dfj esprit - why european vc evca study
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Presentation showing the potential for the European venture capital industry over the coming decade via comparison with the US.TRANSCRIPT
European Venture Capital:“A Coming of Age”
2
A Compelling Case for European Venture Capital
• Innovation quality and world class technology
• Growing strength of the European entrepreneurial base
• Growing maturity of the VC funds landscape with top performers now matching US top quarter peers
• Lower entry valuations and superior capital efficiency
• Market inefficiencies provide opportunity to back successful teams and generate superior returns
3
European Venture Capital’s Market Drivers
• Core technology expertise
• Global consumer markets
• Large localised markets
• Eastern European development
• Regulatory environment for VC ecosystem moving in the right direction
InnovationDrivers
FinancialMarkets
Entre-preneurial
Spirit
• IPO market temporarily closed
• Global M&A and trade sales
• Limited VC competition
• High profile successes
• Entrepreneurial activity
• Virtual hubs
• Serial entre-preneurship
4
Europe benefits from a high quality deal flow due to its Innovative Potential…
* These refer to triadic patent families, which are a set of patents registered in Europe, Japan, and the US to protect the same invention and are attributed to the country of residence of the inventor. They capture important inventions only and areinternationally comparable
Source: OECD Factbook 2008
Rank R&D as % GDP (2006 or latest available year)
Rank Researchers (2006 or latest available year) (per 1,000 employed, full-time equivalent)
Rank Patents* (2005)(per 1,000,000 inhabitants)
1 Israel 1 Finland 1 Japan
2 Sweden 2 Sweden 2 Switzerland
3 Finland 3 Japan 3 Germany
4 Japan 4 New Zealand 4 Netherlands
5 Korea 5 Denmark 5 Sweden
6 Switzerland 6 US 6 Korea
7 Iceland 7 Norway 7 US
8 US 8 Australia 8 Luxembourg
9 Germany 9 France 9 Finland
10 Austria 10 Belgium 10 DenmarkDenmark, France, UK, Belgium, Luxembourg, Netherlands, Czech Republic in next 10
Luxembourg, Austria, Germany, Switzerland, Ireland, UK in next 10
France, Austria, Belgium, UK, Norway, Irelandin next 10
5
Europe has become a predominant technology innovator in a number of high growth industries
• Biopharmaceuticals, UK
• Medical devices and equipment, Germany
• Clean / renewable energy, Germany
• Wireless telecom technologies, Scandinavia
• Open source software, Scandinavia
• Semi conductors, UK & Germany
6
Europe’s* relative drought in Venture Capital financing drives a favourable competitive landscape for both GPs and LPs
VC investment as % of GDP by geography, 2008
0.090%
0.083%
0.066%
0.057%
0.055%
0.053%
0.047%
0.042%
0.041%
0.020%
0.019%
0.014%
0.014%
0.012%
0.202%
0.091%
US
United Kingdom
Scandinavia
I reland
Spain
Benelux
France
Europe
Switzerland
Germany
Portugal
CEE
Austria
Poland
I taly
Greece
* Europe: All European countries/regions mentioned in the chartSource: PEREP_Analytics for European countries
Dow Jones VentureSource for USA
7
A growing number of funds have learned from their mistakes and have the potential for outperformance
Source: Dow Jones VentureSource
W. Europe
U.S. Ratio
2 73 334 4.6x
3 58 202 3.5x
4 28 132 4.7x
5 8 94 11.8x
6 4 65 16.3x
Time since early growth of VC industry (years)
10 - 15 50 - 60 4 – 5x
VC teams’ maturity by number of funds raised
8
US VC still has a dramatic lead over all the other global regions...
