Recent assessments of European venture capital (VC) have been critical, yet some claims lack depth.
- The European Competitiveness report by Mario Draghi highlights concerns about investment gaps with the US and China.
- Critics argue European VC struggles with regulation and risk aversion among investors.
- There’s a call for the facilitation of larger funds and institutional support for startups in Europe.
- Despite these challenges, European VCs have shown strong returns over longer investment horizons.
Recent assessments regarding European venture capital (VC) have painted a rather pessimistic picture. Mario Draghi’s European Competitiveness report, for instance, underscores a growing investment gap between Europe and counterparts like the United States and China. Notably, the report highlights that approximately 30% of European companies with unicorn valuations have opted to relocate outside the bloc since 2008, suggesting potential structural issues within Europe’s investment environment.
Critics of the European VC landscape frequently cite an unfavourable business climate characterised by stringent regulations and a general aversion to high-risk investments. Indeed, when comparing fundraising efforts, US venture capitalists raised $924 billion between 2013 and 2023, significantly overshadowing the $130 billion accumulated by European VCs during the same period. This disparity emphasises the scale issues faced by Europe in contrast to its American counterparts.
A recurring solution advocated for years is the establishment of mechanisms that would enable larger funds and institutional investors to support startups more effectively in Europe, an area where both the UK and the EU have historically encountered challenges. This approach aims to mitigate the financial constraints currently hindering European startups from reaching their full potential in a competitive global market.
While criticisms often focus on the size of the VC markets and the locations of startup headquarters, these factors are argued to be less indicative of genuine performance. The primary objective of venture capitalists should be to identify exceptional founders and facilitate their growth into globally successful enterprises. Metrics like the Internal Rate of Return (IRR) are more relevant for evaluating the system’s true capacity, revealing that European VCs, despite their smaller scale, have consistently delivered impressive results over 10 and 15-year horizons.
In conclusion, while European VCs face significant challenges, particularly regarding scale and regulatory environments, they have nonetheless demonstrated a capacity to produce strong investment returns, suggesting that reports of their decline may be overstated.
European VCs, despite their obstacles, continue to achieve notable investment outcomes, indicating resilience and potential for growth.
