{"id":342967,"date":"2017-06-07T16:30:13","date_gmt":"2017-06-07T08:30:13","guid":{"rendered":"http:\/\/techcrunch.com\/?p=1499340"},"modified":"2017-06-07T16:30:13","modified_gmt":"2017-06-07T08:30:13","slug":"venture-investing-in-the-us-and-europe-are-totally-different-industries","status":"publish","type":"post","link":"https:\/\/people.utm.my\/asmawisham\/venture-investing-in-the-us-and-europe-are-totally-different-industries\/","title":{"rendered":"Venture investing in the US and Europe are totally different industries"},"content":{"rendered":"

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Victor Basta<\/span> Contributor<\/span><\/p>\n<\/div>\n

Victor Basta is the founder of the boutique investment firm Magister Advisors<\/a>.<\/p>\n<\/div>\n

While venture investing outside the US has come a long way in recent years, our analysis shows it remains an entirely different industry than US venture capital.\u00a0 And when we say different, we mean totally<\/strong><\/em> different.<\/p>\n

We looked at venture investment trends in 2007-2011 from PitchBook and compared them with VC exit results in 2012-16, to very roughly compare investment in one 5 year period with exit results in the ensuring next 5 years, roughly matching VC investment cycles.<\/p>\n

INVESTMENT TRENDS SHOW \u2018WHAT YOU WOULD EXPECT\u2019<\/strong><\/p>\n

Over 2007-11, European venture started to accelerate.\u00a0 Of course the industry remained a fraction of the US in size, but by 2011 there were 1400+ European investments made vs just under 4,000 in the US, a healthy jump in activity.\u00a0 And average round size was nearly $5 million vs, $7 million for the US.\u00a0 All indicative of a European VC industry developing rapidly from a much smaller base.<\/p>\n

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EXIT TRENDS POINT TO ENTIRELY DIFFERENT INDUSTRIES<\/strong><\/p>\n

The subsequent 5 years, 2012-16, show entirely different exit profiles.\u00a0 Its encapsulated in a single number on the bottom right of the chart below:<\/p>\n

The average US venture capital exit is nearly $200 million, versus $70 million for Europe.<\/p>\n

The number of $250 million exits during this 5 year period? 22 across all of Europe, versus 166 in the US.<\/strong> \u00a0That\u2019s a huge, persistent disparity, especially given the evolution of European venture over the past decade.<\/p>\n

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WHAT\u2019S GOING ON?<\/strong><\/p>\n

While European venture has come on leaps and bounds, it remains a \u2018smaller round, smaller exit\u2019 market.<\/p>\n

It is extremely dangerous for European earlier stage VC\u2019s to raise ever-larger funds, or early stage European companies to take very large A or B rounds.\u00a0 The European exit market is still far less developed, and putting more into companies can only damage returns.<\/p>\n

The above has nothing to do with ambition, it simply reflects a current reality slowly changing; to make significant returns CEO\u2019s and investors need to invest less into more capital efficient businesses that can return enough in a smaller, though successful exit.<\/p>\n

A \u2018good\u2019 exit in Europe is $100 million or more, while a \u2018good\u2019 exit in the US is at least $250 million.<\/p>\n

WHAT IS TO BE DONE?<\/strong><\/p>\n

The key is to fill the Series C \u2018black hole\u2019 that currently exists for European tech. This will give the most ambitious CEO\u2019s and investors the opportunity to tap late stage capital to accelerate beyond the $100 million exit mark, in turn creating more future \u2018unicorns\u2019 in Europe; currently Europe has 1\/10 the US number.<\/p>\n

Here are specific, feasible actions that can address this gap in a reasonable time-frame:<\/p>\n