In the 10 years to the end of 2011, European venture capital funds delivered to their LPs an average net IRR of -0.94 percent. In the five years to 2011, the return was slightly better: -0.14 percent. That’s according to the industry’s own trade body, the European Private Equity & Venture Capital Association. To put it bluntly: as an asset class, European VC has stunk the continent out for a decade.
First things first. Why has European venture had such a bad run?
The first point is that the whole political and fiscal system seems much more conducive to enterprise than it has ever been. European governments have been introducing tax breaks and investment schemes to encourage early-stage investment gaps; while London, Berlin and to a lesser extent Stockholm have developed into vibrant technology and start-up hubs.
Unless you’re Accel, it seems. The team reached a first and final close on Accel London IV within just eight weeks; the fund was “significantly oversubscribed” and experienced “unprecedented demand”, the firm said (interestingly, two-thirds of the capital came from US LPs).
MORE THAN ENOUGH
There’s been a lot of gloom around European venture in recent years. And for the industry as a whole, the lack of funding is clearly a problem.
Whether Accel can capitalise on this and deliver the sort of returns that US venture investors have enjoyed remains to be seen. But the European venture market seems better positioned than it’s ever been. And judging by its fundraising success, investors clearly believe Accel has the right proposition to cash in. n
CASE STUDY: EUROPE’S BEST EVER VC DEAL?
As a template for how European VC deals ought to work, it’s hard to see past QlikTech
When Accel invested in QlikTech in 2004 (alongside Jerusalem Venture Partners), it was an obscure business analytics company in a technology park in provincial Sweden. Six years later, its flotation on NASDAQ generated a €408 million return on Accel’s €17 million investment – equivalent to 23.6x. Apparently, some of Accel’s investors reckon this is the biggest return to a single VC firm in the history of European venture.
The original deal was extremely competitive; Accel was by no means the only firm convinced of QlikTech’s potential. But its US links – along with the sector experience of partner Bruce Golden, who ked the deal and continues to chair the company’s board – were crucial. “They chose Accel because Bruce was a domain expert – and because they figured that if they really wanted to be a global success story, they needed help to get into the US.”
BOX-OUT: CAPITAL NEW POOLS
European VCs’ search for innovative funding sources – largely by dint of necessity – has some interesting lessons for larger firms
If you’re suffering from a lack of capital, as European VC has been lately, it’s generally a good incentive to seek out innovative new sources of money. That’s particularly true in capital-intensive industries like semiconductors, cleantech and (to a lesser extent) life sciences.
To Glover, no structure should be out of bounds. “It’s really whatever works. Our function is not to preserve the venture capital model.”