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“The conditions for venture capital investment in Europe have never been better”: Interview with Dörte Höppner, Chief Executive of the European Venture Capital Association

Risk capital funds have been closing more deals in Europe recently. Investment activity in venture-capital-backed European tech companies recently reached a four-year high in both deals and dollars in 2014. In addition, US venture-capital investment in Europe is increasing steadily, as a recent report by Germany’s Earlybird Venture Capital has found.

I was curious to know if this is indeed a trend, so sat down with Dörte Höppner, the boss of European Venture Capital Association (EVCA). The EVCA covers a full range of private equity activity, from early-stage venture capital to the largest private equity firms, investors such as pension funds, insurance companies, fund-of-funds and family offices and associate members from related professions. With 700 member firms and 500 affiliate members, the EVCA shapes the future direction of the industry.

Thanks for joining us! Please can you give us a short summary of your role as Chief Executive of EVCA?

I have been representing the European venture capital industry for many years, first in Germany and for four years now in Brussels. In my role, I promote venture capital to investors, entrepreneurs and the media, and together with my colleagues at EVCA work with policymakers to secure rules which make it easier for European venture capital firms to raise and invest capital across Europe. I couldn’t do this job if I wasn’t passionate about Europe’s startup culture and the great companies that venture capital is building.

Venture capital investment activity in Europe is on the rise. What major trends do you see?

The conditions for venture capital investment in Europe have never been better. Cloud computing and high-speed internet have made the startup scene much more democratic, enabling ideas to be born and companies to grow up in Europe. It is no longer necessary to go to Silicon Valley to start a tech company. Startup clusters are emerging in cities like Berlin, London and Stockholm to name but a few, and there are really exciting developments across the continent. We expect venture capital investments to pick up slightly over the course of 2015. They have remained stable but rather low over the last three to four years. After all, Europe has a long history of innovation and no shortage of entrepreneurial talent – almost 3,000 companies receive venture capital backing every year. But we do need to encourage more institutions and private investors to give Europe’s venture capital funds the financial firepower to invest in innovative ideas and build global companies.

What are the factors that the best performing VCs have in common?

They certainly need to be passionate and visionary. That’s necessary, but not sufficient. They also need to act highly professional, which means that they must be diligent and extremely well organised – and last but not least they need to be firm decision makers.

Is there a public database of venture capital firms investing in Europe? Where should European companies go to search for investors?

You can find a list of European venture capital funds on the EVCA’s website – we call it ‘the investor search’. It lists all our members that invest in European companies from venture capital to large buyout. You can filter the list by geography, industry sector and amount of capital you seek to raise.

There is a big gap between US and EU venture capital investments per capita. Do you think that the EU will ever catch up with the US levels?

The US venture capital market is some seven to eight times bigger than the European market. However, the good news is that the Europe’s policymakers are serious about creating a financial ecosystem that supports startups and SMEs with the financing they need. So I think we will soon be able to start to close that gap.

The European Commission has recently launched an initiative to strengthen Europe’s capital markets – the Capital Markets Union – which echoes rather than copies the US market structure. It aims to draw investors into equity financing for business, and provide companies with a range of cheap and flexible funding options. There is a very clear place in the plans for venture capital, which could in time help the industry grow. But we also should not fall in the trap to always comparing Europe to the US. We are different in many ways, we should focus on our strengths. We don’t need to copy the US way to do venture capital, we have great venture capital firms that know best how to create value in Europe.

What in your opinion would be one single thing that the European Commission could implement in the EU market, which could produce the biggest impact on growth of the venture capital market in this region?

Fundraising is the biggest obstacle that European venture capital firms face. It is essential that we get more private investors on board. The EVCA has proposed the creation of private sector-managed, pan-European, fund-of-funds with a high commitment to venture capital. The EU budget should provide the cornerstone funding for the scheme and would act as a catalyst for private sector backing. This fund would then be invested in other European venture capital funds, giving them the resources to back more innovative startups, and the firepower to help them grow.

There is a significant gap in valuations between the US and the EU. US startups in every round get at least 100% more funding. Does this influence European startups, in terms of failure ratios? Should European startups raise in the US to get more funding?

We want to ensure that great ideas born in Europe get the backing they need to grow in Europe, where they can create jobs, flourish and act as magnet for even more innovation. We need to encourage more capital into venture capital at the early stages, and ensure there are keen investors in public markets and hungry strategic buyers when companies reach maturity. More enthusiastic capital at all levels of company development should inevitably lead to higher valuations. Similarly, we need to create the conditions for entrepreneurs who create dynamic and trendsetting businesses to stay in Europe and repeat their successes. A deep pool of driven and experienced people will be a significant factor in ensuring fewer failures.

Do you know what percentage of venture capital money is invested cross-border in Europe? What could be done to increase cross-border venture capital investments?

Around 30% of venture capital investments made into European companies are cross-border. Two-thirds of those cross-border investments come from venture capital managers in other European countries, while the other third comes from international fund managers. That means that the proportion of international venture capital firms investing in Europe is almost 10% – a figure that has been growing and is likely to continue to increase.

Which EU country has best developed venture capital market and why?

Germany, France and the UK have Europe’s largest venture capital markets. Together they account for more than 50% of all investments. But in terms of capital invested per capita the Nordics, Switzerland and Ireland top the list – those are countries with a longer tradition for venture capital, so their markets are more mature.

What is your take on equity crowdfunding and business angel/clubs in Europe? Do venture capital firms invest with them?

Equity crowdfunding and angel investors are still a very small part of the startup
ecosystem. However, they are becoming increasingly more important; policymakers are considering crowdfunding within their proposals for a European Capital Markets Union. We don’t have any data on the size of co-investments, but it is not unusual that venture capital firms invest in companies that received their earliest funding from those sources.

By the way: If you’re a corporate or investor looking for exciting startups in a specific market for a potential investment or acquisition, check out our Startup Sourcing Service!

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Pavel Curda
Pavel Curdahttps://cz.linkedin.com/in/pavelcurda
Pavel Curda is an entrepreneur, marketer, storyteller and writer. With experience from various multinational companies, he now helps connect startups and corporates @pavelcurda www.investably.co https://www.linkedin.com/in/pavelcurda/

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