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Venture capital

Venture capital

This page contains data and analysis on the development of venture capital (VC) investments in Europe. The data and information on venture capital in Europe was produced by the European Private Equity and Venture Capital Association .

Available data

The EVCA is a member-based, non-profit trade association established in1983 in Brussels. With more than 1,200 members, the EVCA represents and promotes the European private equity and venture capital industry.

The EVCA?s activities cover the entire spectrum of private equity, from venture capital investment into early-stage and developing companies, through to investments in established businesses.

EVCA has collected data on venture capital and private equity investments since 1984. The latest 2012 European venture capital statistics are available from the EVCA Yearbook 2013. These statistics are compiled using a survey of European countries for the joint Pan-European statistics platform database known as the Private Equity Research Exchange Platform (PEREP_Analytics). This represents the most authoritative source of data on European venture capital. This site provides data and information from the EVCA in relation to the following indicators:

  • Total VC investments as a percentage of GDP
  • VC investments in seed and start-up companies scaled by GDP1
  • Later stage VC investments as a percentage of GDP
  • Number of beneficiary SMEs scaled by GDP
  • VC investment by sector
  • VC investment by type.

All the above indicators are derived from what the EVCA refers to as "market statistics'. These are investments from the perspective of the destination country of the investment, as opposed to the country of the VC fund. It is also important to bear in mind that the statistical information contains only data generated by EVCA member organisations and covers all EU member states excluding Cyprus and Malta.

GDP information was extracted from Eurostat (February, 2013).

Total venture capital investment (% of GDP); available EU countries data; 2012

Total private equity investment (encompassing both early stage VC funding and later, usually larger deals such as management buy-outs) totalled €36.5bn in nearly 5,000 European businesses, of which €3.2bn were venture capital investments in 2,900 companies. While the number of venture-backed companies remained stable, aggregate funding was modestly down compared with the previous year and markedly down compared with the height of the financial boom (2008: €6.3bn).

As noted in the analysis of 2011 data, venture investment will only ever be appropriate for a small minority of firms with exceptional growth prospects over the short to medium term. Given continuing uncertainties in the Eurozone in particular, it is perhaps not surprising that overall business sentiment has not favoured investment in higher-risk/higher reward opportunities. However, since venture-backed firms have the potential to form the kernel of economic growth in key sectors and clusters, a decline in venture investment may be an early indicator of continuing low growth prospects in the shorter term, or at least lack of business confidence.

Figure 1

Total Venture Capital Investment in 2012 gif - 30 KB [30 KB]

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Looking at investment on a country-by-country basis scaled to GDP (see Figure 1), the UK, Sweden and Ireland continue to perform well, though less well than in 2011. Finland and Denmark, previously among the leaders, have dropped back. Estonia (0.051%) has climbed to be almost on a par with Ireland and Sweden (0.054% each) and pulled ahead of the UK (down from 0.045% to 0.038%).

Estonian performance may reflect broader economic changes, including labour market flexibility; despite continuing high unemployment, GDP has grown2 by more than 15% since the crash of 2008. The Estonian economy is smaller (€19,237.5M) than that of Latvia (€24,576.1M) or Lithuania (€36,654.2M), but it has pulled ahead proportionately in terms of venture investment despite relative improvement in the Lithuanian position (0.013%, up from 0.009%).

The standout performer in venture investment relative to GDP was Hungary. Already above the EU average in 2011 at 0.040% of GDP, it rose to 0.065% in 2012. It is probable that Hungary is beginning to see the benefit of the Szechenyi plan, an allocation of 45bn HUF (± €0.15bn) aimed at improving access to capital for SMEs in start-up and growth phases, of which 80% has been made available to the New Hungary Venture Capital Programme. New funds were formed with effect from early 2010, with investments now being made in qualifying companies3.

