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March 14, 2006
Q&A with Preqin About European VC Fundraising
We usually publish here about VC investment activity in tech firms, but in order for VCs to invest they have to raise money themselves from so-called limited partners or institutional investors, every five years or so. Since most European VCs raised their last funds in 1999/2000, it's time for them to raise new ones.
To get an idea of how much capital will be seeking deals this year and next, we turned to Private Equity Intelligence and to Tim Friedman who tracks funds in the market for the London-based research firm.
For entrerpreneurs looking to raise capital, it's a good bet to target VCs that have recently closed funds. Friedman obliges with the names of several names from across Europe.
How are European VCs faring with raising new capital?
Fundraising conditions for European VCs were tough in 2005, although it was an improvement on the extremely poor fundraising climate the industry witnessed back in 2004. There were around 40 funds that achieved a final close last year, raising an aggregate $6 billion, double the amount raised in 2004.
There were some notable closes in 2005, such as Mid-Europa’s second Emerging Europe Convergence Fund, which closed on €500 million. This is a generalist venture fund that will focus on telecommunications and infrastructure in Eastern Europe.
Swiss firm, Index Ventures closed Index Ventures III on €300 million. This fund will focus on a variety of technology, life science and healthcare related industries.
Can you give us some insight into particular countries?
Examining the European market by country, it was French-based venture funds that were the most numerous in 2005, with six French funds closing during the year. Nordic funds were also successful, with Norway and Denmark based GPs both raising 5 funds each. Of the funds that closed during 2005, the majority state that they will consider investments in a broad international region, such as the whole of Western Europe.
And regionally?
Of the funds that will be focusing on a specific region, there are a number that will focus on Scandinavia, such as the Norwegian based Four Seasons Venture V, and the Swedish based Brainheart Capital. 2005 also saw a number of funds closing that will focus on Eastern Europe, such as the Emerging Europe Convergence Fund II, the Delta Russian Fund, and Estonian based Matinson Trigon Venture Capital Fund.
What stage are the new raised funds targeting?
Of the venture funds closed in 2005, just below 25% will specifically focus on early stage investments. The largest of these funds is the €385 million fifth offering from French GP Sofinnova Capital Partners, which will focus on IT and life science sectors. Out of all the European early stage funds, three are based in France, and both the UK and Danish GPs raised two early stage funds each.
How is it looking for 2006?
We predict that 2006 will be another tough year for European VCs trying to gather commitments for new funds. Already this year has seen UK firm MTI put the fundraising efforts for its fifth fund on hold, citing the market conditions as off-putting for potential LPs.
With the recent boom in the European Buyout market, and with a lack of successful European venture exits, market conditions will remain difficult, especially for less established [VC] firms.
The net cashflow [returns] in the European market is poor compared to US and Rest of World venture markets, and there is a low stock of funds on the road currently seeking capital. We predict that fundraising in 2006 will remain similar to the levels seen in 2005, with around $4 - $6 billion being raised over the course of this year.
Posted on March 14, 2006 03:22 PM | Posted to Venture Capital | Permalink
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