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The European venture capital fundraising landscape is parched. As traditional sources of capital for the asset class dry up, could EVCA's proposal to the European Commission for a commitment to pan-European funds-of-funds help replenish the LP drought?

A handful of players have closed funds with relative ease since the start of 2013. The standout example is Accel Partners, which closed Accel London IV on $475m in March after an astonishing eight weeks on the road.

But the majority have not been so swift. August saw Earlybird close its fourth fund on €150m, having held a first close on the halfway point in April last year. And unlike previous funds, Earlybird 2012 Fund counts the European Investment Fund (EIF) as a cornerstone investor. Venture fundraising is changing; time spent on the road is lengthening and government support - albeit European - is playing an increasingly important role.

"In 2007, only 10% of funding came from government agencies, but last year it accounted for 40% of investments in VC funds," an EVCA spokesperson explains. "You aren't going to get a self-sustaining industry that way." As a result, EVCA has proposed that the European Commission (EC) - which is to double the size of its VC commitment for the 2014-2020 period - continues with the EIF but also enters the fund-of-funds space, where it will cornerstone a number of pan-European funds-of-funds, to be managed by current private sector managers.

Pound for pound
Crucially, commitments provided by the EC will be matched by private sector money in an attempt to lure private capital back into the asset class. Capital could come from two areas of the 2020 budget: CoSME (Competitiveness for SMEs) and Horizon 2020 (research and innovation). The European Parliament has written the possibility of the fund-of-funds into legislation and the EC is thinking along the technical lines of how it would work in practice - testament to EVCA's clout.

"The question will be how commercially it will be managed," says Dushy Sivanithy, principal at Pantheon. "Will it be spread around a large number of groups, or will it be given to the best groups that have demonstrated they can deliver strong financial returns? If it's a question of backing one German group, one French group, one Italian group and so on... Well, that will obviously serve the needs of politicians, but it may not serve good commercial returns."

And where will the matching contributions come from? VC players could look to corporates outside Europe, of course. Amadeus Capital Partners did this in July, when it hit a first close for Amadeus IV Digital Prosperity Fund on $75m with just one investor - the South African telco business MTN Group. But on the whole, the market is undercapitalised.

The US boasts 55 endowments, which have traditionally invested in the country's indomitable venture market. What's more, the super-annuation schemes in Australia alongside the large pools of capital emerging in sovereign wealth funds in China, Singapore or the Middle East remain too large for European VCs to access. But institutional venture backers are thin on the ground in Europe, and global sources of investment are often too large for the average European venture fund.

"When I speak to pension funds and insurance companies, they really have a challenge, because it isn't that easy to select venture funds," says Uli Fricke, managing general partner and founder at Germany-based early-stage investment firm Triangle. "Take an asset manager or a larger insurer that manages €800bn as an example. If in one year they commit €50-100m to the European venture industry, for them it's not substantial. Yet they still have to keep sizable resources aside to make smart investment decisions. In terms of facilitating access to the market, a fund-of-funds with a venture capital allocation strategy could really help that."

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• Topics
• Venture
• Fundraising
• EVCA
• Accel Ventures
• European Investment Fund
• Pantheon
• Amadeus Capital