Total venture capital investment (% of GDP); total available EU countries data; 2007 to 2012

Aggregate data for the EU as a whole and the Eurozone as a subset show a continuation of the pattern which has been clear since the financial crash in 2008, with further declines in both indices relative to GDP (see figure 2). In 2011 the decline in venture capital investment as a proportion of GDP in the EU as a whole appeared to be levelling off, while contraction continued in the Eurozone area. However, during 2012 the pace of decline increased in both areas. This negative ‘catch-up’ relative to the Eurozone was likely driven by declines in venture investment in the leading non-Euro economies: Sweden, Denmark and the UK.

Figure 2

Total Venture Capital Investment 2007 - 2011 gif - 16 KB [16 KB]

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Venture capital investments in seed-and-start-up companies (% of GDP); available EU countries data; 2012

Turning more specifically to investment at seed and start-up stages, at the level of the EU as a whole the downward trend has been reducing over the last few years, and between 2011 and 2012 there was a slight increase in early stage VC investments as a proportion of GDP.. However, the Euro area continued to experience a decline (Figure 3) It should be noted that the levelling off is as a proportion of GDP; since GDP has declined overall, total volumes of venture funds invested at early stages also declined in 2012, as noted above, though numbers of investments remained steady.

Figure 3

Venture Capital Investment in Seed and Start Ups 2007 - 2012 gif - 15 KB [15 KB]

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Some of the drivers behind the divergent performance of Eurozone and non-Eurozone totals can be seen when investment is disaggregated and examined at the country level (see Figure 4). Among non-Eurozone economies, the UK has for a decade or longer not performed well at the seed and start-up level but in 2012 early stage VC as a proportion of GDP rose from 0.017% to 0.025%; and other – albeit smaller – non Eurozone economies also achieved above average investment at early stages, including Hungary (0.056% - see above), Estonia (0.051%) and Sweden (0.025%).

Eurozone performance was depressed by the fact that higher performers were also relatively smaller economies in terms of GDP: Ireland (0.039% - GDP €172,265.2M) and Finland (0.034% - GDP €206,352.2M). Since venture investments typically take ten years or longer to reach an exit, overall sentiment concerning the health and dynamism of Eurozone economies will likely depress investment activity.

Figure 4

Venture Capital Investment in Seed and Start Ups 2012 gif - 27 KB [27 KB]

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Later stage venture capital investment; thousands of euro (% of GDP); available EU countries data; 2012

Given the long-run preference on the part of institutional investors for larger, later – and by implication safer – investments, the accelerated decline in later stage funding is notable (Figure 5). In this case, however, the relative decline of the Eurozone compared with the EU as a whole is less marked.

Figure 5

Later Stage Venture Capital Investments 2007 - 2012 gif - 16 KB [16 KB]

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Looking behind the aggregate data to the individual country performance (Figure 6), the relative weakening of the UK at 0.013% of GDP (down from 0.028% in 2011), Denmark (0.01% against 0.029% in 2011) and Sweden (0.029%, down from 0.031% in 2011) explains much of the relative weakening of the non-Euro market.

That said, no major Eurozone country witnessed a material improvement. Germany declined from 0.01% to 0.007%, France from 0.019% to 0.014%, Italy from 0.002% to 0.001% and Spain from 0.007% to 0.004%. While the smaller investment market has in recent years been a cause of concern for policymakers (addressed through government-backed venture schemes and tax breaks for angel investors in a number of countries), the 2012 EVCA data suggest that the later stage market now also suffers from systemic weaknesses requiring further policy review. Investment markets are closely interrelated, with blockages in one part of the system leading to constraints elsewhere over time.

Figure 6

Later Stage Venture Capital Investments in 2012 gif - 25 KB [25 KB]

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Number of beneficiary SMEs scaled by GDP; available EU countries data; 2012

One piece of relatively good news amid a general picture of decline in the availability of venture capital is the modest revival in the number of beneficiaries of venture capital investment across much of the Eurozone and wider EU alike (Figure 7) - with the EU as a whole back to its pre-crash high of 0.00026% scaled to GDP.

However, the underlying absolute numbers are less encouraging: 2,751 companies were funded in 2012 in the EU by means of venture capital, almost unchanged from 2011 (2,754) but markedly down from the 2008 high of 3,465. The decline in the denominator – GDP – is the cause of the improvement in the number of investments relative to GDP.

