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The State of European Venture Capital

Author: Michael Brigl and Heinrich Liechtenstein
Date: October 2015

The complaints are old and familiar. Returns on venture capital (VC) aren’t competitive with those of other asset classes. The investor mix is skewed far too heavily toward government entities whose main objective is to build up regional or national champions rather than to earn financial returns. The general partner (GP) landscape is opaque and highly fragmented, with many subscale VC funds.

Such criticisms have some foundation in fact. But a closer look at the European VC market reveals that many of the criticisms are based on outdated assumptions and incomplete information. In this report, The Boston Consulting Group and IESE Business School closely examine the health of the European VC ecosystem and pinpoint root causes of and potential responses to the private-investor shortage.

Our analysis is unavoidably constrained by the limited availability of data on deals, market participants, and entrepreneurs. Thomson ONE was our main source of information, supplemented with data from the European Investment Fund (EIF)—a public-private partnership that is majority owned by the European Investment Bank with 30 financial institutions as shareholders—as well as Preqin and Invest Europe, which was formerly known as the European Private Equity and Venture Capital Association. We also conducted more than 20 interviews with limited partners (LPs) in the public and private spheres, GPs managing VC funds and funds of funds, and entrepreneurs. Their insights helped us evaluate the the current VC market and develop suggestions for ways to make it more appealing to private-sector investors. A timely and efficient option is to ease the regulatory restrictions on private investors. Tax incentives for private investors offer an effective mechanism for encouraging the supply of funds. We conclude by describing the requirements of an interim solution that could mitigate the historical shortcomings of the European VC market and enable it to transition to a structure more responsive to private investors.

Geography: Europe

Type of study: Consulting research

Relevant for: LPs, GP VC, Fund of funds, Associate

Source: BCG Perspectives

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