most important stage for public support

turned out to be the seed stage, followed by the later and growth stages.

The picture changes when looking at a more detailed analysis. The two figures below (see Figure 75

and Figure 76) show that the aggregates enfold a significant country and sector-level heterogeneity.

For example, for VCs that are mainly targeting the manufacturing sector, the seed stage, on average,

requires more public support than the early stage. While for VCs targeting the service sector, the

growth stage is suggested for more public support, unlike the other sectors.

Regarding the geographical heterogeneity, the Nordics deviate significantly from the overall picture.

In net terms, a higher percentage of fund managers from the Nordics chose seed stage (61%) over

early stage. It seems that respondents from the Nordics were satisfied with the level of public support

for growth stage businesses. The net percentage of them even proposed to decrease support for this

stage.

It needs to be noted that respondents’ VC investment target stage may affect their choice for this

question. As we have seen in Chapter 2, for the majority of the respondents the most important stage

in which they invest is seed or early stage businesses (82%), see Figure 5. Indeed, as shown in Figure

77, VCs that are mainly targeting the later/growth stage indicated that the later stage, on average,

requires more public support than the seed or early stage.

203

142

109104

89

61

2015

0

50

100

150

200

250

Co-investment

facilities

Accelerators

and Incubators

Venture debt

funds

Accompanying

companies for

IPO

Social Impact

financing

Business

Angels

None Crowdfunding

No of respondents

Q. Indicate in which financing areas public support should be increased: (Multiple selection possible)

50

Figure 74: Direction of public support for different investment stages

Figure 75: Direction of public support for different investment stages – by VC target industry

8%2%

7%

21%

39%

34%

46%

41%

53%

64%

46%

38%

45%

61%

39%

17%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Seed Early Later Growth

Percenta

ge of respondents

Decrease Maintain Increase Net percentage*

40%

67%

51%

67%

44%

55%

86%

73%

56%

75%

36%38%

48%

33%

38%

13%

5%

30%

22%

38%

0%

20%

40%

60%

80%

100%

ICT Clean

Technologies

Life Sciences Manufacturing Services

Net percentage*


Q. In which direction should public support for different investment stages be changed?

51

Figure 76: Direction of public support for different investment stages – by VC firm headquarter

Note: *Number of positive responses minus number of negative responses. Please note that a negative net percentage

means, on balance, decrease.

Figure 77: Direction of public support for different investment stages – by VC target stage


means, on balance, decrease.

When asked about the existing governmental programs, fund managers seem to be more satisfied

with the European programs than with the national or regional programs (see Figure 78), regardless

of their country or industry focus. The only exception is France, where it appears that the availability

of national programs, in net terms, is more satisfactory than the availability of European programs

(see Figure 79). The availability of national programs seems to be the poorest in the CESEE. Except

for the Benelux, all regions rate negatively the availability of regional programs, especially in the

CESEE and in the South.

41%37%

32%

56%

61%

50%47%

64% 66%

48%

62%

48%

64%

73%

42%

49% 49%

44%

12%

34% 33%

17%15%

32%

21%

-18%

24%

14%

-40%

-20%

0%

20%

40%

60%

80%

Benelux CESEE DACH France Nordics South UK&Ireland

Net percentage*


47%

67%

32%

7%

39%

48%

56%

42%

0%

10%

20%

30%

40%

50%

60%

70%

80%

Seed Stage Early Stage Later Stage Growth Stage

Net percentage*

from Seed&Early from Later&Growth

52

Figure 78: Availability of governmental programs

Figure 79: Availability of governmental programs – by VC firm headquarter


means, on balance, “poor”.

Respondents were given a chance to select up to five elements of the ecosystems helpful for venture

capital that are particularly underdeveloped. Interestingly (see Figure 80), involvement of pension

funds as investors appeared to be the most important element that is currently underdeveloped8

.

8 In general, the respondents believe that the large private institutional investors are not ready to invest in European venture

capital (see Figure 84 and related discussion).

9%6%

18%

13%24%

33%27%

29%

26%

50%

42%

23%

37%

18%

-10%-20%

0%

20%

40%

60%

80%

100%

European level National level Regional level

Percenta

ge of respondents

Don't know Poor/very poor Acceptable

Good/very good Net percentage*

-40%

-20%

0%

20%

40%

60%

80%

Benelux CESEE DACH France Nordics South UK&Ireland

Net Percentage*

European level National level Regional level

Q. How would you evaluate the availability of governmental programs in regards to venture capital funding

in Europe?

Availability of

European

programs

is evaluated

very positively

53

“Supporting tax systems” and “highly experienced venture capital funds” were also frequently

selected.