Total Capital Invested
Source: Dow Jones VentureSource
0
5,000
10,000
15,000
20,000
25,000
30,000
35,000
2002 2003 2004 2005 2006 2007 2008
USA Europe China Israel India
US Venture Capital growth beats all other regions combined
~4.5 to 5.0x~4.5 to 5.0x
USAUSA
EuropeEurope
9
…Global exits tell a different story
82%
59%
78%
64%
41%
22%
36%
18%
Europe
USA
46 home runs
82 home runs
100%
Total capital invested
Total no.of exits
No. of exits> $100m
No. of home runs: 10x cap vs. invested
Source: Dow Jones VentureSource Data 2004 - 2008
4.7xUSA/Europe 1.4x 3.4x 1.8x
10
Less capital used to build winners in Europe
Average invested prior to $100m+ exit$ millions
0
20
40
60
80
100
2004 2005 2006 2007 2008
USA Europe
Exits in the same order of magnitude need a lower amount of Venture Capital in Europe
Source: Dow Jones VentureSource
11
European capital efficiency results both from low entry valuations…
~1.5 to 2.5x~1.5 to 2.5x
Early stage entry valuations for Venture Capital investments€ millions
0
2
4
6
8
10
2004 2005 2006 2007 2008
USA Europe
Source: Dow Jones VentureSource
12
… And lower cost of growing businesses /tight control of cash invested
Median European investments€ millions
Source: Dow Jones VentureSource
0
2
4
6
8
10
2004 2005 2006 2007 2008
Seed First Second Later
Median U.S. investments€ millions
0
2
4
6
8
10
2004 2005 2006 2007 2008
Seed First Second Later
13
Leading to higher return potential in Europe
Multiple of cap vs. invested ($100m+ exits)
0
5
10
15
20
2004 2005 2006 2007 2008USA USA inc GOOG Europe
Less capital invested and lower entry valuations means higher returns in Europe
Source: Dow Jones VentureSource
14
European VCs have recently demonstrated robust exit performance by international standards
5.78 5.56USAEurope
Median time to liquidity (2002 – H1’ 2008)
US:Europe:
Median time to exit
Source: Dow Jones VentureSource
Exits > $100mExits > €100m
15
Successful European VCs have a growing base of Serial Entrepreneurs
Companies with serial entrepreneurs as % of total European portfolio
# surveyed firms:
Source: Abingworth, Atlas Venture, Earlybird, HealthCap, Index Ventures, Sofinnova, TVM, Wellington Partners
63%
37%With SerialEntrepreneurs
Without SerialEntrepreneurs
8 (funds covered: 16)
100%
16
Europe vs US, post IPO performance of all VC backed IPOs*, 01/04 to 06/08
EU VC IPOEU VC IPO
US VC IPOUS VC IPO
FTSE 100FTSE 100
NASDAQ100NASDAQ100
US and European VC-backed IPOs – post-IPO performance
European VC companies grow faster than their US peers post IPO
* NB excludes GoogleSource: CapitalIQ, DFJ Esprit
17
Europe originated a number of companies having reached > $1Bn value post exit
CompanyName
CompanyName Industry Country
Round A
Exit Year
Software Sweden 2001 2008
Solar energy Germany 2004 2008
Internet UK 1999 2008/ 1999
Solar energy Norway 2001 2007
Internet UK 2001 2006
Clean tech Germany 2002 2006
Source: Dow Jones VentureSource
18
Europe originated a number of companies having reached > $1Bn value post exit
CompanyName
CompanyName Industry Country
Round A
Exit Year
Telecom Luxembourg 2003 2005
Internet France 1997 2005
Telecom France 2000 2005
Semi-conductor
UK 1999 2004
Pharma Switzerland 2000 2004
Software UK 1998 2001
Source: Dow Jones VentureSource
19
Despite very difficult market environment Europe continues to generate exciting exits
Industry CountryRound
AExit Year Acquirer
Exit Multiple
Medical Device
France 2003 2009 Medtronic >10x
Software UK 1999 2008 Symantec 6x
Biotech Germany 2000 2008 Bayer >5x
Healthcare Germany 1998 2008 Lonza Group 13x
Internet UK 2006 2008 AOL 5x
Telecom Germany 2005 2008 KPN >5x
Communi-cations
Denmark 2006 2008 Vodafone 6x
Chemicals Portugal 2002 2008 Devan Chemicals
>5x
Source: EVCA
CompanyName
CompanyName
20
European VC-backed IPOs with an exit multiple ≥5x, 2005-2008
Source: EVCA
Industry CountryRound
AExit Year
Stock Exchange
Exit Multiple
Solar energy Norway 2001 2007 Oslo >10x
