European governments must help stimulate private sector interest in European venture capital, given institutional investors' unwillingness or inability to commit to the asset class.
That was part of the rationale behind two very different public-private fund of funds schemes discussed Thursday at the EVCA Venture Forum in Berlin.
The European Private Equity and Venture Capital Association revealed it is in talks with the European Commission over the potential creation of a 10-year, €1.5 billion European venture fund of funds programme.
As we come out of this global downturn … creating this fund of funds with European scale is the answer.
“We are proposing a scheme that will lead to the creation of several fund of funds,” EVCA director Thomas Meyer told PEO on the conference's sidelines. While details still need to be finalised, he said the idea would be to put €300 million of public funds out for tender every two years, available only to a fund of funds manager that would then raise a matching amount from private investors. The scheme would have no country quota or allocation in terms of investment strategy, he added.
The trade body believes matching public funding can be a powerful incentive to attract private capital, which the European venture industry lacks.
Unlike the US, where university endowments have long supported venture funds, Europe has “no role models of institutional investors that have truly been successful with European venture capital”, Meyer said. “Over the last decade the private sector fund of funds found it immensely easier to market the buyout strategy.”
Acknowledging tough fundraising conditions, Meyer said there are certain themes that may be more marketable to institutional investors such as fund of funds organised around sustainability, which may also include infrastructure funds.
Speaking on-stage in Berlin, Paul Drayson, the UK minister of science and innovation (and a former venture capital-backed entrepreneur), emphasised that “urgent government intervention” is the way forward for the venture industry in both the UK and Europe.
Drayson said European governments should back the creation of a €3 billion European venture fund of funds to “underpin Europe's economic position in the world and generate the highly skilled jobs we need”.
He cited recent Dow Jones statistics showing US venture investments are increasing, while “Europe is not seeing that equivalent. As we come out of this global downturn … creating this fund of funds with European scale is the answer.”
Drayson has instigated a similar initiative with the UK Innovation Investment Fund, seeded by a cornerstone investment of £150 million from the government. The fund should soon be “up and running”, he said, noting it aims to select a manager and hold a first close by year's end.
Its thesis – as well as that of the €3 billion European vehicle Drayson suggested – revolves around providing support to existing SMEs and venture-backed companies that will increase innovation and highly skilled job growth, as well as help solve issues including climate change.
“Venture-backed companies are really struggling in this current market,” he said. “We cannot afford, literally, [to allow] these companies to go the wall for the lack of equity finance.”