The Acceleration Point: Why Now Is the Time for European Venture Capital Invest Europe the Acceleration Point: Why Now Is the Time for European Venture Capital

EUROPEAN VENTURE CAPITAL The Acceleration Point: Why Now is the Time for European Venture Capital Invest Europe The Acceleration Point: Why Now is the Time for European Venture Capital

C Invest Europe The Acceleration Point: Why Now is the Time for European Venture Capital Contents

What’s in this report 01

Foreword Section One: Section Two: Why Now is the Time Why Europe? Europe’s Innovation for European Venture Capital Why Now? Pages 04-15 Economy Pages 16-22 By Nenad Marovac Invest Europe Vice-Chair 1 2 Page 02 Page 04 Page 17 A strong economy committed European tech cities to growth Page 18 Page 05 Benelux European VC is experienced Page 19 Page 07 France, Spain & Switzerland Proven ability to create global leaders To find out more about Invest Europe please visit: Page 20 Page 09 Germany Increased exit options www.investeurope.eu Page 21 Page 11 UK & Ireland Outsized returns in a low-yield environment Page 22 Scandinavia Page 13 Robust fundraising

Page 15 Page 23 Europe’s hottest sectors In conclusion

For PDF download to your computer: Page 24 Please visit our website at www.investeurope.eu if you would like to download this report as References and data methodology a standalone PDF. Invest Europe The Acceleration Point: Why Now is the Time for European Venture Capital Foreword

Foreword by Nenad Marovac 02 Why now is the time for European venture capital

The European venture capital (VC) industry has reached an acceleration point. Europe’s prospering economies, the unprecedented rise of the European tech industry and the region’s experienced fund managers make it the right time to invest in European venture capital. Fundraising has hit its highest level since 2007, including nearly a tenth of capital coming from North American investors, thanks to Europe’s thriving ecosystem and talented entrepreneurs creating world-class companies. These pioneering businesses are cost-effective investments and valuations remain low by global standards, meaning Nenad Marovac Invest Europe Vice-Chair, Founder & Managing Partner of DN Capital European VC funds can rival the best in the world for returns to investors. Europe is home to the largest single market in the world and every one of the 28 European Union (EU) countries is forecast to enjoy economic growth in 2017 and 2018. New EU initiatives are set to boost VC fund sizes and attract larger private investors. Entrepreneurs and VCs are returning from other parts of the world. Now is the time for global investors to look to Europe and harness the opportunities on offer. Invest Europe The Acceleration Point: Why Now is the Time for European Venture Capital Section 1: Why Europe? Why Now?

SECTION 03 Why Europe? Why Now?

Page 04 A strong economy committed to growth Page 05 European VC is experienced 1 Page 07 Proven ability to create global leaders Page 09 Increased exit options Page 11 Outsized returns in a low-yield environment Page 13 Robust fundraising Page 15 Europe’s hottest sectors Invest Europe The Acceleration Point: Why Now is the Time for European Venture Capital Section 1: Why Europe? Why Now?

A strong economy 04 committed to growth Viewpoint

Europe remains the world’s largest This is underpinned by sound economic policy. “Innovation and technological One of the key tasks, both for EU policymakers and single market with an open economy, national governments, is to identify and promote development have always been at stable political system, long-term opportunities for growth. VC will continue the heart of the European economy. a proud history of innovation and to benefit from regulatory tailwinds because of its Continued government investment role in helping to fuel innovation and growth across a highly educated workforce. the continent. in research and science as well as the EU-wide growth is expected to reach 1.7% in 2017, involvement of high quality academic The European Commission, as part of its ambitions according to European Commission figures, to develop a single market and Capital Markets Union institutions have created a highly skilled suggesting that continued monetary easing and (CMU), is working to make investment easier and positive economic sentiment is putting the region workforce and provide Europe’s VCs remove barriers to the cross-border distribution on a solid path to further growth. with a wealth of investment opportunity.” of funds. With forecasts for further growth in 2018 and beyond, Christoph Jung General Partner, Holtzbrinck Ventures Recent initiatives include the amendment of the which factor in the Brexit effect and other potential EU VC regulation (EuVECA) allowing more fund political developments, economic prospects for the managers to use its marketing passport, the launch region are promising. of a pan-European VC fund-of-funds to grow larger VC funds using public and private capital, as well as the publication of a study on VC tax incentives. As the market continues to grow, this will crucially allow larger institutional investors to access Eight of the world’s ten most innovative VC funds in Europe. economies are in Europe, according to the 2016 Global Innovation Index, with the top three spots occupied by European nations.