Internet Germany 1999 2007 Frankfurt 22x
Financial Services
Italy 2000 2007 Milan 22x
Healthcare Germany 2004 2007 Frankfurt 9x
CompanyName
CompanyName
21
European VC-backed IPOs with an exit multiple ≥5x, 2005-2008
Source: EVCA
Industry CountryRound
AExit Year
Stock Exchange
Exit Multiple
Clean energy Germany 2004 2006 Frankfurt 27x
Internet Germany 1999 2006 Frankfurt 52x
Software France 1995 2006 Euronext Paris 9x
Biotech Austria 1998 2006 Vienna >5x
Internet Germany 2004 2006 Frankfurt 6x
CompanyName
CompanyName
22
European VC-backed M&As with an exit multiple ≥5x, 2005-2008
Industry CountryRound
AExit Year Acquirer
Exit Multiple
Software Sweden 1997 2007 TIBCO 9x
Software Sweden 2005 2007 CSR 7x
Internet Sweden 2001 2007 Digital River 5x
Healthcare Germany 2003 2007 Amgen 6x
Technology Germany 1999 2007 Celesio >5x
Pharma Germany 2001 2006/2008
Schweizerhall Holding
5x
Information Technology
Germany 2000 2006 Amadeus >5x
Biotech Switzerland 2001 2005 Roche >7x
Source: EVCA
CompanyName
CompanyName
NovosisNovosis
23
European VC-backed M&As >$100mwith a multiple of cap vs invested ≥10x,Exit year 2006-2008
CompanyName
CompanyName Industry Country
Round A
Exit Year Acquirer
Software Sweden 2001 2008 Sun Microsystems
Internet UK 2006 2008 AOL
Software UK 1999 2008 Symantec
Internet UK 2006 2007 CBS
Internet Germany 2006 2007 Holtzbrinck Group
Source: Dow Jones VentureSource
24
European VC-backed M&As >$100mwith a multiple of cap vs. invested ≥10x,Exit year 2006 & 2007
CompanyName
CompanyName
CodingTechnologies
CodingTechnologies
Industry CountryRound
AExit Year Acquirer
Software UK 1999 2006 Amdocs
Information Services
Germany 2000 2007 Deutsche Telekom
Software Sweden 1998 2007 Dolby Laboratories
Energy UK 2004 2007 Petroleum Geo-Services
Software Norway 2002 2007 Bacou-Dalloz
Communi-cations
UK 1999 2006 Pearson
Source: Dow Jones VentureSource
25
European VC-backed IPOs with a multiple of cap vs. invested ≥10x, Exit year 2006 & 2007
Source: Dow Jones VentureSource
CompanyName
CompanyName
VivalisVivalis
Industry CountryRound
AExit Year
Stock Exchange
Industrial Biotech
France 1999 2007 Euronext Paris
Healthcare Finland 2002 2007 Helsinki
Energy Norway 2005 2007 Oslo
Biotech France 2002 2007 Euronext Paris
Nano tech Germany 2002 2006 Frankfurt
Information technology
Germany 2001 2006 Frankfurt
26
European VC-backed IPOs with a multiple of cap vs. invested ≥10x, Exit year 2006 & 2007
Source: Dow Jones VentureSource
Industry CountryRound
AExit Year
Stock Exchange
Clean tech Germany 2001 2006 Frankfurt
Telecom France 2004 2006 Euronext Paris
Software & Hardware
Belgium 1995 2006 Euronext Brussels
Trans-portation
Spain 2004 2006 Madrid
Information Services
France 2000 2006 Euronext Paris
Internet Germany 2000 2006 Frankfurt
CompanyName
CompanyName
27
The next decade will be strong for Venture Capital in Europe
• Confirming its high potential, Europe has demonstrated strong exit performance
• Europe has recently generated multiple “home run” exits
• Europe benefits from a higher capital efficiency than the US
• European Venture Capital has very strong fundamentals within the context of an inefficient market
• Europe ranks high on a number of key technology creation indicators
• The imbalance between VC funding (Supply) and investment opportunities (Demand) drives a favourable competitive landscape
• The structure and performance of the European Venture Capital highlights the great potential of an early maturing industry
• A number of funds based in Europe have achieved US top quartile performance
• A growing number of funds have learned from their mistakes and have the potential for outperformance
28
Acknowledgements
EVCA would like to thank warmly to all the contributorsto this document, with a special thought for
• Hendrik Brandis, Earlybird
• Simon Cook, DFJ Esprit
• James McNaught-Davis, Wheb Ventures
• Vincenzo Narciso, UBP