Reviving European Venture Capital: Bridging the Gap with Institutional Investors for Innovation

The recent discussions at the #UglyDuck24 event highlighted a critical examination of the state and future of European venture capital (VC) amidst ongoing comparisons with U.S. VC performance. Here are the key takeaways from the session featuring Uli Grabenwarter, head of equity investments at the European Investment Fund (EIF):

 

• U.S. VC Outperformance: It was noted that U.S. venture capital is currently outperforming European counterparts in terms of sheer funding and returns. However, this narrative is nuanced by data indicating that consolidated institutional-grade European VC remains competitive, particularly over longer investment horizons.
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• Investment Returns: Recent reports suggest that European VCs have achieved a net annual return of 12.65% since 2002, slightly edging out U.S. VCs at 12.25%. Over the last decade, European VCs have also shown better performance metrics, with a net internal rate of return (IRR) of 20.77% compared to North America's 18.18%.
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• Pension Fund Participation: A significant concern raised was the minimal allocation of pension funds to venture capital, with only 0.01% of their assets under management directed towards this sector. This lack of investment is seen as a missed opportunity for fostering innovation within Europe.
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• Innovation as a Key Driver: Despite the challenges facing European VC, there is a consensus on the necessity of innovation for future growth. Grabenwarter emphasized that without adequate venture capital support, innovation could migrate to regions with more robust funding environments, potentially undermining Europe’s competitive edge in technology and entrepreneurship.
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• Call for New Narratives: Grabenwarter urged the European VC community to reshape its narrative and engage more actively with institutional investors like pension funds and insurance companies. He stressed the importance of collaboration and dialogue to enhance the role of these investors in supporting Europe's economic landscape.
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In conclusion, while U.S. VC continues to dominate in terms of funding and visibility, European VC has demonstrated resilience and competitive returns. The future success of European venture capital will depend significantly on increasing institutional investment and fostering an environment conducive to innovation.