Figure 7

Number of beneficiary SMEs 2007 - 2012 gif - 15 KB [15 KB]

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Breaking the numbers down at the individual country level (Figure 8) reveals increasing numbers of investments relative to GDP in Sweden (already the strongest performer in 2011), steady high performance in Finland and doubling of numbers of investments in Lithuania and Estonia; fellow Baltic state Latvia by contrast experienced a one third decline in the number of investments relative to GDP. Given the upturn in availability of venture funding in Hungary during the year, it is not surprising to see an improvement of just over one third to 0.004.

Figure 8

Number of beneficiary SMEs in 2012 gif - 28 KB [28 KB]

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Venture capital investment by sector; available EU countries data; 2012

In 2012 there was a continuation of the encouraging trend noted last year of innovative firms and research-based sectors receiving the major share of venture investment, thereby assisting the rebalancing European economies. The top sectors for investment continued to be (1) life sciences, (2) computer and consumer electronics, (3) communications and (4) energy and environment – which together accounted for nearly 77% of all venture investment (see Figure 9).

However, as last year, a potential threat remains with the high cash requirements of life-science companies in particular. With the decline in 2007-2012 of later stage funding (Figures 5 and 6), a cause of concern is the ability of the venture industry to maintain support for companies in these sectors, which often require successive tranches of investment over an extended period before realising the commercial potential of their R&D.

Figure 9

Venture Capital Investments by Sector 2012 gif - 26 KB [26 KB]

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Overall

Despite some signs of stabilisation (for instance, the number of companies invested in as a proportion of GDP) and a few clear areas of improvement (venture funding in Hungary and two of the Baltic States – Estonia and Lithuania), 2012 continues the clear pattern of decline to have emerged since 2007.

Decline risks becoming systemic, with weak performance at the investment level leading to a reduced ability on the part of fund managers to raise further funds. In 2011, 26 funds raised more than €250M but in 2012 that number halved to 13. Both larger funds (>€250M) and smaller funds (<€250M) raised less in aggregate than in 2011 – by 51% and 25% respectively.

Furthermore, exits also declined in 2012. While the number of companies remained stable, the amount divested at cost reduced by 29% compared with 2011. Initial Public Offerings – the traditional ‘home run’ or star exit for many venture managers – were very low: 3 buy-out and 5 venture deals exited in this way.

In short, the available pool of funds is diminishing in line with activity and performance. Though €36.5bn was invested in the total pan-European venture capital and private equity industry in 2012 (€3.2bn specifically in venture rounds), only €23.6bn was raised by way of new funds4.

A number of policy recommendations were made in this commentary when reviewing the 2011 venture industry performance. Data and analysis of 2011 EVCA statistics can be found here. These recommendations remain relevant as it is increasingly clear that the market is not providing the scale of investment that firms need. The impact of public intervention can already be seen in the increased levels of activity in Hungary. The upturn in activity in some of the Baltic States (notably Estonia at the venture stage) also shows the importance of introducing reforms with the grain of the market to encourage and promote entrepreneurship: as economies restructured and revived, investment picked up.

While diverting public resources to the venture market in times of economic constraint continues to be a challenge, venture funding properly directed is an essential instrument in developing the new, growth industries of the future. The focus of funds on industries with high growth potential such as life sciences, computing, communications and energy provide some basis for optimism that despite the decline in funding the economic impact of those investments that are being made could be significant.

1) 'Scaled by GDP' is defined as the indicator value divided by the GDP value of a country (e.g. VC investment in seed and start-up companies divided by GDP of France). A high ratio would suggest a high indicator (numerator) and low GDP (denominator) and vice versa. It is also worth noting that ‘scaled by GDP’ calculations for both the Euro area and the whole of the EU are derived by taking the average of all the ratios of the countries which make up those two geographies.

2) http://www.stat.ee/29958

3) http://mvzrt.hu/content.php?id=i42d06616b227d9b281d185516f3f4da

4) http://www.evca.eu/uploadedfiles/home/knowledge_center/evca_research/2012_Pan-European_PE&VC_Activity.pdf

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