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The European VC Industry – Key Successes, Issues and Challenges

EVCA, The Voice of European Private Equity Industry since 1983

Venture Capital Club, Munich

Georges Noel, EVCA Director

15 September 2009

2

Agenda

§ About EVCA – VC Council & Task Forces§ VC in the World§ VC in Europe§ Successes, Issues, Challenges§ Trends, Outlook, Conclusions

3

EVCA : New Organisation since November 2009

¾ VC Data Project & Case for European Venture Task Force

¾ Venture Capital Forum Task Force ¾ Stock Exchange Roundtable & Task Force ¾ Strategic Exits Task Force ¾ Environmental Task Force ¾ LP Workshops Task Force ¾ Membership Workshops Task Force ¾ Biotech Roundtable & Task Force ¾ Public Affairs Task Force

¾ Conferences & Training Task Force ¾ AIFMD Work Task Force ¾ Communications Task Force ¾ Data Collection & Research Output and

Investor Relations Task Force

¾ Representative Group ¾ Investor Relations Committee ¾ Professional Standards

Committee ¾ Tax and Legal Committee

EuropeanPE Roundtable /

Large Buyout Platform

Limited PartnersPlatform

Venture CapitalPlatform

Mid-Market Buyout Platform

EVCA DirectorsMark Roberts/Javier Echarri

EVCA DirectorPhilippe Defreyn

EVCA DirectorThomas Meyer

EVCA DirectorGeorges Noel

EVCA Committees

EVCA Directors

Industry Promotion ResearchEducation Policy & Public Affairs Formation & implementation of professional standards

The Platforms and committees run industry task forces with active participation from over 100 senior industry professionals driving the output of the association across our five key value streams

Risk Management Working Group

4

EVCA VC CouncilMission and Composition

Mission: To represent and provide services to VC members within EVCA and to promote the European Venture Capital industry.Composition:Chairman 2010-11: Hendrik Brandis, Earlybird Venture Capital, Germany (also Board)Past-Chairman: Patrick Sheehan, Environmental Technologies Fund, UKChairman-Elect: Alex Brabers , GIMV Belgium (also Board and Finance Ctte)Members: Anne Glover, Amadeus Capital (UK), Denis Lucquin, Sofinnove (F) – also Board, Sven Lingjaerde, Endeavour Vision (CH), Arve Johan Andresen, Northzone (DK) – also PAE Representative, Paul Jozefak, Neuhaus Partners (D), Simon Cook, DFJ Esprit (UK), Michiel de

Haan, Aescap Venture Management (NL), Ulrich Grabenwarter, EIF (EUR), Eran Davidson, Hasso Plattner Ventures (D)Secretary: EVCA Director: Georges Noël – Executive Assistant: Nadine Lepère

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Venture Council Task Force Members9 Task Forces to address Industry Challenges

ï Hendrik Brandis (Earlybird), Simon Cook (DFJ Esprit), Ann Glover (Amadeus ï Capital), Alex Brabers (GIMV), Nenad Marovac (DN Capital),Sven Lingjaerdeï (Endeavour Vision), Jörg Sperling (Wheb Ventures), Denis Lucquin (Sofinnova), ï Patrick Sheehan (Environmental Technologies Fund), Bernd Geiger (Triangle ï Venture Group), Alexandra Goll (TVM Capital), François Lainée (Auriga Partners), Eranï Davidson (Hasso Plattner Ventures), Emmanuele Levi (360° Capital Partners), Campbell ï Lockhart (L’Oréal), Sophie Paturle Guesnerot (Demeter), Gina Domanig (Emerald ï Technology Ventures), Tom Murley (HG Capital), Bart Diels (GIMV), RichardYoungman (The ï Cleantech Group), Guido Agostinelli (Good Energies), Anki Forsberg (Healthcap), Alberto ï Trombetta (Finlombardia),Helmut Shühsler (TVM Capital), Björn Odlander (Healthcap), ï Patrick van Beneden (GIMV), Arve Johan Andresen (Northzone), Les Gabb (Adventï Ventures Partners), NYSE-Euronext, London Stock Exchange, Deutsche Börse, NASDAQ-OMX, ï Six Swiss Exchange, Stoxx, FTSE

ï EVCA Team Members: Georges Noël (EVCA), Javier Echarri (EVCA), Zornitsaï Pavlova (EVCA), Emma Fau Sebastian (EVCA)

ï Executive Assistant: Nadine Lepère (EVCA)

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Active VC Managers Worldwide (#) -Prequin

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VC In Europe

Total VC Firms in Europe 596 (100%)Total VC Firms active (having raised a new fund last 8 years) 466Of which doing more than 4 deals per year 180 (30%)

