Despite challenging narratives, European Venture Capital is showing resilience and potential.
- The European Competitiveness report by Mario Draghi highlights a growing private sector gap with the US and China.
- Critiques often cite regulatory challenges and investor risk aversion within Europe.
- Comparative analysis shows that European VCs have raised significantly less than their US counterparts since 2013.
- European VCs demonstrate strong performance metrics despite modest financial backing.
The European Venture Capital (VC) industry has often been the subject of scrutiny, with critics citing a difficult environment for startups characterized by stringent regulations and conservative investor behaviour. Recently, this scrutiny was intensified by Mario Draghi’s European Competitiveness report, which underscores a widening gap in private sector growth between Europe and global competitors such as the US and China. This report suggests that high-growth companies with unicorn status are increasingly leaving Europe, driven by an ostensibly stifling market climate.
However, the discourse around European VC often overlooks underlying strengths. Notably, while European VCs have indeed raised significantly less capital compared to their American counterparts—$130 billion versus $924 billion between 2013 and 2023—this financial disparity does not encapsulate the full picture. The core advantage of European VCs lies in their ability to foster exceptional teams and aid startups in scaling to global prominence, irrespective of their headquarters’ eventual location or the site of initial public offerings (IPOs).
A pertinent issue highlighted in the report is the difficulty for larger funds and institutional investors to back startups in both the UK and EU. This barrier has been acknowledged by stakeholders as a primary area needing reform, with calls for easing access to capital becoming increasingly popular. These critiques are often presented with data that, upon closer inspection, are not always indicative of the European ecosystem’s potential and achievements.
Beyond superficial metrics, the success of European VCs is evident in their Internal Rate of Return (IRR) performance over extended periods. Despite smaller capital pools, European VCs have consistently delivered noteworthy results over 10- and 15-year horizons, reflecting their adeptness at achieving outsized returns relative to investment volumes. Such performance challenges the notion that merely the size of invested capital equates to success, suggesting instead that strategic insight and targeted investment play pivotal roles in driving successful outcomes.
The European VC landscape, though facing challenges, showcases significant strategic strengths and potential for growth.