Regarding the other elements, “VC market integration across national borders” appeared to be

relatively more important for Clean Technologies compared to all other sectors (see Figure 81).

Regarding the regional differences (see Figure 82), “VC market integration across national borders”

appeared to be a very important and currently underdeveloped element for the CESEE countries.

Figure 80: Underdeveloped elements of VC ecosystem

191

171

164

123

120

120

116

106

101

101

83

77

67

59

57

42

24

0 50 100 150 200

Involvement of pension funds as investors

Supporting tax systems

Highly experienced venture capital funds

Vibrant venture capital hubs

VC market integration across national borders

Cultural attitudes towards entrepreneurship and risk taking

Large-scale venture capital funds

Involvement of corporate investors

Regulatory framework

University endowments, foundations and family offices

R&D environment

Unfavourable general economic conditions

Attractive public funding opportunities

Access to public procurement contracts for innovative

entrepreneurs

Labour mobility

Intellectual property rights protection

Bankruptcy rules

No of respondents

1 (Most important) 2 3 4 5 (5th most important)

Involvement of pension funds as investors is currently underdeveloped

Q. Select up to five important elements of the ecosystems helpful for venture capital that are particularly

underdeveloped.

54

Figure 81: Development of VC ecosystem – by VC target industry

Note: For the sake of brevity, only the most frequently selected answers are presented.

Percentages are based on the number of respondents per industry (for the distribution see Figure 6).

Total number of responses by sector: ICT (515), Clean Technologies (68), Life Sciences (165), Manufacturing (19), Services

(28).

Figure 82: Development of VC ecosystem – by VC firm headquarter

31

%

76

%

28

%

44

%

44

%48

%

76

%

46

%

33

%

13

%

33

%

67

%

30

%

44

%

38

%42

%

57

%

49

%

22

%

38

%

50

%

48

%

51

%

67

%

44

%

0%

10%

20%

30%

40%

50%

60%

70%

80%

I C T C l ea n

T e c h n o l og i e s

L i f e S c i e n c e s M a n u f a c t u r i n g Se r v i c e s

Percenta

ge of respondents

VC market integration across national borders Supporting tax systems

Vibrant venture capital hubs Highly experienced venture capital funds


292

184

316

179

146

226

379

0 50 100 150 200 250 300 350 400

Benelux

CESEE

DACH

France

Nordics

South

UK&Ireland

No of respondents

VC market integration across national borders

Supporting tax systems

Regulatory framework

Vibrant venture capital hubs

Attractive public funding opportunities

Large-scale venture capital funds

Highly experienced venture capital funds

Involvement of corporate investors


University endowments, foundations and family offices

R&D environment

Bankruptcy rules

Cultural attitudes towards entrepreneurship and risk taking

Labour mobility

Intellectual property rights protection

Access to public procurement contracts for innovative entrepreneurs

55

The vast majority (97%) of fund managers are satisfied with at least one aspect of governmental

support programs (see Figure 83). The governmental programs that encourage other private LPs to

invest appear to be the most appreciated by the respondents. The governmental programs ensuring

long-term sustainability are the second most frequently selected aspect.

Figure 83: Appreciation of governmental support

As an addition to the previous question, surveyed VC managers were given the chance to add their

own responses in a free-text field. Many responses from the previous questions were repeated, such

as: “Encouraging private investors”, “More support for seed/early/later/growth stage”.

Besides those answers, the main sentiment that emerged from their free-text responses was that the

European VC market needs to be more harmonised across the EU-28 countries. The fund managers

called for supporting pan-European funds, more cross-border investments, and a harmonisation of

legal frameworks and tax systems. It also appears that the full picture of the VC supply is unknown

to many funds. The respondents think that better coordination is needed among the governmental

programs targeting the same instrument/product/sector/country and mapping investors would also

be helpful.

In addition to the cross-border investment, the respondents think that internalisation of the European

VC market is crucial, therefore access to foreign investors should be facilitated.

