The soufflé was the metaphor of choice at this year's European Venture Capital Association (EVCA) Symposium.
From its humble beginnings as a plain vanilla dish, the European private equity industry has evolved into a varied, high calorie dessert – a “soufflé”.
The question mulled over by delegates to the three-day Paris event – which finished on Friday – is whether the soufflé will continue to rise, or whether instead it must collapse?
Few ventured a definite view one way or the other, but most leant toward a more optimistic assessment.
In fact it was difficult not to be optimistic after the release of new figures at the conference revealing that 1999 was another record year for the industry.
Results from the annual European Private Equity Survey show that E25.4bn was raised last year, up 25% from 1998.
According to the survey, carried out by PricewaterhouseCoopers (Pwc) for the EVCA, and covering 720 funds from 17 European countries, private equity houses made investments worth E25.1bn in 1999, up by a staggering 74% from last year's figure.
As expected, the survey underlined a stellar year for the technology sector. Funds raised for investment in high-technology companies, at the early and expansion stages, almost tripled from E2.9 billion in 1998 to E8.4 billion last year.
Against a backdrop of continuing volatility among technology stocks, the sector's growing important to the private equity industry as a whole might have been expected to concern delegates.
But again a more positive view prevailed.
The correction in tech stocks that began in March was in fact seen as a positive development that brought about more realistic valuations of both quoted and unquoted companies.
It also had the salutary effect of reminding investors of the difference between genuine technology businesses and so-called “dotcoms” – dismissed as retail operations on the Internet.
The quality end of the technology sector continues to have the industry's confidence. Most “buy” the New Economy story and see next-generation technologies – like broadband and mobile commerce – as providing excellent investment opportunities.
According to Pwc's Marco Rochat, fund managers expect to invest 20% of new funds in early stage technology companies this year – up 300% from last year.
Despite the general optimism, the industry accepts there are challenges ahead.
At an individual fund level, venture capitalists spoke of the need to differentiate themselves from the pack. And with 200 new funds set up over the past two years in Europe alone, according to Advent International's John Singer, the pressure to stand out is growing.
VCs are responding by building sector-specific expertise, forming alliances – often cross-border – with other funds, and even considering full mergers with rival firms.
At an industry level, there is the challenge of what is described as the “wall of money” flooding the European market.
At one level there would seem to be little worry about – the total amount invested last year matched the E25.4bn raised over the same period.
But this is the first time since 1995 that the amount invested has either matched or exceeded new funds raised, leaving a surplus of billions from previous years. And this is before taking into account the billions of dollars in US funds currently looking for a European home.
For their part, institutional investors in Paris seem resigned to falling returns from their private equity portfolios. In fact neither investors nor financiers believe the industry could maintain the three figure returns seen over the past two years.
However, a panel of investors this morning urged managers to proactively manage their clients' expectations. It was important, they said, that investors were prepared for any fall in returns, or the private equity industry risked undermining the trust that is slowly building up between it and the buy-side.
It is natural for investors to be more cautious than venture capitalist themselves, but in general they too were positive about the future. And there is more behind their optimism than technology and venture capital.
The flow of buy-out deals is expected to remain strong across Europe, especially in France and Germany, where the single currency is forcing companies of all sizes to restructure their businesses.
And the lure of public-to-private deals can only increase as more Old Economy businesses tire of their low share price and look to ways to free themselves from the tyranny of a public listing.
Most delegates felt comfortable with a speaker's prediction that a 25% increase in assets managed by Europe’s private equity community was feasible for 2001.
If the prediction turns out to be correct, by the time the EVCA event rolls around to its venue in Rome next year, the private equity soufflé will be bigger in size, even if its returns are not as sweet.