EVCA Full VC Members (strictu sensu Early Stage) 189Assets under Management by EVCA VCs €37bn

Top 10 36% Firms >€1bn #7Top 20 54% Firms > €500m #19Top 50 78% Firms over €100m #82(of Asset under Management) Firms < 100m #107

Key markets: UK 20%, Germany 19%, Scandinavia 18%, France 16%,Benelux 15%, Switzerland 7%

Sources: EVCA Research – PEREP_Analytics – VentureOne, Prequin

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Equity Investments by European PE/VC Funds 2007 – 2010 (Q2)

14.2 15.5

10.0 10.513.0

5.23.3

5.9 5.8 6.6

1.3

1.3 1.1

1.3 1.01.1

1.21.3

1.8

1.7

1.61.8

1.6

1.5

0.9

1.116.713.7

2.7 2.50.8

1.2 1.51.1

1.62.6

1.8

1.4 0.9

0.9

1.0

0.6

0

5

10

15

20

25

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2

Venture

Growth

Buyout

€ billion

Source:EVCA/PEREP_AnalyticsNote: Buyout figures include replacement capital and rescue/turnaroundFigures are updated continuously and therefore subject to change

2007 2008 2009 2010

9

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2

Seed

Start-up

Later stage

Growth capital

Rescue /Turnaround

ReplacementcapitalBuyout

Investments by stage distribution and number of companies financed 2007-2010% of number of European companies financed

Source:EVCA/PEREP_Analytics, market statisticsFigures are updated continuously and therefore subject to change

2007 2008 2009 2010

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Evolution of European private equityinvestments by segment

Source: PEREP_Analytics for 2007-2009; EVCA/Thomson Reuters/PricewaterhouseCoopers for previous years

0

10

20

30

40

50

60

70

1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008

€ bi

llion

Venture capital

Buyouts

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Evolution activity flowsIncremental amounts raised during quarter

25.223.1

17.1

24.1

19.8 20.4

4.3 3.65.6

3.64.9 4.2 5.2

8.4 7.4

3.54.4

19.9

14.9

8.6

19.8

8.2

16.514.9

13.2

17.916.916.6

0

5

10

15

20

25

30

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2

Funds Raised

Investments

€ billion

Source:EVCA/PEREP_Analytics, market statisticsFunds Raised: incremental amounts raised by funds reaching a closing during quarterFigures are updated continuously and therefore subject to change

2007 2008 2009 2010

12

0%

20%

40%

60%

80%

100%

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2

Early-stage

Later stage

Balanced

Growth capital

Buyout

Mezzanine

Generalist

Funds raised by fund stage focus% of amount raised

Source:EVCA/PEREP_AnalyticsFunds Raised: incremental amounts raised by funds reaching a closing during quarterFigures are updated continuously and therefore subject to change

2007 2008 2009 2010

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Key Challenges of the European VC Industry

§ Image of the Industry § Fundraising§ Exits§ Regulation

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Major Issuses & Challenges

Image of the Industry amongst LP

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Successes: VC Investing Does Create Value

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Source: Venturesource

$35 Billion of value created from major European VC exits over the last 5 Years on $5 billion VC equity66% IT and medical devices, 33% Drug discovery/biotech$1 billion VC invested each year creates $7 billion value each year

Source: Simon Cook, DFJ Esprit

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Major Issuses & Challenges

Raising Funds

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0%

20%

40%

60%

80%

100%

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2

Early-stage

Later stage

Balanced

Growth capital

Buyout

Mezzanine

Generalist

Funds raised by fund stage focus% of amount raised

Source:EVCA/PEREP_AnalyticsFunds Raised: incremental amounts raised by funds reaching a closing during quarterFigures are updated continuously and therefore subject to change

2007 2008 2009 2010

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Funds raised by type of investor in 2009(incremental closings during year)

Fund of funds13.5%Government agencies

11.8%

Insurance companies9.3%

Pension funds14.4%

Private individuals3.5%

Unknown9.8% Capital markets

1.9%

Endowments and foundations

2.9%

Family offices4.2%

Corporate investors6.3%

Other asset managers*3.9%

Academic institutions0.2% Banks

18.4%

*(including PE houses other than Funds of Funds)

Source: EVCA/PEREP_Analytics

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Average Time to Final Close (in months)(Source Prequin and VCJ August 2010)

Average Time in Months

2010 19,82009 18.62008 15.02007 12.02006 11.12005 10.62004 9.5

Raising Greycoft’s second fund:18 months on the road

515 LPs contacted50% passed on the occasion to invest

100 didn't responded154 LP visits

97 due diligences33 follow-up LP visits

12 reference requests9 LP’s committing

$130m raised

Alan is co-founder of Apax and the ‘P’ in Apax

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EVCA Members on Fundraising Trail (08/2010)