12

23

26

52

65

74

86

90

100

127

159

209

0 100 200 300

None

Contribution of networking opportunities

Contribution of fund governance advice

Helps to improve marketing and profile of funds

Helps to implement best-market-practice terms and

conditions (T&C)

Contribution to fund structuring

Supports the establishment of new teams

Encourages other public LPs to invest

Helps to improve venture capital company reputation /

track record

Reduces cost of securing funds / accelerates first closing

Long term sustainability of the VC / PE supply side

Encourages other private LPs to invest

No of respondents

Q. Indicate up to three of the most important aspects you appreciate from governmental support programs

(by the EIF or others) in your specific market? (Multiple selection possible)

Governmental support

is needed to encourage

other private LPs

to invest

56

Box 1: Governmental support activities that are currently missing. Free-text responses: main patterns

Simplification and harmonisation of tax systems

Harmonisation of legal framework

Support for pan-European funds

Cross-border investment

Labour mobility

More coordination in the programs available

Mapping investors

Foreign investors

Entrepreneurial education

More support for UK

The majority (56%) of the respondents believe that the large private institutional investors are not

ready to invest in European venture capital (see Figure 84). Some sectors such as Manufacturing

and Services (see Figure 85) are relatively more optimistic. In these two sectors, only around one

third of the respondents assessed the readiness of large private institutional investors to be poor or

very poor. Regarding the geographical heterogeneity, around one quarter of the fund managers

from France and the Nordics perceived the readiness of large private institutional investors to be

good or very good, which is the highest among all regions (see Figure 86).

Figure 84: Readiness of large private institutional investors

56%30%

14%

Poor/very poor Acceptable Good/very good

Q. Which governmental support activities do you feel are currently missing in the European market?

Q. How would you assess the readiness of large private institutional investors (European and non-

European) to invest in European venture capital?

Large private

institutional investors

are not ready to invest

in European VC

57

Figure 85: Readiness of large private institutional investors – by VC target industry

Figure 86: Readiness of large private institutional investors – by VC firm headquarter

To follow up on the previous question, the respondents were asked whether the provision of more

public resources would be enough to crowd in large private institutional investors. Given their answer

on the previous question, it is not surprising that most VC managers gave affirmative or possibly

affirmative answers (see Figure 87). Looking at sectoral differences (see Figure 88) fund managers

investing in Services gave negative responses in net terms, while 43% of fund managers from Clean

Technologies suggested that the provision of more public resources is required in order to crowd in

large private institutional investors.

56%62% 59%

33%38%

30%

29% 32%

22%

38%

15%10% 9%

44%

25%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%


Percenta

ge of respondents


55% 54%51% 49%

52%

58%

30% 32%42%

26%24%

28%

16% 15%

7%

26% 24%

14%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Benelux CESEE DACH France Nordics South

Percenta

ge of respondents


58

Figure 87: More public resources to crowd in large private institutional investors

Figure 88: More public resources to crowd in large private institutional investors – by VC target

industry


means, on balance, No.

As we have seen above, one third of the respondents opted for the provision of more public resources

in order to crowd in large private institutional investors. The rest of the respondents, who replied “no”

or “maybe”, expressed their opinions in the free-text field. It is worth noting, that some of them still

suggested more public involvement.

According to the analysis of the free-text fields, respondents believe that the European VC market is

not dynamic enough and the European VC funds are too small to be attractive to large private

33%

16%

51%

Yes

No

Maybe

32%

43%

35% 33%25%

17%

14%

11% 11%

38%

51%

43%

54% 56%

38%

15%

29%

23%22%

-13%

-20%

0%

20%

40%

60%

80%

100%


Percenta

ge of respondents

Yes No Maybe Net percentage*

Q. Would the provision of more public resources be enough to crowd them in?

More public resources

to crowd in large private

institutional investors

59

institutional investors. LPs should be given structuring options to be able to split larger deals into

smaller fund allocations.

The respondents also stated in their free-text responses that the European VC market lacks the risk

appetite and that LPs are often not well informed about the track records of VC fund performance.

In general, the market needs to raise awareness about the social and economic impact of VC. It

needs more success stories, which according to the respondents, can be supported by data-driven

research. The market needs to demonstrate that the European VC companies are viable, that they

have strong financial returns and successful exits.

In addition, the VC fund managers suggested that to crowd in LPs, they should be given tax and

regulatory incentives.

Box 2: Aspects needed to crowd in LPs. Free-text responses: main patters

Track record of VC fund performance

Raise awareness on the social and economic impact of VC

Success stories

Attractive VC companies

Competent LPs

Deals are too small

Regulatory incentives

Tax incentives

Exit

Q. If you answered "maybe" or "no", what would be needed in addition?

60

5 Concluding remarks and summary of policy recommendations

The EIF VC Survey was designed to gain insights into the European VC market, its state of business

and market activity. The survey’s aim is to identify the current challenges faced by fund managers

and VC-supported companies, including their barriers to access finance. Moreover, the project

intends to provide possibilities to derive concrete policy recommendations.

