Changing/Evolving Venture Capital Space in Europe - February 2014

by Luke Goldsmith

  • 27 Feb 2014
  • PE
  • VC

Since the financial crisis, more venture capital firms have popped up in major European cities such as London and Berlin, which has become particularly notable in the venture capital space, being dubbed the ‘Silicon Valley of Europe’. The relatively lower cost base of Berlin has resulted in a lower cost base for companies; this has contributed to it becoming a magnet for entrepreneurs and has helped Germany’s venture capital industry become more buoyant. 

According to Preqin’s Fund Manager Profiles online service, 22% of private equity firms in Europe which consider venture capital as part of their strategy focus, are based in the UK, 14% are in Germany and 10% in France. The remaining venture capital firms are based in various countries across the continent, including Armenia and Greenland. 

Of the firms that focus solely on venture capital as their investment strategy, those based in the UK have raised more capital than any other country over the last 10 years. These UK-based venture capital firms have garnered just under €9.5bn in aggregate capital commitments over the last decade. Despite France having less venture capital firms than Germany, French companies have managed to gather more capital. They have raised €5.6bn, whereas Germany-based firms have raised an aggregate €5.2bn over the last 10 years. 

One contributing factor to the fact that the UK has raised more capital for venture capital investment and has more venture capital firms than any other country in Europe could be the help of various national government schemes that create favourable conditions for such organisations to thrive in. The Business Growth Fund is an independent company set up in 2011 to help Britain’s smaller and medium-sized businesses. With BGF filling a funding gap for these companies along with various other enterprise schemes and tax breaks for investors in small firms, the UK is in solid position to lead the way in Europe’s venture capital landscape. 

However, venture capital activity in Europe has a long way to go to match the figures from before the financial crisis. In 2008 there were 96 venture capital funds raised which focused on Europe, garnering a total of €6.8bn. This contrasts starkly to 2013 when only 34 funds raised an aggregate €2.8bn, and so far in 2014 only three funds have closed raising a total of €200mn. 

The Europe-based venture capital firm that has raised the most capital in the last 10 years is Index Ventures. The firm is headquartered in Switzerland and over the last decade has raised €2.4bn in aggregate capital commitments. Index Ventures has a primary focus on investment opportunities in the technology and life sciences industries, and also an interest in green technology investments. Its initial investment focus is on series A and B rounds, with the firm also participating in follow-on investments at later stages.

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