American Council on Germany (ACG) Warburg Chapter: “Venture Capital in Europe - The Highs and Lows and Why Now?” Startup Funding, New Funds, the past, the future, the present;

1. “Venture Capital in Europe - The
Highs and Lows and Why Now?”
Charlotte, NC - Aug 23 2013

2. angelfund.vc - confidential
‣ Internet Entrepreneur since 1998 -
launched first business at age of 17
‣ Lecturer at various European universities
about entrepreneurship
‣ Former Advisor to Deutsche Telekom AG
‣ VC fund Partner and Business Angel

3. History of
Venture Capital

4. ‘94 amazon
‘95 yahoo!’83 AOL
‘94 netscape
80‘s and 90’s delivered primarily great results for US VCs only
‘84 cisco
predominant over-performing investments
predominant under-performing investments

5. 2012: also 4,4b in 1074 deals
The “old model” of venture (driven by investment bankers) is stagnating

6. Eight large studies have examined the
IRR of Angel & Early-stage Investments
Year
Study
Total Inv.
Exited Inv.
IRR
2009 UK
Wiltbank: “Siding with the
Angels“
1.080
406
25%
2009 US
Band of Angels Website
200
Unknown
18%
2009 US
Sohl: “The Angel Investor
Market in 2008“
Unknown
Unknown
22%
2009 US
DeGenarro & Dwyer:
“Expected returns to Angel
investors“
603
434
33%
2008 US
Sohl: “The Angel Investor
Market in 2007“
Unknown
Unknown
28%
2007 US
Wiltbank: “Returns to Angel
Investor in Groups“
3.097
1.137
30%
2007 US
Villalobos & Payne:“Startup
Pre-Money Valuation“
117
117
24%
2002 UK
Mason & Harrison: “The rates
of return from informal
venture capital investments“
372
128
37%
The model works in the US (IRRs of 25+%)
8 studies examined the IRR of angel & early-stage Investments
Eight large studies have examined the
IRR of Angel & Early-stage Investments
Year
Study
Total Inv.
Exited Inv.
IRR
2009 UK
Wiltbank: “Siding with the
Angels“
1.080
406
25%
2009 US
Band of Angels Website
200
Unknown
18%
2009 US
Sohl: “The Angel Investor
Market in 2008“
Unknown
Unknown
22%
2009 US
DeGenarro & Dwyer:
“Expected returns to Angel
investors“
603
434
33%
2008 US
Sohl: “The Angel Investor
Market in 2007“
Unknown
Unknown
28%
2007 US
Wiltbank: “Returns to Angel
Investor in Groups“
3.097
1.137
30%
2007 US
Villalobos & Payne:“Startup
Pre-Money Valuation“
117
117
24%
2002 UK
Mason & Harrison: “The rates
of return from informal
venture capital investments“
372
128
37%

7. And startups are responsible for 30% of all US jobs in the last 10 years

8. Calculations by Venture Economics indicate that
from the beginning of the VC industry in Europe
until 2007, the average European VC fund had an
annual return of minus 4 percent versus 16
percent for the average U. S. VC fund
Many Venture Funds ended 3-6 years ago!
Lerner, op. cit., p. 123.
Early VC vintages had terrible performance in Europe due to dot-com bubble

9. Crisis delayed fundraising and decreased LPs confidence for “2nd generation” funds
By contrast, the story for European venture funds
was one of struggle: European fund-raising further
declined to US$3 billion (amount closed)
for 41 funds, due to Europe’s sovereign debt crisis
and its muted medium-term growth potential.
In 2000, European Venture Funds raised US$60b+!
source: European Private Equity & VC Association

10. To boost confidence: EIF is supporting the Venture Capital industry
EIF commitments:
about EUR 3 bn in VC
up to 50% commitments
can be committed by EIF
(no management fee but
carried interest)
50 % 50 %
Limited Partners EIF
EUROPEAN INVESTMENT FUND

11. Venture business is independent from IPOs; 90% of exits are M&A transactions
the main exit route for VC-backed companies is
acquisitions (M&A), representing more than 90%
of all exits.
Furthermore, VC firms are also selling companies
to private equity firms as a third path to liquidity.

12. Pace of adoption is accelerating, impact of recessions is minimal

13. Overcoming the “bad memories” is the key issue in Europe
‣ Huge job-creation factor
‣ IPO independent
‣ Industry is backed by European Investment Fund
‣ Recession “proofed”
‣ IRRs of 25+%
BUT:
‣ Bad experiences from 1st generations of VC funds
‣ Current model is stagnating

14. Snapshot:
Germany

15. ‣ has a hand full independent venture funds € >100m+
‣ and only a few professional venture funds € <100m
‣ while the US has, in each category, >200! VCs active
Germany, an economy that is 25% of US GDP....
25% of US GDP, <10 (Germany) vs. >200 (US) Venture Funds €>100m

16. *European Venture Capital: Myths and Facts: British Private Equity & Venture Capital Association 2011
Equal success rates of European and US IPO exits
there is no difference in the success rates of
European and US deals from the same vintage
year with respect to IPO exits

17. in a economical environment that is not exactly underperforming....