1 Switzerland 6 Singapore 2 Sweden 7 Ireland 3 United Kingdom 8 Denmark 4 USA 9 Netherlands 5 Finland 10 Germany Invest Europe The Acceleration Point: Why Now is the Time for European Venture Capital Section 1: Why Europe? Why Now?

European VC is experienced 05

European VC is experienced. We are seeing technological breakthroughs and Since the 2000s, Europe’s VC value chain has Many of its leading firms have business successes hailing from across Europe, become richer. The emergence of experienced with cities such as Berlin, London and Stockholm ‘super angels’ has significantly improved seed lived through multiple economic leading the way in different sub-sectors. financing, while corporate venturing programmes cycles and know the US markets well. Around half of the VC firms in Europe today have now provide another source of smart capital. It is a rich ecosystem, with European now been in operation for more than 12 years, Super angels VCs fully equipped to grow start-ups have been through at least two economic cycles, and understand the challenges inherent in sourcing highly Just as in the US, many of Europe’s most successful into global leaders. promising businesses and building them into global entrepreneurs have now established ‘super angel’ leaders through good times and bad. funds and entrepreneur-led VC funds. There are now over 100 start-up accelerators across Europe. While many leading firms have also been successful By providing seed stage financing and mentoring, investors in the US VC market, the most attractive these programmes are improving the quality and opportunities for them are in Europe. quantity of deal flow for European VCs. “Europe has a long history Long-running European VC firms are creating Corporate venturing programmes of scientific discovery and experienced fund managers The region is now attracting serious interest from innovation. That is backed up with Share of European VC ﬁrms by founding period considered a new breed of corporate venturers, providing active as of end of 2015 Source: Invest Europe valuable contacts, expertise and potential exit a pool of repeat entrepreneurs and 35 31% routes for Europe’s brightest prospects. According an increasingly available seed and 30 to Invest Europe figures, almost a third of 25% 25 corporate venturing programmes in Europe early stage funding scene.” 22% 20 have been established since 2010, a development 16% Ekaterina Smirnyagina Partner, Capricorn Venture Partners 15 that has boosted the ecosystem. Over the last few years, these investors have recruited experienced 10 5% teams that work together with VC firms to build 5 great companies. 0 1990 1995 2000 2005 2010 -1994 -1999 -2004 -2009 -2015 Invest Europe The Acceleration Point: Why Now is the Time for European Venture Capital Section 1: Why Europe? Why Now?

European VC is experienced 06 Viewpoint

“Europe’s uniquely differentiated “Europe’s entrepreneurial VC ecosystem taps into landscape has transformed exceptional, local talent that over the last 20 years. The enables founders to build viable, talent pool has increased in both vibrant businesses and access depth and quality. Start-ups are a highly skilled venture firms to highly attractive career choice for maximise their reach and potential.” executives from large corporations.”

Helen Steers Partner, Pantheon Max Bautin Managing Partner, IQ Capital

“Europe’s VCs now have the “Europe is home to some of the world’s firepower to provide larger leading innovation in sustainability rounds of capital to support – indeed, the majority of our corporate entrepreneurs’ ambitions to venturing portfolio is based here.” Christian Ehrenborg Managing Director, IKEA GreenTech expand on a global stage.”

Jan-Gisbert Schultze Managing Partner, Acton Capital Invest Europe The Acceleration Point: Why Now is the Time for European Venture Capital Section 1: Why Europe? Why Now?

Proven ability 07 to create global leaders

Since the financial crisis, European unicorns by country in 2016 European VC has gained traction, investment is rising and European VCs have demonstrated their ability to help build global leaders. We have already witnessed the creation of over 50 venture-backed unicorns (companies valued at $1bn+) since 2000, with many of these now set to reach to the $10bn mark. This is a significant development. As we have seen from earlier “poster children” in the US: success breeds success.

Country

UK Germany Sweden France Finland Luxembourg Russia Belgium Denmark Ireland Italy Netherlands Switzerland

No. of unicorns 15 9 6 4 2 2 2 1 2 1 1 1 1 Last 12 month additions 2 2 1 0 0 0 0 0 1 0 0 0 1 Emerging unicorn foals 3 3 1 1 0 0 0 0 1 0 0 1 0

Source: Company data, Capital IQ, Mergermarket, press articles, GP Bullhound analysis as at April 2016 & Invest Europe Invest Europe The Acceleration Point: Why Now is the Time for European Venture Capital Section 1: Why Europe? Why Now?

