EUROPE - European venture performance takes off

Sarah
23 May 2007

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The returns from European venture have never been better, with new performance figures now exceeding even the lofty heights seen in 2001. тThe GPs left in this space are the cream that has risen to the top,т says Charles Irving at Pond Ventures. тIt is the start of new era where smarter investors are working with smarter entrepreneurs, many of whom are repeat entrepreneurs who are coming back for more for the first time.т Better investment selection combined with a strong economic backdrop have led to the highest returns for the asset ever seen, according to data from CEPRES, an academic consultant specialised in private equity research. The latest figures show the firmтs proprietary index is 26% higher than in 2000, the pinnacle of venture, before its post-bubble nose dive. тIt is much less risky now than investing in 1999,т says Mark Brugger of European fund of funds LFPE. тWhen I left the German venture scene at the end of last year, I could oversee some ten fund investments in Germany. Letтs say that six were poor т two of the four that survived were beginning to return tremendous money т they had portfolios of some 20 companies and were vintage 1999/2000. I am still a believer in venture.т

This is largely due to a strong recovery in the asset over the last two years, and current market conditions indicate that it could be sustainable. “The market is not overvalued and is down on its peak with regard to financing levels, meaning there is no sign of any valuation breakdown along the lines of that seen in 2000,” says Dr Daniel Schmidt, managing director of CEPRES.

“There’s been a real maturation of the European venture marketplace,” says Nenad Marovac, managing partner at DN Capital. “The entrance of US venture investors such as Benchmark and Accel combined with the local successes of Mangrove and Index has brought sophistication. Additionally, today’s investors are fewer and more disciplined – there are now around 25-30 active investors, down substantially from around 400-500 when we entered the market in 2001. Those that are left are more experienced and have a more global outlook, unlike the country-specific approach seen during the bubble time.”

Schmidt concurs, adding that fewer players means less of a chance that the strong deals will be drowned by a sea of subpar transactions. “The relatively smaller market volume means there is less of a chance of these returns being diluted by a large number of less impressive investments.”