§ 29 PE and VC funds targeting €4.3bn average fund size €475m

Of which 13 VCs targeting €1.3bn average fund size €97m

Of which 5 German VC’s targeting €325m (of which €80m already committed) – average fund size €65m

§ 16 European VC funds have already raised a total of €0.972bm during the 1st half of 2010

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Major Issuses & Challenges

Realise Exitsthrough

§ Public Markets§ Strategic Exits

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VC divestments by trade sale and IPO2007-H1 2010

0

200

400

600

800

1,000

1,200

2007 2008 2009 H1 2010

amou

nt a

t cos

t in

€ m

illio

n

0

50

100

150

200

250

300

350

400

num

ber o

f com

pani

es

Amount at cost Number of companies

Divestments by trade sale

Source: EVCA/PEREP_Analytics

0

50

100

150

200

250

300

350

400

2007 2008 2009 H1 2010

amou

nt a

t cos

t in

€ m

illio

n

0

5

10

15

20

25

30

35

40

num

ber o

f com

pani

es

Amount at cost Number of companies

Divestments by IPO

23

Global M&A

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Global IPOs 200-2010 (August)

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Global IPO Snapshot by Region (Source Dealogic –NYS Euronext)

Global IPO Snapshot - Capital Raised at IPO byWorld Region

$0bn

$50bn

$100bn

$150bn

$200bn

$250bn

$300bn

$350bn

$400bn

FY 2000 FY 2001 FY 2002 FY 2003 FY 2004 FY 2005 FY 2006 FY 2007 FY 2008 FY 2009 YTD 2010

EMEAAmericasAsia Pacific

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Venture divestment at cost in 2010

35%27%

6%

5%

12%

10%

2%

4%4%

1%

3%

0.1%29%

10%

21%

0.1%

7%16%

6.3%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Q1 2010 Q2 2010

Other

Sale to Management (MBO)

Sale to Financial Institution

Secondary

Repayment of Principal Loans

Repayment of Silent Partnership

Write-Off

Sale of Quoted Equity

IPO

Trade sale

% of amount

Source: EVCA/PEREP_AnalyticsFigures are updated continuously and therefore subject to change

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Major Issuses & Challenges

Regulation§ AIFMD§ Solvency II§ Basle III§ ESG Aspects

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A Few Trends

§ VC will upscale, build “one stop” fund families, a few regional or sectorialchampions, brand-names will further develop proprietary networks of entrepreneur, entrepreneur funds, tech companies

§ Fundraising becoming increasingly a global play: 5 year average share of 37% coming from non-European investors (for VC only even 40%+)

§ Growing complexity in Fundraising§ Smaller funds (SVB Study: $50-$250m outperforming bigger ones) § CVC’s being playing a role as “stabilizers” of the VC market due to the

evergreen structure of their activities and§ Corporates will play a bigger role as a source for capital for the VCs§ LPs reducing relationships and concentrating allocation on GPs delivering

the best performance but meet also high standards of governance and transparency

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Outlook

§ VC Vintages 2009 and following will be excellent ones due to an underfunded European market

§ Regulations pushing cost of doing business up§ Non-Western markets will thrive§ New liquidity pools to allocate higher shares to PE/VC§ Fundraising will continue to be tough until the industry is able to

show the performance of the upcoming good vintages§ Regulators shaping an “Equity Decade” to come§ “Soft” Industry consolidation will accelerate over the next 3-5 years

(parallel to the US)§ Barbell type of industry structure – big global franchises vs.

sector/niche specialists (but with growing pain to raise new funds)

Sources: Private Equity International; Different Media & EVCA own research

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Conclusion

§ The re-shaped VC industry will emerge in coming years from the worst decade the industry has ever gone through (2 major crisis's)

§ The remaining VCs have matured and a growing number are on par with the US counterparts

§ A Growing number of successful serial entrepreneurs will increasing the profile, quality and professionalism of European tech companies and triggering more homeruns

§ Compared to the US, European VC will take benefit from a high capital efficiency and a more favourable competitive environment

§ Performance levels since vintage year 2001 on par with the US and might even for the best outperform US players

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A Final Word….

10 October 20082012 - 2020

The VC model isn’t broken and a smaller highly entrepreneurial VC industry will thrive despite the challenges ahead but….

9 October 2002“It’s not the strongest or most intelligent that

survive, but the ones most responsive to change.”

- Charles Darwin

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Thank you! Vielen Dank für Ihre Aufmerksamkeit!

EVCA – European Private Equity & Venture Capital AssociationBastion TowerPlace du Champ de Mars 5B-1050 BrusselsBelgium

+32 2 715 00 20www.evca.eugeorges.noel@evca.eu

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