Proven ability 08 to create global leaders

VC investments in Europe show strong momentum

European VC investments by total amount 2012-2016 Source: Invest Europe According to Invest Europe data, bn 5 European VC investment totals have 4.2bn 4.3bn 4 increased each year for the last five years, 3.5bn 3.6bn 3.2bn 3 reaching a post-crisis high of €4.3bn in 2016. 2

0 2012 2013 2014 2015 2016

Viewpoint As a result of recent start-up successes, “If you look at where people in Silicon talent, experienced investors and Valley come from, they are not all capital are now more available to help Americans. They come from all over increasingly ambitious founders build the world. 50% of the talent in Silicon globally competitive companies.” Valley was not born in the US.” Thomas Kristensen Principal, LGT Capital Partners Mattias Ljungman Partner, Atomico Invest Europe The Acceleration Point: Why Now is the Time for European Venture Capital Section 1: Why Europe? Why Now?

Increased exit options 09

European exit options have increased Acquisitions Wide range of exit options (% of exit value at investment cost) with recent activity coming from Over the last few years we’ve seen successful exits a variety of routes including IPOs of world-class portfolio companies to strategic In technology alone, there has been $46bn of exits and strategic sales to European buyers, including recent sales to Western buyers, since 2011, including world-renowned companies, such as Dutch biotech company Dezima, which such as ARM and CSR, which have generated and international buyers. was acquired by Amgen for $1.55bn, and UK-based multi-billion dollar realisations for European VCs. IPOs app developer TouchType, which was acquired by Microsoft for over €230m. Other recent European European VC exits 2012-2016 Since 2014 the public markets have welcomed examples include Astra Zeneca’s €4bn acquisition Source: Invest Europe new IPOs and Europe’s VCs have been ready to of Netherlands based biotech company Acerta, the seize the opportunity. second largest European VC-backed exit ever. Trade sale King.com, the Swedish maker of Candy Crush, had We have also witnessed a significant upsurge in activity 7% Public offering 9% a $7bn debut on Nasdaq, and German clothing from Chinese acquirers in recent years. According to Write-off retailer Zalando listed on the Frankfurt Stock Rhodium Group, €46bn of deals were completed Repayment of preference Exchange with a valuation of €5.6bn. Also in 2014, across Europe by Chinese buyers between 2000 and 6% 39% shares/loans or mezzanine the UK’s Adaptimmune listed on NASDAQ, 2014, with the vast majority invested after 2009. Sale to another private equity firm 8% Switzerland’s Molecular Partners listed on the Examples from 2016 include YinYi’s €1bn acquisition of Sale to financial institution Swiss Stock Exchange and the Belgian Biocartis Belgian Punch Powertrain, Ctrip’s €1.4bn deal to buy the 4% Sale to management on the Euronext, all achieving multi-hundred million UK’s Skyscanner and TenCent’s $8.7bn acquisition of a Other means market cap. The following year saw Dutch electronic stake in Finland’s Supercell. 9% trading business FlowTraders raise over €1.5bn. 18% Indeed, the value of Chinese acquisitions in Western Europe rose by over 200% to nearly $86bn in 2016, according to White & Case & Mergermarket figures. Technology, Media and Telecoms was the top sector by value for overall inbound M&A from overseas acquirers with a deal total of $143bn in 2016. Invest Europe The Acceleration Point: Why Now is the Time for European Venture Capital Section 1: Why Europe? Why Now?

Increased exit options 10 Viewpoint

“Europe has experienced and “There is an established exit well-capitalised corporate VC arms. ecosystem in Europe for VC-backed These investors provide complementary companies. IPOs, sales to corporates capital and expertise in VC portfolios.” and exits to private equity players have Michael Lee Managing Director, Syngenta Ventures all picked up over the last few years as Europe’s entrepreneurial companies have demonstrated their world-class credentials.” Stephan Morais Board Member, Caixa Capital

“European portfolios are looking the best they ever have. More than 50 European venture-backed companies with a valuation of €1bn or more have emerged so far this decade, compared with just “European VCs have strong networks three between 2000 and 2010.” worldwide. This not only helps with Cem Sertoglu Partner, Earlybird, VC Management company expansion plans, but also improves exit prospects considerably – we can cast the net globally to secure the best possible exit.” Alex Brabers Chief Business Operations, Gimv Invest Europe The Acceleration Point: Why Now is the Time for European Venture Capital Section 1: Why Europe? Why Now?

