The European Investment Fund (EIF), operating as the specialty risk-capital arm of the European Investment Bank publishes on its website the Private Equity (PE) and Venture Capital (VC) investments since the inception of the Fund-of-funds in 1997, which can act as an interesting barometer for the confidence of European public institutions in the Private Equity asset class (to which VC is considered a sub-class).
Keep the following in mind when reaching conclusions from the following charts:
- This data comprises the money-in from a single public-private partnership, which includes funds from the European Community, the European Investment Bank, and select local European banks, and therefore this data does not include the many other sovereign funds deployed in Europe. The confidence of this public-private partnership may not line up with other funds deployed to the asset class.
- Money-in does not equal money-out (U.S. ten-year average VC returns are negative), so these charts do not suggest fund effectiveness nor innovation ecosystem health.
- The individual parties involved in this public-private partnerships do not have the EIF as their only participation in the asset class, hence their participation with EIF does not mean their approach through other distributions cannot be different in focus and commitment. The EIB is the largest shareholder in EIF, with the sum of financial institutions holding a minority.
- Europe uses a less strict delineation of Venture Capital vis-a-vis Private Equity, and we know from experience how many so-called Venture Capital funds in Europe are either hybrids, subprime, or late-stage funds according to American “standards”. So, no conclusion can be drawn from this data as to the health of the innovation runway in Europe.
- Numbers are just numbers, they are trailing – not leading – indicators. That means the future may differ dramatically – up or down.
EIF Private Equity and Venture Capital Investments
The analysis exposes the trending of a 5.5 Billion Euro total commitment by EIF over 15 years, which amounts to an average investment pace of roughly 421 Million Euro per year during its seminal years (small commitments compared to some U.S. public institutions).
What surprises me most is not the rise and fall of the investment pace but the relative acute investment response not usually associated with European decision-makers, nor generally indicative of a fund-of-funds that derives most of its money from reserves with a long-term outlook as its mandate.
EIF Private Equity and Venture Capital geographic focus
We decided to do a little number crunching on the data provided by EIF and locate to which geographic regions in Europe (and beyond) most of the committed investments were directed (versus consumed), by virtue of the investment geography noted in the thesis of the underlying funds. Pay little attention to absolute numbers here as they exclude an 800 Million Euro commitment distributed to pan European funds, but note the geographic focus of the EIF’s commitments.
Simply put, the investment shows where the EIF believed the Private Equity and Venture Capital opportunities were in the past 15 years. For emerging managers, this chart may help identify what European countries are deemed “underserved” (using their own correlation methodology).
If the EIF is any indication, Europe may just be a small fish in the vast global Private Equity and Venture Capital pond today. On the Venture Capital side, the EIF is literally 40 years behind the birth and experience of Silicon Valley.
Still, just like in mobile digital telephony (GSM anyone?) that supposed disadvantage can prove to be become a massive advantage, if – and only if – Europe reinvents the way financial arbitrage and its economic principles support innovation from the start.