The survey confirms that in general, VC managers are rather optimistic in their perception of the

current market situation as well as of future outlook. The current and future state of business are

evaluated positively, portfolio companies have been developing in line with expectations, most VCs

intend to raise another fund in the near future and new investments are expected to increase in 2018.

Moreover, fund managers are rather confident about the long-term growth prospects of the VC

industry in their market and in Europe altogether, since they expect both the overall VC market in

Europe and investment activities in the European VC market to further improve in 2018. However, it

should be noted that there are sometimes substantial differences in the responses by country and

sector focus.

At the same time though, the challenges persist. The lack of funding to finance portfolio companies’

prospects is still perceived to be significant. Many fund managers do not rate positively the

fundraising environment over the last year, while the expectations for improvement in 2018 remain

limited. At a market-wide level, the challenges relating to fundraising and exit opportunities prevent

European venture capital from becoming a more attractive asset class; while at the portfolio level,

recruiting high-quality professionals is perceived as the biggest challenge faced by investee

companies.

The VC managers do share general optimism about the European VC market, but they still perceive

it as underdeveloped and not dynamic enough. The large private institutional investors are not ready

to invest in European venture capital. European VC funds are too small to be attractive to large

private institutional investors. Moreover, cultural attitudes as regards risk perception play a big role.

The European VC market seems to lack risk appetite and LPs state not to be well informed about the

track records of VC funds’ performance.

In general, the market needs to raise awareness about the social and economic impact of VC. It

needs more success stories, which according to the respondents, can be supported by data-driven

research. The market should demonstrate that the European VC companies are viable, that they

have strong financial returns and successful exits.

According to respondents, public support can play a role in two ways to stimulate the VC ecosystem:

(i) by tax incentives and simplified and harmonised regulatory systems, and (ii) by provision of more

public resources to increase investment volumes and encouraging other private LPs to invest.

The survey respondents stated that the provision of more public resources could help to crowd in

large private institutional investors. Currently, the involvement of pension funds as investors appeared

to be the most important element of the VC ecosystem that is underdeveloped. Moreover, the

European VC market needs to be more harmonised across EU-28 countries. The fund managers

called for supporting pan-European funds, more cross-border investments, and a harmonisation of

legal frameworks and tax systems. It also appears that the full picture of the public VC supply is

61

unknown to many funds. The respondents think that better coordination is needed among the

governmental programs targeting the same instrument/product/sector/country and mapping

investors would also be helpful.

In general, the respondents expressed their appreciation regarding the governmental support

programs. Compared to national or regional programs, the European programs appear to be more

appreciated.

Venture capital is an essential source for start-up and young companies to achieve growth and create

value through innovation. The relevance of venture capital financing, not only for young and

innovative companies but also for the economy as a whole is very high. In order to improve the

availability of information about this important market segment in Europe, it is envisaged to repeat

this survey regularly. Moreover, based on this survey, a venture capital market sentiment index

(barometer) is in development and will provide the possibility to track the VC market sentiment over

time. Furthermore, additional, precise policy recommendations are expected to emerge from future

waves. As such, this project contributes to establishing a sustainable venture capital ecosystem in

Europe – a key objective of the EIF.

62

ANNEX

List of acronyms

Benelux (countries): (countries of) Belgium, Netherlands and Luxembourg

CEO: Chief Executive Officer

CESEE (countries): (countries in) Central, Eastern and South-Eastern Europe

DACH (countries): (countries of) Germany, Austria and Switzerland

EIB: European Investment Bank

EIF: European Investment Fund

EU-28: the 28 EU Member States

EUR: Euro

GP: General Partner

ICT: Information and Communications Technologies

IPO: Initial Public Offering

LP: Limited Partner

m: million

PE: Private Equity

R&D: Research & Development

RMA: Research and Market Analysis

SME: Small and Medium-sized Enterprise

UK: United Kingdom

VC: Venture Capital

63

About …

… the European Investment Fund

The European Investment Fund (EIF) is Europe’s leading risk finance provider for small and medium

sized enterprises (SMEs) and mid-caps, with a central mission to facilitate their access to finance. As

part of the European Investment Bank (EIB) Group, EIF designs, promotes and implements equity

and debt financial instruments which specifically target the needs of these market segments.

In this role, EIF fosters EU objectives in support of innovation, research and development,

entrepreneurship, growth, and employment. EIF manages resources on behalf of the EIB, the

European Commission, national and regional authorities and other third parties. EIF support to

enterprises is provided through a wide range of selected financial intermediaries across Europe. EIF

is a public-private partnership whose tripartite shareholding structure includes the EIB, the European

Union represented by the European Commission and various public and private financial institutions

from European Union Member States and Turkey. For further information, please visit www.eif.org.