Outsized returns in a low-yield environment 11

In today’s low-yield environment, In the US, technology valuations of €1bn-plus The situation in Europe couldn’t be more different: companies are, on average, 46 times the revenue median deal values have remained relatively constant investors are having to work harder produced by the company; in Europe, this is much at around the $2m mark. This demonstrates that to find the growth they need to meet lower, at 18 times, according to GP Bullhound valuations remain low by global standards, making long-term liabilities and satisfy their research. In China, median valuations have soared European early and later-stage companies better in recent years, from $4m in 2013 to $8m in 2015, value than peers elsewhere. underlying beneficiaries. According to according to EY. European Investment Fund (EIF) data, returns on European VC investments are on a healthy upward trend. Exit returns of EIF-backed VC investments by vintage year, weighted multiple on cost We have witnessed a long-term shift in allocations Source: EIF from traditional assets such as bonds and equities to 5x 100% alternative assets such as VC and private equity (PE) as investors search for higher-yielding asset classes. The European Investment Fund’s (EIF) exit pattern 4x 80% over recent years, when analysed by vintage year, demonstrates the upward trend in European VC 3x 60% returns, as multiple on cost has broadly risen since 2001 (see chart, right).

2x 40% Valuations Multiple on Cost Share of exited investments There is one other important measure to note. Only the very best companies in Europe get funding 1x 20% and often they are funded at lower valuations than their US counterparts. 0x 0% ‘97 ‘98 ‘99 ‘00 ‘01 ‘02 ‘03 ‘04 ‘05 ‘06 ‘07 ‘08 ‘09 ‘10 ‘11 ‘12 Vintage Year % Realised from each Average Exit MoC Median Exit MoC vintage year to date Note: Based on early-stage investments between 1997 and 2012 by EIF-backed funds, including write-offs, liquidations and profitable trade sales. Invest Europe The Acceleration Point: Why Now is the Time for European Venture Capital Section 1: Why Europe? Why Now?

Outsized returns in a low-yield environment 12 Viewpoint

“In a low global growth environment “European valuations are lower than and at a time of persistently low those in the US – we can bring high quality interest rates, European VC is one start-ups to the world stage with less of the few opportunities that can capital here than in many other markets. generate double-digit returns.” For investors, that clearly means the Rainer Strohmenger General Partner, Wellington Partners potential for higher returns.” Jari Mieskonen Managing Partner, Conor Venture Partners

“The lack of capital forces entrepreneurs here to figure out how to be more frugal. One of our portfolio companies has achieved more than its only competitor in San Diego on half the capital.” Anne Glover Chief Executive, Amadeus Capital Partners Invest Europe The Acceleration Point: Why Now is the Time for European Venture Capital Section 1: Why Europe? Why Now?

Robust fundraising 13

Investors around the world are coming According to Invest Europe data, fundraising for contributed 20% of the total raised by European VCs European VC funds reached a nine-year high in 2016, with funds of funds and corporate investors to the same conclusion about Europe’s in 2016. adding 15% each. Meanwhile, the share raised from accelerating VC market. government agencies has been falling over recent This robust fundraising environment represents a years from a historical level of around 30%, with a clear sign of investor faith in the asset class and will 25% contribution recorded in 2016. Investors outside also ensure that growth capital is around to fuel the Europe contributed 12% of the €6.4bn raised. next generation of European start-up successes. Larger VC funds are also gaining momentum. In 2016, European VC now has a healthy mix of both public 13 of the 45 VC funds raised closed at €100m or more. and private sources of funding provided by a strong global investor base. Family offices and individuals

European VC fundraising now at its highest level since 2007 Strong global investor base

Venture capital fundraising for European funds 2007-2016 Venture capital – Fundraising geographic breakdown 2016 Source: Invest Europe (2015) – Source of funds – % of total amount 7.2% €bn 8 €7.7bn This shows in which regions the investors (LPs) 2.8% into European venture funds are based 7 Source: Invest Europe/PEREP_Analytics €6.4bn €6.1bn 9.9% 6 €5.5bn 19.3% €5.1bn 5 North Asia 12.3% €4.5bn America Australia 7.4% 0.4% 4 €3.7bn €3.8bn 9.2% 2.5% ( €3.6bn 2.2% €3.2bn (10.5%) (1.8%) 39.9% 3 (34.3%)

2 Rest of Unclassified 10.8% World Europe 3.8% 1 0.6% 7.2% 0 (0.0%) (17.8%) 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Invest Europe The Acceleration Point: Why Now is the Time for European Venture Capital Section 1: Why Europe? Why Now?