18. Exits in the same order of
magnitude, need only half the
amount of Venture Capital in
Europe vs. US
Capital efficiency in the US is
not increasing - talent is more
expensive - hence lower
returns, higher prices.
Souece: Dow Jones VentureSource, 2008 exchange rates
... and in a time where Europe is today where the US was in 1997-2001
The average in US from 1997-2001 was $41m per company
at $417m average exit=> just like in Europe right now!

19. Software/Internet companies dominate the European VC market
European Venture Capital Financings by Industry
In 2011, the software sector again
accounted for the largest portion of
the European venture capital market,
representing >20% of all financings.

20. Amount raised, by region, 2011 (US$m)*
*Global venture capital insights and trends report 2011 by Ernst & Young
SiliconValley
NewEngland
SoCal
NYMetro
Beijing
UK
Shanghai
Potomac
France
Canada
Germany
Israel
Switzerland
Bangalore
Germany: head-to-head with Canada and Israel while NY companies raised 4,5x more

21. As one prominent fund of funds manager with
investments in more than 50 VC funds across Europe
put it to us: The UK is far ahead of the rest. Holland
and Scandinavian countries are next. There is not so
much VC activity in Germany and Switzerland. France
has some, but its law requiring pension funds to
invest a certain percent in VC firms is controversial
and perhaps counter-productive. There is very little
VC activity in Italy, Spain and Portugal.
Ivey Busines Journal March/April 2011
UKs GDP is 1/3 lower then Germany but VC market is 2x of Germany

22. Germany has a unique model where, in a different
twist to the hugely successful VC-funded start-up
ecosystem of Silicon Valley, the industry is not as
much reliant on a handful of blockbusters or even a
closely networked startup environment, but rather one
where a high number of regionally diversified quality
opportunities correspond to increasing levels of
entrepreneurial activity.
- Andreas Ritter, ARICO Private Investments Advisory and former
Head of Private Equity Duke University's endowment
“
Germanys Mittelstand is also a great Venture Capital opportunity

23. Building global hubs (London/Berlin) organically
Silicon Valley took 40+ years to build
New York 15+ years
London 10+ years
As a international hub, Berlin is around for 5+years

24. More then 2.000 new startups since 2008!
Berlin alone: 2.000 new startups in 5 years!

25. To compare: 1.000 companies receive
Series A funding in silicon valley a year!
But it’s still very small compared to Silicon Valley!

26. Players of global magnitude emerged
But, noteworthy, some global category leaders with international investors

27. Berlin’sNetworkEffectWillMakeItAGlobalStartup Center
: Matt Cohler is a General Partner at Benchmark and was the
lead investor in Asana, Instagram and Quora among others.
Creators. Any creative ecosystem needs a meaningful group of creators to germinate new work. A fashion ecosystem, for example, needs designers; a film
ecosystem needs writers. In a technology startup ecosystem, these people are the founders and entrepreneurs.
Builders. These are the skilled creative people who shape vision into reality. In a technology ecosystem they’re people like engineers and organizational leaders.
The right kind of capital. Different types of ecosystems need different types (and amounts) of capital to fuel growth. In a tech startup ecosystem the right kind of
capital is venture capital: simple equity funding that’s aligned with creators and builders, takes a long-term view, and sometimes works shoulder-to-shoulder with the
creators and builders themselves.
Rule of law. I mean a developed and reliable legal system, along with a culture and society that values that system. This one may seem obvious, but it’s still not a
given in many parts of the world.
The center stage. To attract the best, most talented, most capable and most committed people, a creative ecosystem needs to command the local center stage.
Finance holds the center stage in London, while in Hollywood it’s entertainment and it’s fashion in Milan. Each of these creative ecosystems has its own unique
culture, expertise, and way of expressing social and financial credit. Each has grown through a network effect that attracts people to join and to stay, making it
incredibly difficult to siphon a place’s best and brightest away from an established ecosystem onto something new. That’s why Milan is not a capital for technology
startups any more than Palo Alto and San Francisco are for fashion.
JUNE 2013: Matt Cohler (GP @ Benchmark) highlights Berlin as a global startup center
Tuesday, June 4th, 2013

28. Berlin’sNetworkEffectWillMakeItAGlobalStartup Center
Even corporates get involved

29. Snapshot:
The future

30. The fact that repeat or ‘serial’ entrepreneurs are less common in
Europe and that European VCs lag US VCs in terms of
experience explains the remaining difference in performance.
*European Venture Capital: Myths and Facts: British Private Equity & Venture Capital Association 2011
NOW is the time with great potential for serial entrepreneurs

31. Continental Europe is in danger of dropping
below a critical size, which could threaten the
entire industry.
2005 2006 2007 2008 2009 2010 2011
Rebound time: Venture will grow and early funds will take the lead
*Global venture capital insights and trends report 2011 by Ernst & Young

32. Next generation VC funds: more entrepreneurial (run by Entrepreneurs)

33. Next generation VC funds: global

34. FAST: “make a decision [...] within 24 hours would attract every good startup”

35. Next generation VC funds: stage-agnostic

36. and hands-on!

37. angelfund.vc - confidential
Benjamin Rohé
br @ angelfund.vc
+49 173 975 1021Thank you!