… EIF’s Research & Market Analysis

Research & Market Analysis (RMA) supports EIF’s strategic decision-making, product development

and mandate management processes through applied research and market analyses. RMA works as

internal advisor, participates in international fora and maintains liaison with many organisations and

institutions.

… this Working Paper series

The EIF Working Papers are designed to make available to a wider readership selected topics and

studies in relation to EIF´s business. The Working Papers are edited by EIF´s Research & Market

Analysis and are typically authored or co-authored by EIF staff, or written in cooperation with EIF.

The Working Papers are usually available only in English and distributed in electronic form (pdf).

http://www.eif.org/

64

EIF Working Papers

2009/001 Microfinance in Europe – A market overview.

November 2009.

2009/002 Financing Technology Transfer.

December 2009.

2010/003 Private Equity Market in Europe – Rise of a new cycle or tail of the recession?

February 2010.

2010/004 Private Equity and Venture Capital Indicators – A research of EU27 Private Equity and

Venture Capital Markets. April 2010.

2010/005 Private Equity Market Outlook.

May 2010.

2010/006 Drivers of Private Equity Investment activity. Are Buyout and Venture investors really so

different? August 2010

2010/007 SME Loan Securitisation – an important tool to support European SME lending.

October 2010.

2010/008 Impact of Legislation on Credit Risk – How different are the U.K. and Germany?

November 2010.

2011/009 The performance and prospects of European Venture Capital.

May 2011.

2011/010 European Small Business Finance Outlook.

June 2011.

2011/011 Business Angels in Germany. EIF’s initiative to support the non-institutional

financing market. November 2011.

2011/012 European Small Business Finance Outlook 2/2011.

December 2011.

2012/013 Progress for microfinance in Europe.

January 2012.


May 2012.

2012/015 The importance of leasing for SME finance.

August 2012.


December 2012.

2013/017 Forecasting distress in European SME portfolios.

May 2013.


June 2013.

65

2013/019 SME loan securitisation 2.0 – Market assessment and policy options.

October 2013.


December 2013.

2014/021 Financing the mobility of students in European higher education.

January 2014.

2014/022 Guidelines for SME Access to Finance Market Assessments.

April 2014.

2014/023 Pricing Default Risk: the Good, the Bad, and the Anomaly.

June 2014.


June 2014.

2014/025 Institutional non-bank lending and the role of debt funds.

October 2014.


December 2014.

2015/027 Bridging the university funding gap: determinants and

consequences of university seed funds and proof-of-concept Programs in Europe.

May 2015.


June 2015.

2015/029 The Economic Impact of EU Guarantees on Credit to SMEs - Evidence from CESEE

Countries. July 2015.

2015/030 Financing patterns of European SMEs: An Empirical Taxonomy

November 2015

2015/031 SME Securitisation – at a crossroads?

December 2015.


December 2015.

2016/033 Evaluating the impact of European microfinance. The foundations.

January 2016

2016/034 The European Venture Capital Landscape: an EIF perspective.

Volume I: the impact of EIF on the VC ecosystem. June 2016.


June 2016.

2016/036 The role of cooperative banks and smaller institutions for the financing of SMEs and

small midcaps in Europe. July 2016.


December 2016.

2016/038 The European Venture Capital Landscape: an EIF perspective. Volume II: Growth

patterns of EIF-backed startups. December 2016.

66

2017/039 Guaranteeing Social Enterprises – The EaSI way.

February 2017.

2017/040 Financing Patterns of European SMEs Revisited: An Updated Empirical Taxonomy and

Determinants of SME Financing Clusters. March 2017.

2017/041 The European Venture Capital landscape: an EIF perspective. Volume III: Liquidity

events and returns of EIF-backed VC investments. April 2017.

2017/042 Credit Guarantee Schemes for SME lending in Western Europe.

June 2017.


June 2017.

2017/044 Financing Micro Firms in Europe: An Empirical Analysis

September 2017

2017/045 The European venture capital landscape: an EIF perspective.

Volume IV: The value of innovation for EIF-backed startups. December 2017.


December 2017.

2018/047 EIF SME Access to Finance Index

January 2018.

2018/048 The EIF VC Survey 2018

Fund managers’ market sentiment and views on public intervention. April 2018.

67

This page is left intentionally blank.

EIFVCSurvey2018 - eif.org · ICT and Life Sciences are perceived as the two most promising...

Documents

Transcript of EIFVCSurvey2018 - eif.org · ICT and Life Sciences are perceived as the two most promising...