Robust fundraising 14 Viewpoint

“We see real opportunity in European VC “European VC is generating returns funds. We’ve invested in many companies that investors should expect from the together with the leading European asset class. Our portfolio now has VC VCs over the years. There is a depth of built in since the crisis and has 50 funds experience and talent now in Europe to with double-digit internal rate of returns.” rival some of the best US funds.” Patric Gresko Head of Innovation and Technology Investments, European Investment Fund Jan Westerhues Investment Partner, Robert Bosch Venture Capital

“European VC ecosystem has matured rapidly over the last ten years. There is now a wealth of choice for us as investors in high quality, innovative companies that we see as the entrepreneurial stars of tomorrow. Institutional investors are taking note and are committing capital to Europe’s highly experienced VC teams to generate strong returns.” Fredrik Cassel Partner, Creandum Invest Europe The Acceleration Point: Why Now is the Time for European Venture Capital Section 1: Why Europe? Why Now?

Europe’s hottest sectors 15

Europe’s innovation and start-up activity spans a variety Europe’s leading life sciences hotspots of sectors. In 2016, most capital was invested in ICT (44%), European countries are home to some of the most followed by biotech and healthcare (27%), with the rest successful new companies in biotech, medtech, healthcare & pharmaceuticals. largely spread across consumer goods and services, energy FINLAND and environment, business products and services, financial Location of VC-backed exits by number of companies 1 and divestment amount at cost NORWAY services and transportation. 1 May 2000 – June 2015 1 SWEDEN 2 1 Venture capital by sector UK Source: Invest Europe/PEREP_Analytics 13 DENMARK €bn 5 6 Transportation IRELAND 2 THE Real estate 3 NETHERLANDS 1 5 4 ICT (Communications, 1 computer and electronics) BELGIUM GERMANY 5 Financial & insurance services 9 4 3 Energy and environment AUSTRIA FRANCE SWITZERLAND 1 Consumer goods & services 16 12 2 Construction KEY: 5 5

Chemicals and materials COUNTRY ITALY 1 Business products & services >$100m exit >$500m exit 2 Biotech & healthcare

0 Agriculture 2012 2013 2014 2015 2016

Countries with >$1bn exit Invest Europe The Acceleration Point: Why Now is the Time for European Venture Capital Section 2: Europe’s Innovation Economy

SECTION 16 Europe’s Innovation Economy

Page 17 European tech cities Page 18 Benelux Page 19 2 France, Spain & Switzerland Page 20 Germany Page 21 UK & Ireland Page 22 Scandinavia Invest Europe The Acceleration Point: Why Now is the Time for European Venture Capital Section 2: Europe’s Innovation Economy

European tech cities 17

It’s not just about one region. Entrepreneurial hubs and clusters are thriving with an A to Z of opportunities 14 across Europe from Amsterdam to Zurich, thanks to an educated workforce 15 and economic reforms. The creation and development of hubs around Europe’s cities has transformed the prospects 13 for many of the region’s start-ups. They become magnets for the brightest talent from around Europe and the wider world. 11 10 7 1 12 3 2

4 8 EUROPEAN TECH CITIES 9 6

1 Amsterdam & Leiden, 8 Munich, Germany Netherlands 9 Rhein-Main-Neckar, 2 Ghent & Brussels, Germany 5 Belgium 10 Cambridge, UK 3 Eindhoven, Netherlands 11 Dublin, Ireland 4 Paris, France 12 London, UK 5 Barcelona, Spain 13 Copenhagen, Denmark 6 Zurich & Basel, Switzerland 14 Helsinki, Finland 7 Berlin, Germany 15 Stockholm, Sweden Invest Europe The Acceleration Point: Why Now is the Time for European Venture Capital Section 2: Europe’s Innovation Economy

Benelux 18

3 2

1 AMSTERDAM & LEIDEN, NETHERLANDS 2 GHENT & BRUSSELS, BELGIUM 3 EINDHOVEN, NETHERLANDS Focus: ICT and life sciences Focus: Life sciences Focus: Green sustainable technologies, software, medtech Academic institutions: University of Amsterdam, Academic institutions: Université Catholique de Louvain, Academic institutions: Eindhoven University of Technology Amsterdam University of Applied Sciences, Leiden University Katholiek Universiteit Leuven, VIB-VUB Also home to: High Tech Campus Also home to: European Investment Bank

Birthplace of: Birthplace of: Birthplace of: