Benelux venture fundraising outpaces buyout counterpart

The Benelux fundraising environment is still proving favourable for GPs, though a slowdown in the region could have been expected following the high levels of activity seen between 2015-2017: in the three years leading up to 2018, eight out of 10 of the most active Benelux-based GPs completed a fundraise, according to Unquote Data. This is perhaps not surprising given that 2017 proved to be the region's busiest ever year in terms of fundraising, with 14 buyout vehicles and three venture funds holding final closes totalling €6.02bn. 

What has been remarkable about 2018 is the share of closes accounted for by venture funds, of which Forbion Capital Fund IV (€360m) and Mangrove V (€200m) were the largest. Last year's €887m committed to venture funds is the second highest ever seen in the region, after 2016's record of €1.03bn across nine funds. It also compensates for a less spectacular 2017 in the venture space, which saw €217m raised across three funds. This is all the more remarkable given that 2018's figures do not include Life Sciences Partners' (LSP) interim close for its sixth generation fund on its €400m target in November. The vehicle is expected to hold a final close in Q1 2019. 

The Benelux venture market focuses predominantly on early-stage deals for pharma, biotech and companies specialised in medical equipment and supplies. Unquote Data shows that between 2013-2018, early-stage investments in these sectors accounted for an aggregate €666m, equivalent to 78% of all early-stage investments.

"This market has matured significantly over the past decade, becoming increasingly efficient at commercialising scientific innovation," says René Kuijten, managing partner at LSP. Kuijten says that biotech- and pharma-focused venture fund managers in Europe suffer somewhat from a lack of capital relative to the number of startups it produces, a point made by Forbion Capital Partners' managing partner Sander Slootweg when he recently spoke to Unquote. Kuijten says that, while LSP looks at around 1,000 startups per year, it only invests in 10. 

Arbitrage opportunities
Kuijten also underlines that having a relatively cheap market in Europe, but the option of exiting globally - and particularly in the US - allows for great arbitrage opportunities in Europe (IPOs for European biotech companies on Nasdaq have been possible since 2013). Indeed, around 30% of IPOs of LSP 5-backed startups took place on Nasdaq.

Tom Vanhoutte is a partner at Imec.xpand, a VC that invests in startups in the semiconductors sector and closed its €117m maiden fund in September. He says that either listing on Nasdaq or pursuing M&A exits to US-based companies is a likely route for the startups the firm will back. "Europe is still a difficult geography to grow a biotech or technology business, not only because regulation differs from country to country, whereas this is much more homogeneous across the federal states in the US," says Vanhoutte. 

Europe is still a difficult geography to grow a biotech or technology businesses, also because regulation differs from country to country" – Tom Vanhoutte, Imec.xpand

LSP's Kuijten also stresses that, in terms of trade exits, the fact big pharma and medtech corporates are shifting from internal R&D to an acquisition-based model is a considerable development. VCs, he says, have specifically targeted startups that can then be absorbed by large corporates. 

Imec.xpand's Vanhoutte highlights that the VC operates independently from Imec, an R&D innovation hub that specialises in nanoelectronics and digital technologies. However, he says that Imec.xpand only invests in opportunities where Imec's knowledge, network and infrastructure can play a determining role in the success of the venture. This exemplifies the kind of deeper relationship the industry is building with venture firms in the region.

Venture in the Benelux region has shown many signs of having matured in the past few years, offering good opportunities for arbitrage and consequently resulting in 2018's strong fundraising performance. The interim close of LSP 6 on €410m is up 65% on predecessor fund LSP 5 (€250m), and Forbion IV's €360m close in October was double the size of its 2016-vintage predecessor, which closed on €183m. The coming years will reveal whether the venture fundraising bonanza is sustainable.

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